State, schools sue U.S. government over Obamacare

Fifteen Indiana school districts and the state of Indiana have filed a lawsuit challenging the federal health care law and subsidies that are available to Hoosiers under rules set by the IRS.

If successful, the lawsuit could cost individual Hoosiers hundreds – even thousands – of dollars, although Attorney General Greg Zoeller said that’s not the goal.

The federal suit – filed against the Internal Revenue Service and several other agencies – also questions whether federal officials can impose an employer mandate and a tax penalty on state and local government.

“This case is about the fundamental relationship between the state and federal government,” said Zoeller, a Republican who is representing the state, the lead plaintiff in the case. He accuses the federal government of “overstepping its bounds that Congress set.”

“We’re a government,” he said. “We don’t pay taxes. We don’t fill out a tax form. Under what authority does Congress issue a tax penalty?”

The underlining argument in the case is complicated and it calls into question whether Hoosiers should qualify for federal tax breaks that are being used as subsidies to help Americans afford insurance. At issue are the health exchanges – essentially online marketplaces – where citizens who don’t have insurance through their workplaces can shop for coverage.

The suit says the Affordable Care Act – known as Obamacare – only authorized the tax breaks for people who purchase insurance through state-based exchanges, which Indiana doesn’t have. Former Gov. Mitch Daniels told federal officials last year that Indiana would not create its own exchange and left the job instead to the federal government. The federal marketplace opened for business last week.

But the Internal Revenue Service has since expanded the rules for federal subsidies so they are available to all qualified Americans who purchase insurance through an exchange, whether it’s run through the state or federal government, the suit says.

That will save Hoosiers money. But it could cost employers, according to the lawsuit.

That’s because the Obamacare law requires companies to pay penalties if they fail to provide minimum health coverage to employees – and at least one of those employees signs up through an exchange and receives the federal subsidy.

Under the law as written, no Indiana company could be subject to the penalty because the state doesn’t have an exchange and therefore employees couldn’t qualify for a subsidy, according to the lawsuit.

But as revised by the IRS, the health care program opens the subsidies to residents of all states – including Indiana – which also makes companies in the state subject to the penalties.

That affects private firms and nonprofit organizations but also government entities, Zoeller said. And Congress doesn’t have the authority to impose taxes or tax penalties on state or local governments, Zoeller said.

“We respect the United States Supreme Court’s ruling last year upholding the individual mandate to buy health insurance, but it did not address the recent IRS regulations extending the reach of the ACA’s employer mandate,” Zoeller said. “We contend the ACA improperly regulates sovereign states and does not authorize the IRS to do what it is doing in treating the state as a taxable entity.”

The suit also contends that the law’s requirement that employers offer health insurance to all employees who work at least 30 hours is onerous.

Those provisions have led schools to reduce the hours of employees that don’t currently receive benefits, including instructional aides, bus drivers, cafeteria workers, substitute teachers and other part-time employees, according to a statement released by the schools.

“The costly and burdensome employer mandate the IRS wrongly applies to government employers such as our school corporation interferes with our ability to efficiently manage our workforce,” said Martinsville Schools Assistant Superintendent Randy Taylor.

“We always strive to be good stewards of tax dollars in educating our community’s students, but our school corporation’s efforts are undermined by the IRS overstepping its bounds that Congress set,” he said. “As public servants who revere the Constitution, we join with the state in asking the federal court to correct the IRS’s overreach.”

The school districts are represented in the lawsuit by Bose McKinney & Evans, an Indianapolis law firm.

The school corporations involved in the suit:

— Benton Community School Corporation

— Community School Corporation of Eastern Hancock County

— John Glenn School Corporation

— Madison Consolidated Schools

— Metropolitan School District of Martinsville

— Monroe-Gregg School District

— Mooresville Consolidated School Corporation

— North Lawrence Community Schools

— Northwestern Consolidated School District of Shelby County

— Perry Central Community Schools

— Shelbyville Central Schools

— South Henry School Corporation

— Southwest Parke Community School Corporation

— Southwestern Jefferson County Consolidated School Corporation

— Vincennes Community School Corporation

This story will be updated.