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Obama Healthcare Law Challenged in Suit Over Tax Subsidy

Opponents of the Obama administration’s health-care overhaul sued the U.S. over an Internal Revenue Service rule that extends tax subsidies to individuals in states that declined to set up insurance exchanges authorized under the law.

The individual subsidies by law were supposed to be available only in states that had agreed to set up insurance exchanges as clearinghouses for the purchase of medical coverage, according to a complaint filed today in federal court in Washington.

By providing the subsidies in the 33 states that declined to set up exchanges, the healthcare overhaul, known as the Affordable Care Act, makes insurance “less unaffordable,” according to the complaint. It subjects some people to “a requirement to purchase costly, comprehensive health insurance that they otherwise would forgo,” the plaintiffs claimed.

At the same time, the extension of the allegedly unlawful subsidies triggers financial penalties against some businesses that don’t offer employees health coverage, according to the complaint.

The lawsuit was filed by seven individuals and businesses from seven states that have opted not to set up their own insurance exchanges. The federal government will operate exchanges in states opting out of establishing their own.

The case is Halbig v. Sebelius, 13-cv-00623, U.S District Court, District of Columbia (Washington).

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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