Oklahoma ex rel. Pruitt v. Burwell

• Decision Date: 30 September 2014
• Docket Number: Case No. CIV–11–30–RAW.
• Citation: 51 F.Supp.3d 1080
• Court: U.S. District Court — Eastern District of Oklahoma
• Parties: State of OKLAHOMA, ex rel. Scott PRUITT, in his official capacity as Attorney General of Oklahoma, Plaintiff, v. Sylvia Mathews BURWELL, in her official capacity as Secretary of the United States Department of Health and Human Services; and Jacob J. Lew, in his official capacity as Secretary of the United States Department of the Treasury, Defendants.

51 F.Supp.3d 1080

State of OKLAHOMA, ex rel. Scott PRUITT, in his official capacity as Attorney General of Oklahoma, Plaintiff

v.Sylvia Mathews BURWELL¹ , in her official capacity as Secretary of the United States Department of Health and Human Services; and Jacob J. Lew, in his official capacity as Secretary of the United States Department of the Treasury, Defendants.

Case No. CIV–11–30–RAW.

United States District Court, E.D. Oklahoma.

Signed Sept. 30, 2014.

E. Scott Pruitt, Patrick R. Wyrick, Office of the Attorney General, Oklahoma City, OK, for Plaintiff.

Joel McElvain, Susan S. Brandon, U.S. Department of Justice, Muskogee, OK, for Defendants.

ORDER

RONALD A. WHITE, District Judge.

I. Introduction

Before the court are the cross-motions of the parties for summary judgment. This lawsuit is a challenge to a federal regulation. The Patient Protection and Affordable Care Act (“ACA” or “the Act”) regulates the individual health insurance market primarily through “Exchanges” set up along state lines. An Exchange is a means of organizing the insurance marketplace to help individuals shop for coverage and compare available plans based on price, benefits, and services.

Specifically, Section 1311(b)(1) of the ACA requires that “[e]ach State shall, not later than January 1, 2014, establish an American Health Benefit Exchange ... for the State.” See 42 U.S.C. § 18031(b)(1). This directive, however, runs afoul of the principle that Congress cannot compel sovereign states to implement federal regulatory programs. See Printz v. United States, 521 U.S. 898, 925, 117 S.Ct. 2365, 138 L.Ed.2d 914 (1997). The Act also provides, therefore, that states may choose not to establish such Exchanges. Oklahoma has so chosen. Under section 1321 of the Act, each state may “elect[ ] ... to apply the requirements” for the state exchanges, or if “a State is not an electing State ... or the [Health and Human Services] Secretary determines” that the State will fail to set up an Exchange before the statutory deadline, “the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State.” See 42 U.S.C. § 18041(b) -(c). (emphasis added).

Additionally, Congress authorized federal subsidies (in the form of tax credits) paid directly by the Federal Treasury to the taxpayer's insurer as an offset against his or her premiums. See 26 U.S.C. § 36B ; 42 U.S.C. § 18082(c). The Act provides that a tax credit “shall be allowed” in a particular “amount,” 26 U.S.C. § 36B(a), based on the number of “coverage months of the taxpayer occurring during the taxable year.” 26 U.S.C. § 36B(b)(1). A “coverage month” is a month during which “the taxpayer ... is covered by a qualified health plan ... enrolled in through an Exchange established by the State under section 1311 of the [ACA].” 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added). The subsidy for any particular “coverage month” is based on premiums for coverage that was “enrolled in through an Exchange established by the State under [section] 1311 of the ACA.” 26 U.S.C. § 36B(b)(2)(A) (emphasis added).

Further, the Act contains an “employer mandate.” This provision may require an “assessable payment” by an “applicable large employer” if that employer fails to provide affordable health care coverage to its full-time employees and their dependents. See 26 U.S.C. § 4980H(a) -(b). The availability of the subsidy also effectively triggers the assessable payments under the employer mandate, inasmuch as the payment is only triggered if at least one employee enrolls in a plan, offered through an Exchange, for which “an applicable premium tax credit ... is allowed or paid.” Id. Oklahoma contends it has standing in this case (among other reasons) because it constitutes an “applicable large employer” and the receipt of tax credits by any of its employees would trigger its liability for a penalty under that provision for failure to provide adequate coverage to those employees.

This contention arises because the Internal Revenue Service (“IRS”) has promulgated a regulation (the “IRS Rule”) that extends premium assistance tax credits to anyone “enrolled in one or more qualified health plans through an Exchange.” 26 C.F.R. § 1.36B–2(a)(1). It then adopts by cross-reference an HHS definition of “Exchange” to include any Exchange, “regardless of whether the exchange is established or operated by a State ... or by HHS.” 26 C.F.R. § 1.36B–1(k) ; 45 C.F.R. § 155.20. In other words, the IRS Rule requires the Treasury to grant subsidies for coverage purchases through all Exchanges—not only those established by states under § 1311 of the Act, but also those established by HHS under § 1321 of the Act. The IRS Rule is under challenge in this case, with plaintiff arguing that the regulation is contrary to the statutory language.

