News From Terre Haute, Indiana

October 9, 2013

SW Parke joins state in lawsuit

Suit filed against IRS over health care act

Sue Loughlin
The Tribune-Star

TERRE HAUTE — Southwest Parke Community School Corp. is one of 15 Indiana school districts that has joined the state of Indiana in a lawsuit involving the Affordable Care Act.

The lawsuit against the Internal Revenue Service alleges the IRS has overstepped its authority in imposing “employer mandate” regulations on state and local governments under the federal health care overhaul.

For school districts, at issue is the ACA’s mandate that employers provide health insurance to all employees who work more than 30 hours per week. Those employees are considered “full-time” under the law (but part-time by the school district).

School corporations who employ part-time workers — such as instructional aides, bus drivers and cafeteria workers — are having to reduce the hours of non-benefit-eligible employees to avoid financial penalties, according to Attorney General Greg Zoeller.

At Southwest Parke, instructional aides and cafeteria workers have been affected, and their hours must be cut, said Leonard Orr, the district’s superintendent.

“Southwest Parke cannot otherwise afford to provide health insurance for these employees,” the lawsuit states. “This change directly impacts the delivery of educational services to the students of Southwest Parke, including students with learning disabilities.”

The school district joined the lawsuit because cutting employees’ hours will have an adverse impact on students. “We don’t feel it’s right,” Orr said. “We’ve had to move people around to cover our bases when we don’t feel we should have to do this.”

The school districts participating in the lawsuit are represented by Bose, McKinney & Evans. Jim Hamilton, a Bose McKinney attorney who works with Southwest Parke, said, “There is tremendous concern the employer mandate will impact the quality of education in Indiana.”

Throughout the state, public schools have had to make the “awful decision” to reduce hours of part-time employees so they don’t work more than 30 hours per week, Hamilton said.

“This has real consequences,” especially when it involves instructional aides who work with special-needs children, Hamilton said. In joining the lawsuit, several school districts “decided this was the right thing to do.”

The Vigo County School Corp. may consider joining the lawsuit, according to Superintendent Dan Tanoos, but that would be a school board decision.

In April, Tanoos spoke during an IRS hearing in Washington, D.C., about the “catastrophic” impact of ACA on school districts, under current IRS rules.

Many school districts were already planning to make the cutbacks in hours, but in July, the Obama administration announced a one-year delay, until January 2015, in the requirement that employees with more than 50 full-time workers offer health benefits to full-time employees or pay a penalty.

Orr said hours of part-time workers were at first cut last year, but with the one-year delay, those hours were restored for this school year. Now, the cuts must be reinstituted after fall break because the federal government looks back one year to determine employees’ work hours.

Employees whose hours are cut will not lose pay, Orr said. Instead, the district will raise those employees’ hourly rates to compensate.

In the lawsuit, the state and school districts contend the federal health care law does not allow financial penalties in states that didn’t create their own online marketplaces, from which people can buy insurance. Such states instead ceded that task to the federal government.

The lawsuit also contends that the IRS can’t impose the “employer mandate” requirements of the law on state and local governments.

Zoeller said in a statement that a key issue is whether the federal government, through the IRS, can treat the state and its political entities “as taxable entities like private businesses.” The plaintiffs contend IRS can’t do that and that the agency’s rules violate both the Constitution’s 10th Amendment and the federal Administrative Procedure Act.

The suit says that the IRS rules will force state and local governments, including school districts, to reduce some part-time employees’ hours to avoid tax penalties.

“It’s very unfortunate that by unconstitutionally interfering with our state personnel policy, the IRS has caused hardship not only to the state but to a number of our state employees who will see their hours reduced through no fault of their own,” Zoeller said in a statement.

The state’s suit asks the federal court to issue an injunction blocking the IRS regulations and any resulting tax penalties from being imposed on the state and school corporations.

The plaintiffs also want the federal court to issue a declaratory judgment that finds unconstitutional and void IRS regulations and related tax reporting and other requirements.

In May, Tanoos said that providing health insurance to VCSC noncertified staff (including instructional assistants, bus drivers and cafeteria workers) would cost $6 million to $8 million more per year, money the district doesn’t have.

If the district were to pay the fine for not providing the insurance, it would cost $3 million to $4 million more per year, he said at the time.

The Associated Press contributed to this report.

Sue Loughlin can be reached at 812-231-4235 or

What to know

• Indiana and 15 school districts sued the Internal Revenue Service on Tuesday, challenging new IRS regulations arising from the new federal health care law they allege imposes a costly “employer mandate” on local school districts. The school districts allege the Affordable Care Act does not allow financial penalties in states like Indiana that did not create their own health insurance exchanges under that law.