WASHINGTON (Legal Newsline) — A group of small business owners last week filed suit against the federal government over an IRS regulation imposed under the Patient Protection and Affordable Care Act, arguing it will force them to pay exorbitant fines, cut back employees’ hours and otherwise severely burden their businesses.

Plaintiffs Jacqueline Halbig, David Klemencic, Carrie Lowery, Sarah Rumpf, Innovare Health Advocates, GC Restaurants SA LLC, Olde England’s Lion & Rose LTD, Olde England’s Lion & Rose at Castle Hills LTD, Olde England’s Lion & Rose Forum LLC,  Olde England’s Lion & Rose at Sonterra LTD, Olde England’s Lion & Rose at Westlake LLC and Community National Bank filed their 14-page complaint Thursday in the U.S. District Court for the District of Columbia.

Halbig is a resident of Virginia, which has opted not to establish its own insurance exchange. She derives her income from her one-woman consulting practice.

Klemencic is a resident of West Virginia, which has opted not to establish its own exchange. He derives his income from Ellenboro Floors, his sole proprietorship.

Lowery is a resident of Tennessee, which has opted not to establish its own exchange. She is a freelance legal researcher.

Rumpf is a resident of Texas, which has opted not to establish its own exchange. She works as a public-relations consultant.

Innovare Health Advocates is an internal medicine practice headquartered in Missouri, which also has opted not to establish its own exchange. It has 55 full-time employees.

GC Restaurants SA LLC, Olde England’s Lion & Rose LTD, Olde England’s Lion & Rose at Castle Hills LTD, Olde England’s Lion & Rose Forum LLC, Olde England’s Lion & Rose at Sonterra LTD, and Olde England’s Lion & Rose at Westlake LLC are Texas limited liability companies or limited partnerships.

Community National Bank is an association headquartered in Kansas, which also has opted not to establish its own insurance exchange. The bank employs about 80 full-time employees.

The named defendants in the suit are: Kathleen Sebelius, secretary of the U.S. Department of Health and Human Services; Jacob Lew, secretary of the U.S. Department of the Treasury; Steven Miller, acting commissioner of Internal Revenue Service; the DHHS; the Department of the Treasury; and the IRS.

The PPACA, which was signed into law in 2010, authorizes health insurance subsidies to qualifying individuals in states that created their own health care exchanges.

The plaintiffs in the suit argue that last spring, without the authorization of Congress, the IRS vastly expanded those subsidies to cover states that refused to set up such exchanges.

They contend that under the law, businesses in these nonparticipating states should be free of the employer mandate — a $2,000/employee penalty — 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, they argue.


“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,” Michael Carvin, partner at Jones Day and who represents the plaintiffs in the lawsuit, said in a statement last week.

Carvin co-argued National Federation of Independent Business v. Sebeliusbefore the U.S. Supreme Court last year. The nation’s high court, in its June decision, upheld the constitutionality of most of the PPACA.

Sam Kazman, general counsel for the Competitive Enterprise Institute, or CEI, argues that agencies are bound by the laws enacted by Congress. CEI is coordinating the federal suit.

“Obamacare is already an incredibly massive program,” he said in a statement last week. “For the IRS to expand it even more, without congressional authorization and in a manner aimed at undercutting state choice, is flagrantly illegal.”

One business claims it 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 they neither need nor want.

The plaintiffs’ complaint seeks to strike the IRS rule, arguing that the agency has no power to rewrite an essential part of the law.

Read the full complaint here.

“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, head of Innovare Health Advocates in St. Louis, Mo.

“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 plaintiffs’ complaint states.

“The IRS cannot rewrite the law that Congress passed,” said Tom Miller, resident fellow at think tank American Enterprise Institute.

“Its regulation expressly flouts the statutory text of the ACA, the intent of Congress and the reasoned choices of 33 states.”

Michael Cannon, director of health policy at the CATO Institute, another think tank, argues that the courts should stop the Obama administration before it starts imposing such “illegal” taxes on millions of individuals and employers.

“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,’” he said in a statement.

From Legal Newsline: Reach Jessica Karmasek by email at jessica@legalnewsline.com.


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