(Bloomberg) Indiana can challenge an Internal Revenue Service rule making people who sign up for health-care coverage under the Affordable Care Act through federal government-created insurance exchanges eligible for a tax credit.
U.S. District Judge William T. Lawrence in Indianapolis denied Tuesday an IRS bid to dismiss that portion of the state’s 2013 lawsuit, in which it claimed the rule illegally conflicts with a provision of the federal law limiting those tax credits to enrollees in state-created exchanges.
Lawrence’s ruling comes three weeks after U.S. appeals courts in Washington and in Richmond, Virginia, reached conflicting conclusions about availability of the subsidy for which about 4.5 million people have qualified. Indiana was one of the states that opted to not create an exchange.
In a 2-1 ruling in which the majority’s judges were appointed by Republican presidents, the Washington court deemed the IRS provision invalid, saying Congress authorized the subsidies only for state-exchange enrollees.
A three-judge panel comprising Democratic nominees in Richmond later that day said while the law’s language is ambiguous, the IRS had discretion in writing rules that implemented President Barack Obama’s 2010 health care reform legislation.
Neither decision has direct bearing on Indiana, which falls under the jurisdiction of the U.S. Court of Appeals in Chicago.
Lawrence, in his ruling, rejected U.S. contentions that Indiana and the 39 state public schools systems that joined it in the suit would suffer no harm from the rule.
Still, the 2008 nominee of Republican President George W. Bush threw out the state’s claim it may be compelled to comply with the coverage mandate even as Obama delayed that requirement to 2015.
The judge also rejected Indiana’s contention the mandate violated its sovereignty, ruling it—and 25 other states—lost that argument in the early stages of a 2010 Obamacare challenge that ended with the U.S. Supreme Court upholding the legislation as a valid exercise of Congress’s taxing authority.
Lawrence didn’t reach a final conclusion on whether the school districts could pursue such a claim.
In the most recent edition of its complaint, filed in December, Indiana claimed that if the law stands, it would be compelled to comply with its minimum coverage requirements and recognize as full-time employees workers it now classifies as less than full-time or pay a tax penalty.
That provision, the judge said, is triggered for employers when at least one of its full-time employees acquires insurance from an exchange and qualifies for the tax credit.
“If no federal subsidies are available in a state because the state has not established its own exchange, then employers in that state may offer their employees non-compliant insurance, or no insurance at all, without being exposed to any assessable payments under the ACA,” according to the state’s complaint.
Bryan Corbin, a spokesman for Indiana Attorney General Greg Zoeller, said in an e-mail that he couldn’t immediately comment on Lawrence’s decision. The U.S. Justice Department press office didn’t immediately respond to a phone message after regular business hours seeking comment on it.
The case is State of Indiana v. Internal Revenue Service, 13-cv-1612, U.S. District Court, Southern District of Indiana (Indianapolis).
—With assistance from Andrew Zajac in Washington.