Small Business Owners File Lawsuit Against IRS Over Obamacare “Power Grab”


Small business owners in states that did not establish healthcare exchanges in advance of the implementation of the Affordable Care Act will be harshly impacted by a recent rule enacted by the Internal Revenue Service. Some small business owners have filed a lawsuit in Federal court over it.

The Competitive Enterprise Institute (CEI) reports on a lawsuit filed by six small business owners and several individuals against the U.S. government, challenging the IRS rule.   The IRS rule seeks to provide tax credits to people in states that did not opt to create state healthcare exchanges under Obamacare.

CEI noted in a prepared statement last week:

“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.”

One effect of the lawsuit is to make sole proprietors subject to consequences they otherwise would not be subject to. For instance, Jacqueline Halbig, one of the plaintiffs, is a sole proprietor who says that under the IRS rule she would be subject to paying a penalty for her own coverage.  In the lawsuit she asserts she “will be forced to either pay a penalty or purchase more insurance than she wants.”

Chuck Willey, an MD who also is a plaintiff in the lawsuit, said in a statement through CEI: “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. 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 opted not to establish state healthcare exchanges.  Those states that have not established their own exchanges include Wyoming, Wisconsin, Virginia, West Virginia, Texas, Tennessee, South Dakota, South Carolina, Pennsylvania, Oklahoma, Ohio, North Dakota, North Carolina, New Jersey, New Hampshire, Nebraska, Montana, Missouri, Mississippi, Michigan, Maine, Louisiana, Kansas, Iowa, Indiana, Illinois, Georgia, Florida, Delaware, Arkansas, Arizona, Alaska, and Alabama.

The lawsuit is complex, but can be viewed here in its entirety.


Joshua Sophy Joshua Sophy is the Editor for Small Business Trends and the Head of Content Partnerships. A journalist with 20 years of experience in traditional and online media, he is a member of the Society of Professional Journalists. He founded his own local newspaper, the Pottsville Free Press, covering his hometown.

2 Reactions
  1. It’s overwhelming to see fellow small business owners in the US are struggling due to a new regulation. I don’t know whether the lawsuit will shake things up, but Obamacare or not, small biz need to survive no matter what.

    Let us try to be more creative and seek ways to keep our biz afloat – we should focus our energy on this, IMO…

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