Oklahoma was the first state to issue a legal challenge, but it was soon followed by Indiana and then by individuals and businesses in Virginia and the District of Columbia. At issue is the wording of the Affordable Care Act (ACA), which states in section 1311 that health insurance subsidies are available only if policies are purchased through state insurance exchanges set up under the ACA.
Writes Oklahoma Attorney General E. Scott Pruitt, "Congress was exceedingly clear that tax credits and subsidies are available to people whose plans 'were enrolled in through an exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act'."
Offering subsidies and tax credits through state exchanges was an inducement Congress employed to get states to establish Obamacare marketplaces since the federal government had no constitutional authority to order their establishment, according to Pruitt. Only 14 states chose to establish their own exchanges (or marketplaces, as they've come to be called), and thus Oklahoma and others in non-marketplace states are suing the Internal Revenue Service (IRS) over section 1311.
Ditto for business tax penalties for not providing health insurance to employees: The lawsuits contend that the IRS has no authority in the 36 federal marketplace states either to issue tax credits or to impose tax penalties because of the wording of section 1311. The administration counters that the intent is there for federal subsidies and tax penalties as well, even in the absence of a state exchange. The lawsuits seek to force the administration to prove its power to do so through wording in the ACA or to cease until it amends the law.
(In fact, a federal judge in the District of Columbia is considering one such challenge today, Dec. 3.)
Obamacare supporters point to ACA section 1401, which states that the Health and Human Services (HHS) Secretary “shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary.”