Not a Lexis+ subscriber? Try it out for free.

ACA and Healthcare Reform

Judge Finds Indiana, School District Employers Allege Injury Under ACA

INDIANAPOLIS — (Mealey’s) A state and 39 school districts challenging the legality of payments imposed on large employers under the Internal Revenue Services’ implementation and interpretation of Patient Protection and Affordable Care Act (ACA) regulations allege an addressable injury in fact, an Indiana federal judge held Aug. 12 (State of Indiana v. Internal Revenue Service, et al., 13-1612, S.D. Ind. [Enhanced opinion available to subscribers]).

(This story is an excerpt from Mealey's Affordable Care Act Report.  For information on how to subscribe to this new monthly report, please contact your LexisNexis account representative or call 800-223-1940.) 

The State of Indiana and 39 of its school corporations sued the Internal Revenue Service and others over the implementation of the ACA.  The plaintiffs argued that they qualified as large employers under the ACA and thus needed to provide minimum essential coverage under the law to all full-time employees or face “shared responsibility payments.”  The plaintiffs alleged that because they defined “full-time employee” differently from the ACA, the law required them to offer insurance to employees working part-time. 

The plaintiffs allege that by not creating an exchange, Indiana intended to insulate employers from the employer mandate.  The plaintiffs claim that ACA tax credits are available only to individuals who receive insurance through state exchanges and, thus, there should be no consequence to large employers whose employees receive insurance through the federal exchange. 

In addition to the IRS, the plaintiffs named the U.S. Department of Treasury, the U.S. Department of Health and Human Services, the U.S. Department of Labor and Secretaries Thomas Perez, Sylvia Burwell, Jacob Lew and Daniel Werfel. 


The plaintiffs argue that the IRS had improperly interpreted the ACA in regulations so that “state exchange” includes the federal exchange. 

The government moved to dismiss the action. 

U.S. Judge William T. Lawrence of the Southern District of Indiana granted the motion in part. 

In finding that the plaintiffs allege injury in fact, Judge Lawrence rejected the government’s contention that its regulations actually apply to individual taxpayers and not employers.  This view “is too narrow,” Judge Lawrence said.  The plaintiff employers are not third parties but are directly regulated by the ACA, and the related regulations affect how the ACA applies to them, Judge Lawrence said. 


Judge Lawrence also rejected the government’s claim that the plaintiffs cannot demonstrate injury because whether they owe shared responsibility payments is dependent on the employees’ decision to obtain insurance.  This ignores that the ACA also imposes an individual mandate, a “critical part of the ACA,” Judge Lawrence said. 

“The affected employees’ decisions whether to obtain health insurance is not ‘unfettered;’ at least some of them will be required by the ACA to obtain health insurance or face financial consequences of their own.  And the court in this case easily can predict that it is substantially likely that at least one of those employees will comply with the individual mandate,” Judge Lawrence said. 

Judge Lawrence also found that the suit could remedy the alleged injury and called the government’s contention that the plaintiffs could not challenge the collection of taxes a “tortured” reading of 26 U.S. Code Section 4980H(d)(3). 

10th Amendment 

Addressing the plaintiffs’ claims that the employer mandate violates the U.S. Constitution’s 10th Amendment as applied, Judge Lawrence said res judicata bars Indiana from asserting such a claim. 

Indiana was part of a Florida action raising these same issues and whose outcome was decided by the U.S. Supreme Court in National Federation of Independent Business v. Sebelius (132 S. Ct. 2566 [2012)] (NFIB) [enhanced opinion].  The result in NFIB does not constitute the type of momentous change in the law that would allow Indiana to pursue the same claim here, Judge Lawrence said. 

However, the school district plaintiffs were not a party to the Florida action and thus are not barred by NFIB, Judge Lawrence said.  Judge Lawrence rejected the government’s claim that the school districts shared privity with Indiana and that the school district’s 10th Amendment rights arise from those of the state.  The accuracy of the government’s claim “is not clear” and the issue would benefit from oral arguments, Judge Lawrence said. 

Thomas M. Fisher and Ashley Tatman Harwel of the Office of the Attorney General in Indianapolis represents the plaintiffs, with Winthrop James Hamilton and John Zhi Huang of Bose, McKinney & Evans in Indianapolis.  Joel Lunsford McElvain of the U.S. Department of Justice in Washington, D.C., represents the government with Shelese M. Woods of the U.S. Attorney’s Office in Indianapolis.

For all of your legal news needs, please visit subscribers may search all Mealey Publications.

Non-subscribers may search for Mealey Publications stories and documents at or visit

Mealey's is now available in eBook format!

For more information about LexisNexis products and solutions, connect with us through our corporate site.