II. Justiciability

As a threshold matter, the court must address defendants' assertion that plaintiff's challenge to the regulation is not justiciable.² It is the plaintiff's burden to establish the court's subject matter jurisdiction by a preponderance of the evidence. Showalter v. Weinstein, 233 Fed.Appx. 803, 807 (10th Cir.2007). One branch of defendants' argument is that plaintiff lacks standing to sue.³ “Article III standing is a prerequisite to every lawsuit in federal court.” Bishop v. Smith, 760 F.3d 1070, 1088 (10th Cir.2014). “To establish Article III standing, a plaintiff must show: (1) that it has suffered a concrete and particular injury in fact that is either actual or imminent; (2) the injury is fairly traceable to the alleged actions of the defendant; and (3) the injury will likely be redressed by a favorable decision.”

Kerr v. Hickenlooper, 744 F.3d 1156, 1163 (10th Cir.2014).⁴ Defendants move for judgment on the grounds that (1) Oklahoma does not suffer an injury in fact from the regulation and (2) even if Oklahoma suffered an injury in fact, that injury would not be redressable here.

The Act's “assessable payments” under the employer mandate are only triggered if at least one full-time employee obtains a subsidy by purchasing insurance on an Exchange. 26 U.S.C. § 4980H(a)(2). Oklahoma has not established its own Exchange, and therefore state employees would not be eligible for subsidies if not for the IRS Rule. Accordingly, the State of Oklahoma would, if not for the IRS Rule, face no risk of incurring penalties under the employer mandate.

As a result of the IRS Rule, however, the State of Oklahoma's employees now are eligible for the subsidies. Plaintiff contends that, as an employer,⁵ it could face penalties if just one employee receives a federal subsidy. See 26 U.S.C. § 4980H(a), (c)(1). Plaintiff also contends that the Act imposes compliance costs. “At the summary judgment stage, the injury-in-fact element requires that the plaintiff set forth by affidavit or other evidence specific facts which for purposes of the summary judgment will be taken to be true.” Clajon Prod. Corp. v. Petera, 70 F.3d 1566, 1572 (10th Cir.1995).⁶

First, Oklahoma asserts that, as a result of the challenged regulations making credits and subsidies available in Oklahoma, the State will be forced to provide insurance to employees to whom it does not currently provide insurance, or be subject to enormous penalties. Defendants contend, and Oklahoma concedes, that Oklahoma already offers coverage to its state employees (and their dependents) pursuant to state law that meets the ACA's standards for “minimum value” and “affordability,” thus facing no Section 4980H liability for those employees. Oklahoma contends, however, that state law (and federal law prior to the ACA) does not require that the State offer that insurance to every “full-time employee,” as that term is defined in the ACA. Thus, according to Oklahoma's argument, it still faces a penalty for its failure to offer coverage to some employees whom it treats as part-time, but who (it contends) would be treated as full-time under Section 4980H. See 26 U.S.C. § 4980H(c)(4) (employee is full-time if he or she is employed on average at least 30 hours per week).

Oklahoma describes two categories of employees with respect to whom (it contends) it faces potential liability for the Section 4980H large employer penalty. First, it asserts it may be penalized for a failure to offer coverage to variable-hour Tourism, Parks and Recreation Department (TPR) employees who work fewer than 1600 hours over a twelve-month period. Second, Oklahoma alleges that it may face a penalty for a failure to offer coverage to “999 employees,” that is, employees for whom it does not know, at the time that they are hired, whether they will work for more than 1,000 hours over the first year of their service.

Defendants respond that Oklahoma is mistaken, principally because the regulations permit an employer to use a “look back” method of up to twelve months after the date of hire for newly-hired, variable hour employees, to determine whether those employees have averaged more than 30 hours a week over that period; only after that period (as well as an additional, optional 90–day administrative period) expires could those employees be treated as full-time for purposes of Section 4980H. Defendants cite 26 C.F.R. § 54.4980H–3(d)(1) & (d)(3) for this point. Oklahoma responds (in indisputable fashion): “Complexities permeate the final Section 4980H regulations describing the look-back method.” (# 94 at 12). Oklahoma then provides a lengthy defense of its calculations.

The court would, of course, step into this quagmire if it were necessary to resolve the standing question. The intricacies are such that it would likely require an evidentiary hearing during which the court could ask questions of the witnesses and counsel. In the court's view, such an inquiry is not necessary in this case, because standing has been established on another basis. For one thing, the look-back method is not self-executing. That is, compliance with the Act in general...