ObamaCare faces another challenge in federal court

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Another trip to federal court for ObamaCare

Lawsuit over IRS regulation stemming from health care law

The Affordable Care Act faced another legal challenge Tuesday in federal court, as a group of business owners and individuals pushed back against an IRS regulation they say is both unlawful and potentially crippling.

The regulation, which stems from the ACA, defines which applicants are eligible for subsidies in connection with obtaining health care coverage. It's a significant distinction, because those subsidies trigger massive employer and individual obligations in the states where they are awarded.

The plaintiffs in Halbig v. Sebelius say the plain text of the ACA, also known as ObamaCare, limits subsidies to applicants in states that have set up their own exchanges.

"Congress figured because it was loading up the state exchanges with a lot of goodies that just about every state would make the choice to participate,” said Sam Kazman, general counsel for the Competitive Enterprise Institute.

The administration was "unpleasantly surprised" when dozens of states "said thanks, but no thanks," Kazman said. He believes the IRS is acting in concert with the administration to extend those attractive subsidies to all states – including those that opted out, an interpretation which gives rise to both employer and individual mandates and penalties – critical to helping fund the ACA.

The government, which lost its bid to have the case dismissed, argues that the plaintiffs are misreading the statute.

"The plaintiffs' reading of the act is wrong," the Department of Justice argued in its motion to dismiss filing. "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."

U.S. District Judge Paul Friedman had plenty of tough questions for both sides Tuesday, including just how far – and where – he should go to look for more information about what Congress actually intended.

The plaintiffs say it's simple: the text of the law. The government argues it would be nonsensical to read the provision literally and out of context with the overall intention of the law.

Friedman pledged to get the parties a quick ruling, but offered no timeline.