Health and Human Services Department (HHS) Secretary Kathleen Sebelius


A judge on the U.S. District Court for the District of Columbia refused to dismiss Halbig v. Sebelius, a major challenge to Obamacare, on Tuesday.

The lawsuit, filed by a number of small business owners in six states, challenges an IRS regulation that would apply the employer mandate tax penalty ($2,000 per employee per year) even in states that refuse to set up Obamacare exchanges.

The lawsuit alleges that the IRS regulation violates the Administrative Procedure Act because it flatly contradicts the plain language of the law. The law says unambiguously that the Department of the Treasury can provide premium support to those enrolled in state exchanges. But nowhere in the law does it say that those enrolled in federal Obamacare exchanges can obtain premium support.

Yet the IRS issued a rule saying that tax credits were available to residents of states that declined to establish their own exchanges. Under the rule, since premium support payments would be available in those states, individuals and certain employers in those states would be subject to the Obamacare coverage requirements and tax penalties for failure to comply.

The Obama Department of Justice had moved to dismiss this lawsuit, arguing that the IRS rule was a valid exercise of statutory authority.

The judge will rule on the merits some time before February 15 (the day when the small business owners would begin paying the employer mandate tax penalty).

This lawsuit is important for four reasons:

  1. It represents yet another attempt by the Obama Administration to smooth over Obamacare implementation problems by ignoring the plain language of the law itself.
  2. It adds to the dozens of cases against Obamacare a nonconstitutional challenge that even judges unfriendly to religious liberty or economic freedom can understand. The lawsuit is similar to one filed by the attorney general in Oklahoma.
  3. It demonstrates the damage that Obamacare can do to constitutional federalism principles.
  4. It threatens a core part of Obamacare that is necessary for the entire scheme to be workable.

This last point is particularly important. As Professor Jonathan Adler notes over at the Volokh Conspiracy blog:

Supporters of the IRS rule claim that Congress could not have intended that Americans in dozens of states would be unable to obtain tax credits to help them purchase insurance. They’re right. Congress intended for every state to create its own exchange, as [Obamacare] supporters said time and again, but states refused. Now that their assumption has been proven wrong, this does not provide an excuse to rewrite the plain statutory text.

Indeed, ignoring the plain language of a statute has become a hallmark of Obamacare implementation, which makes citizen lawsuits all the more important in checking the imperial presidency.