Oklahoma Judge Rules Against ACA Federal Exchange Subsidies

Author: Gloria Ju

October 2, 2014

An Oklahoma federal judge ruled Tuesday in State of Oklahoma v. Burwell that Affordable Care Act (ACA) premium subsidies are illegal for individuals who purchase health insurance coverage through the federal exchange. The State of Oklahoma challenged an Internal Revenue Service (IRS) rule granting subsidies for coverage purchased through an exchange, whether established by the federal government or a state. It argued that the rule is contrary to a literal reading of the ACA limiting the availability of subsidies to coverage purchased through a state exchange.

The judge called the IRS rule "arbitrary, capricious, an abuse of discretion or otherwise not in accordance with the law..." He also wrote, "Congress is free to amend the ACA to provide for tax credits in both state and federal exchanges, if that is the legislative will." The ruling is stayed pending appeal.

In July, a three-judge panel of the US Circuit Court of Appeals for the District of Columbia Circuit issued a similar ruling in Halbig v. Burwell. On the same day, the 4th Circuit Court of Appeals upheld the IRS rule in King v. Burwell. In September, however, the DC appeals court vacated Halbig, deciding the full court will rehear the case in December.

Oklahoma chose not to establish a state exchange. It contended it had standing in this case because, among other reasons, it constituted an applicable large employer subject to the ACA's employer shared responsibility mandate (also known as the employer, or pay or play, mandate) and, if any of its employees received the subsidy, it could face penalties for failing to provide adequate health care coverage to those employees.

"Today's ruling is a huge win for Oklahoma, but it's just a first step," said Oklahoma Attorney General Scott Pruitt, who brought the lawsuit. "Since Oklahoma filed the first lawsuit in 2012, others have followed our lead and made similar claims in other jurisdictions. It's likely this issue will ultimately be decided by the US Supreme Court. We look forward to making our case and continuing the effort to hold federal agencies accountable to their duty to enforce the laws passed by Congress."