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Fourth Circuit’s Liberty Ruling Deals a Hidden Blow to Obamacare

The opinions expressed by columnists are their own and do not necessarily represent the views of

Obamacare had a rough day in court yesterday. In Liberty University v. Lew, the Court of Appeals for the Fourth Circuit ruled against Liberty University’s challenge to various aspects of the law. One might think, as SCOTUSblog reported, this was a victory for the Obama administration. 

In the process, however, the Fourth Circuit undercut three arguments the administration hopes will derail two lawsuits that pose an even greater threat to Obamacare’s survival, Pruitt v. Sebelius and Halbig v. Sebelius

The plaintiffs in both Pruitt and Halbig claim, correctly, that Obamacare forbids the administration to issue the law’s “premium assistance tax credits” in the 34 states that have refused to establish a health insurance “exchange.” The Pruitt and Halbig plaintiffs further claim that the administration’s plans to issue those tax credits in those 34 states anyway, contrary to the statute, injures them in a number of ways. One of those injuries is that the illegal tax credits would subject the employer-plaintiffs to penalties under Obamacare’s employer mandate, from which they should be exempt. (The event that triggers penalties against an employer is when one of its workers receives a tax credit. If there are no tax credits, there can be no penalties. Therefore, under the statute, when those 34 states opted not to establish exchanges, they effectively exempted their employers from those penalties.)

The Obama administration has moved to dismiss Pruitt and Halbig on a number of grounds. First, it argues that those penalties are a tax, and the Anti-Injunction Act (AIA) prevents taxpayers from challenging the imposition of a tax before it is assessed. Second, the administration argues that the injuries claimed by the employer-plaintiffs are too speculative to establish standing. Third, shortly after announcing it would effectively repeal the employer penalties until 2015, the administration wrote the Liberty, Pruitt, and Halbig courts to argue that the delay should (at the very least) delay the courts’ consideration of those cases. In Liberty, the Fourth Circuit rejected all of those claims.

In discussing whether the “assessible payment” that the employer mandate imposes on non-compliant employers falls under the AIA, the court writes:

Because Congress initially and primarily refers to the exaction as an “assessable payment” and not a “tax,” the statutory text suggests that Congress did not intend the exaction to be treated as a tax for purposes of the AIA.

Furthermore, Congress did not otherwise indicate that the employer mandate exaction qualifies as a tax for AIA purposes, though of course it could have done so. As the Supreme Court pointed out in NFIB, 26 U.S.C. § 6671(a) provides that the “penalties and liabilities” found in subchapter 68B of the Internal Revenue Code are “treated as taxes” for purposes of the AIA. See NFIB, 132 S. Ct. at 2583. The employer mandate, like the individual mandate, is not included in subchapter 68B, and no other provision indicates that we are to treat its “assessable payment” as a tax. See id. (making the same point with regard to the individual mandate).

Finally, we note that to adopt the Secretary’s position would lead to an anomalous result. The Supreme Court has expressly held that a person subject to the individual mandate can bring a pre-enforcement suit challenging that provision. But, under the Secretary’s theory, an employer subject to the employer mandate could bring only a post-enforcement suit challenging that provision. It seems highly unlikely that Congress meant to signal–with two isolated references to the term “tax”–-that the mandates should be treated differently for purposes of the AIA’s applicability. Tellingly, the Government has pointed to no rationale supporting such differential treatment.

For these reasons, we hold that the employer mandate exaction, like the individual mandate exaction, does not constitute a tax for purposes of the AIA. Therefore, the AIA does not bar this suit.

It is worth mentioning that the Pruitt and Halbig plaintiffs aren’t even asking the courts to enjoin the collection of the penalties. The penalties are merely one of the injuries they suffer. The relief they seek is to block the illegal tax credits, without which no penalty can be assessed. But even if we pretend (as the government does) that they are trying to block the collection of a tax, the federal district courts for the Eastern District of Oklahoma (Pruitt) and the District of Columbia (Halbig) may now rely on the Fourth Circuit’s opinion in Liberty to reject the argument that the AIA applies to the employer mandate.

As in Pruitt and Halbig, the administration also argued that Liberty University could not challenge the employer mandate because the university hadn’t proved it would be assessed a penalty. The court responded:

[T]o establish standing, Liberty need not prove that the employer mandate will increase its costs of providing health coverage; it need only plausibly allege that it will.

Liberty’s allegation to this effect is plausible. Even if the coverage Liberty currently provides ultimately proves sufficient, it may well incur additional costs because of the administrative burden of assuring compliance with the employer mandate, or due to an increase in the cost of care.

Finally, the Fourth Circuit rejected the administration’s argument that the delay of the employer mandate should delay challenges to the mandate:

Liberty’s injury is imminent even though the employer mandate will not go into effect until January 1, 2015, as Liberty must take measures to ensure compliance in advance of that date.

If anything the delay may increase the likelihood that the Pruitt and Halbig employer-plaintiffs will establish standing. In response to the government’s employer-mandate-delay argument in Pruitt, Oklahoma’s solicitor general argued that the delay actually validates the State of Oklahoma’s claim that it is injured by the mandate:

The federal government’s decision to delay implementation of the reporting and other regulatory requirements it seeks to impose on large employers in Oklahoma confirms what the State has been saying all along: those reporting and other requirements are burdensome, onerous, and injurious to it and every other large employer in the state. In fact, the IRS has justified the delay by noting that large employers nationwide are finding it impossible to understand and comply with the baffling array of new requirements…

The State has argued it has standing in this case as a result of having to comply with the very reporting and other requirements that caused this delay. Despite having apparently known about the severity of the problems for “several months,” to this Court the federal government has downplayed the burden imposed by those reporting requirements, and has argued that those requirements do no harm to large employers like the State. Now, however, they have publically acknowledged that the requirements are so “complex” that large employers need a full year to figure out how to comply. The delay is at least an implicit admission by the federal government that the reporting requirements and other large employer mandate requirements are in fact injuring large employers such as the State.

So the administration could find that its employer-mandate delay has the opposite of the desired effect.

In sum, the administration threw everything it had at Liberty, but still couldn’t prevent Liberty University’s challenge to the employer mandate from reaching the merits. That’s very good for Pruitt, Halbig, and taxpayers, but very bad for Obamacare. 


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