Bombshell: Federal judge suddenly green-lights lawsuit that could stop Obamacare in its tracks

Small-business plaintiffs say the government is treating all 50 states the same even though Congress allowed them to opt out – and 36 did

The IRS is granting insurance subsidies to taxpayers in the 'refusenik' states, even though the text of the Obamacare law doesn't allow it

A federal judge denied the government's motion to dismiss the case on Tuesday

He also refused, however, to issue an injunction barring the Obama administration from implementing the law while the case moves forward



A federal judge on Tuesday refused to dismiss a case that could fatally cripple the Obamacare health insurance law.



The Affordable Care Act forbids the federal government from enforcing the law in any state that opted out of setting up its own health care exchange, according to a group of small businesses whose lawsuit got a key hearing Monday in federal court.

The Obama administration, according to their lawsuit, has ignored that language in the law, enforcing all of its provisions even in states where the federal government is operating the insurance marketplaces on the error-plagued Healthcare.gov website.



Thirty-six states chose not to set up their exchanges, a move that effectively froze Washington, D.C. out of the authority to pay subsidies and other pot-sweeteners to convince citizens in those states to buy medical insurance.

But the IRS overstepped its authority by paying subsidies in those states anyway, say the businesses and their lawyers.

Tea party conservatives have long pushed for an end to Obamacare, and the lawsuit might give them the victory they're after

The IRS has been offering tax incentives to citizens in all 50 states to get them to enroll in Obamacare, the plaintiffs say, although the Affordable Care act forbids it in the 36 states that have opted out. Without the subsidies, the employer mandate doesn't go into effect

The subsidies serve as a trigger that determines who has to comply with the now-famous individual and employer mandates. So, the lawsuit claims, the Obama administration illegally enforced the Affordable Care Act – suddenly making millions of taxpayers and small employers subject to paying fines if they don't play ball.

The Affordable Care Act authorizes subsidies only for policies purchased 'through an Exchange established by the State.'



A different section of the law empowers the federal government to set up its own exchanges for each state that chose not establish one.



But government lawyers have argued that 'Congress made clear that an exchange established by the federal government stands in the shoes of the exchange that a state chooses not to establish.'



The Treasury Department, they contend, 'has reasonably interpreted the Act to provide for eligibility for the premium tax credits for individuals in every state, regardless of which entity operates the exchange.'

But that amounts to the federal government ignoring the letter of the law, lawyer Sam Kazman says.



And 'without those subsidies, the employer mandate isn't triggered,' he told MailOnline.

And that could make the entire Obamacare system unsustainable.

Health and Human Services Secretary Kathleen Sebelius is the named defendant in the legal action, which claims her agency is ignoring 36 states' desire to opt out of enforcing the Affordable Care Act

Oops: President Obama appeared with 13 Obamacare supports Monday in the White House rose garden, but only three of them have actually enrolled in the health insurance exchanges

Kazman is general counsel for the Competitive Enterprise Institute, a free-market think tank that is coordinating the case.

Attorney Sam Kazman says the federal government is illegally subsidizing health insurance in all the states that chose not to set up their own health care marketplaces. And without the subsidies, the entire Obamacare system could fail

'The IRS cannot rewrite the law that Congress passed,' said Tom Miller, resident fellow at another think, the tank American Enterprise Institute.

'Its regulation expressly flouts the statutory text of the Affordable Care Act, the intent of Congress and the reasoned choices of [36] states.'



'The fiscal impact' of denying the Obamacare system millions of dollars in lost fines, 'while sizable, wouldn't be large enough to bring down the house,' Kazman added. The poltical one, however, is.'

'You'd have 34 "refusenik" states exempting their employers and many of their citizens from the employer mandate and portions of the individual mandate,' he explained.



'You'd have companies in participating states considering whether to move their operations' to states where they don't have to obey the Affordable Care Act. 'And you might even have some of those states seeking to undo their choice to participate.'

Headaches: The Obamacare website has suffered glitch after glitch since its October 1 launch, creating PR problems for the White House and practical problems for the HHS and IRS

The Competitive Enterprise Institute said in a statement that the IRS and the Department of Health and Human Services have pushed regulations that Congress didn't authorize, forcing some employers 'to cut back employees' hours' in order to dodge Obamacare's more economically challenging requirements, 'even though they are located in states that have refused to set up their own insurance exchanges.'

U.S. District Judge Paul Friedman refused to dismiss the case, as the government requested, but also denied the plaintiffs' request for a preliminary injunction that would prohibit the IRS and HHS from granting subsidies in what lawyer Kazman calls 'refusenik' states.

This Michigan company says complying with the Obamacare law is forcing it to let some employees go and trim others back to part-time hours to offset the cost of the employer mandate -- a provision that wouldn't kick in without the IRS subsidies

Judge Friedman said Tuesday that he will rule on the merits of the case by February 15.

By then the Obamacare law will be in full swing, nearing the end of its open enrollment period and providing health care services to Americans who sign up for coverage by December 15.

Kazman said his organization would 'take an immediate appeal to the U.S. Court of Appeals' in order to get a re-hearing on the motion for an injunction to stop the clock on Obamacare while the larger legal issues are worked out.

At the lawsuit's heart is a set of distinctions that Congress drew between the 14 states – 15 including the District of Columbia – that chose to establish health insurance exchanges and the 36 that opted out.

The plaintiffs, who all hail from 'refusenik' states, say the federal government has invalidated their state governments' choices.



Kazman said that the Obamacare statute does not empower the IRS or HHS to 'give subsidy funding to people in states not authorized by Congress to receive it. That move, he agreed, had he effect of 'gutting a choice – to participate in the exchange program or not – that states were given by Congress.'

The government is 'asking you to interpret "north" to mean "south,"' plaintiffs’ attorney Michael Carvin told Judge Friedman on Monday.

