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Philip Klein: Oklahoma takes center stage in Obamacare fight

Oklahoma Legisature Fallin
Oklahoma Gov. Mary Fallin has rejected the expansion of Medicaid under Obamacare's umbrella. (AP Photo/Sue Ogrocki)

A growing number of Republican-led states have begun to accept the reality of President Obama's health care law. But not Oklahoma. Instead, the Sooner State has taken a central role in the ongoing fight against Obamacare.

In the past several weeks, prominent Republican Govs. John Kasich in Ohio and Chris Christie in New Jersey have opted to expand Medicaid under the health care law. Even Florida Gov. Rick Scott, who built his political career on opposition to Obamacare and runs a state that fought the Medicaid expansion at the Supreme Court, has jumped onboard. But Oklahoma Gov. Mary Fallin has rejected the expansion, and her state is leading a legal challenge involving another major provision of the law.

In 2011, Cato Institute health policy director Michael Cannon and Case Western Reserve University law professor Jonathan Adler observed what they first described as a "glitch" in Obamacare involving the central mechanism by which the law seeks to expand coverage -- government-run insurance exchanges.

Under the law, if states choose not to set up their own insurance exchanges, then the federal government steps in to set up a federal exchange. But here's the catch -- the text of Obamacare stipulates that the subsidies (valued at about $1 trillion over a decade) apply to state-based exchanges, but not to exchanges run by the federal government.

With 26 states having made the decision to default to a federal insurance exchange -- set to be fully operational by next January -- this is now a very pressing legal question. The Internal Revenue Service has ruled, despite the text of the law, that the subsidies should apply regardless of whether the exchange is a state or federal one. But Oklahoma challenged that ruling last September in the Eastern District of Oklahoma.

"We are very bullish on the merits of that case," Oklahoma Attorney General Scott Pruitt said during a visit with The Washington Examiner. "We've had private plaintiffs join us. It's been fully briefed. ... It's all about black-letter law. It's all about the IRS not respecting what Congress said and doing something inconsistent with what the statute said."

To succeed, Oklahoma would have to show that it has standing to challenge the IRS rule.

"Our argument is that Congress vested the state of Oklahoma with a decision to make, and the decision was whether to adopt a state health care exchange, and there are consequences to that," he said. "If we choose one path, certain things happen. If we choose another path, certain things happen, so that's a sovereign decision that Congress said that as a state Oklahoma had the authority to make."

He continued, "The IRS, by virtue of the rule, has taken that decision away. They said, 'It doesn't matter what you use. We're not going to acknowledge or recognize the difference between the state and federal exchange.' So that goes to the heart of what we face in the federalism space."

The argument for businesses to have standing is that there are certain penalties associated with not providing health insurance to workers if at least one of the workers receives federal subsidies to purchase insurance on an exchange. But if the exchange is a federal one and the worker therefore isn't entitled to such subsidies, then the business shouldn't be assessed a penalty.

Skeptics have dismissed the suit by arguing that there's no conceivable way Congress could have intended for the subsidies to apply only to state-based exchanges. But Cannon has argued that the authors of law were faced with a problem. They couldn't get a bill through the Senate that created a national exchange, but the federal government couldn't force states to create exchanges. So, he contends, they made sure that subsidies applied only to state-based exchanges as a way of pushing states to create their own.

Given Chief Justice John Roberts' proven willingness to rewrite a statute in order to save it -- as he did by ruling that Obamacare's individual mandate is a tax -- the suit still faces long odds. But if it succeeds, it would strike a blow at the heart of Obamacare, and opponents of the law would have Oklahoma to thank.

Philip Klein (pklein@washingtonexaminer.com) is a senior editorial writer for The Washington Examiner. Follow him on Twitter at @philipaklein.