Small Business Owners Sue Over IRS Obamacare Power Grab

WASHINGTON, D.C., May 2, 2013 – A group of small business owners (and individuals) in six states today are suing the federal government over an IRS regulation imposed under the Affordable Care Act (Obamacare), which will force them to pay exorbitant fines, cut back employees’ hours, or severely burden their businesses. Complaint can be viewed here.

The Affordable Care Act authorizes health insurance subsidies to qualifying individuals in states that created their own healthcare exchanges. Those subsidies trigger the employer mandate (a $2,000/employee penalty) and expose more people to the individual mandate.  But last spring, without authorization from Congress, the IRS vastly expanded those subsidies to cover states that refused to set up such exchanges.  Under the Act, businesses in these nonparticipating states should be free of the employer mandate, and the scope of the individual mandate should be reduced as well.  But because of the IRS rule, both mandates will be greatly enlarged in scope, depriving states of the power to protect their residents.

Michael Carvin, partner at Jones Day, who co-argued the Supreme Court Obamacare cases in March 2012 and who represents the plaintiffs in this lawsuit, stated: “The IRS rule we are challenging is at war with the Act’s plain language and completely rewrites the deal that Congress made with the states on running these insurance exchanges.”

“Agencies are bound by the laws enacted by Congress,” said Sam Kazman, general counsel of the Competitive Enterprise Institute (CEI).  “Obamacare is already an incredibly massive program.  For the IRS to expand it even more, without congressional authorization and in a manner aimed at undercutting state choice, is flagrantly illegal.”  CEI is coordinating the lawsuit.

The plaintiffs are filing suit for a number of reasons.  One business can only afford to employ some full-time workers without providing health insurance, another wants to convert its employee health insurance to a completely consumer-driven health plan, and several individual plaintiffs (most of them self-employed) object to paying for costly insurance packages that they neither need nor want.

“Contrary to the clear language in the Affordable Care act, government is directly impeding my ability to design a quality affordable health plan for my employees,” said Chuck Willey, M.D., one of the plaintiffs and head of Innovare Health Advocates in St. Louis, Missouri.  “The IRS will extra-legislatively extend this onerous benefit requirement (which will increase premiums and costs of care) and impose the employer penalty in states with federally-run exchanges. I maintain the right to choose my own employees' health plan without government intervention into its benefit design and without penalty.”

Thirty-three states have exercised their congressionally-created option to not create an exchange in order to spare their businesses from the employer mandate. The IRS rule, however, deprives them of this choice.

“The IRS cannot rewrite the law that Congress passed,” said Tom Miller, resident fellow at the American Enterprise Institute. “Its regulation expressly flouts the statutory text of the ACA, the intent of Congress, and the reasoned choices of 33 states.”

“The Obama administration plans to tax, borrow, and spend more than half a trillion dollars in clear violation of Obamacare, yet still says Obamacare is ‘the law of the land,’ said Michael Cannon, director of health policy at the Cato Institute. “The courts should stop the administration before it starts imposing these illegal taxes on millions of individuals and employers in January.”

This legal complaint, available here in pdf, seeks to strike the illegal IRS rule, arguing that the agency has no power to rewrite an essential part of the law. The suit is being filed in federal court in the District of Columbia.

>> View the complaint

>> For updates on the case, visit