On June 25, the US Supreme Court issued a 6-3 opinion in King v. Burwell upholding the Affordable Care Act’s subsidy scheme. In its decision, the Court held that taxpayers who purchase coverage on any exchange created under the ACA, including the federal exchange, are eligible for tax credits under Section 36B of the Internal Revenue Code.
Chief Justice John G. Roberts wrote the majority opinion, and was joined by Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor and Elena Kagan. Justice Antonin Scalia wrote a vigorous dissent, in which Justices Clarence Thomas and Samuel A. Alito joined.
The decision upholding federal premium subsidies on the federal exchanges rebuffed one of the last significant legal challenges to the law and averted substantial disruption in the individual health insurance markets and the potential impact on the employer mandate. The decision preserves the ACA’s regulatory structure and is a big win for proponents of the law.
At issue was language in the ACA stating that tax credits would be allowed for any eligible taxpayer, but only if the taxpayer was enrolled in an insurance plan through “an Exchange established by the State.” The question before the Court was whether Congress intended to provide tax credits only to taxpayers in states that established their own exchanges, or if tax credits are available to taxpayers who receive coverage from the federal exchanges.
In its opinion, the Court declared that the tax credits are one of the ACA’s key reforms and whether they are available on federal exchanges is a question of deep “economic and political significance.” The Court viewed this as an extraordinary case and refused to defer to an IRS interpretation of the statutory language upholding subsidies on the federal exchanges. Instead, the Court said that its job was to determine the correct reading of the disputed phrase, “an Exchange established by the State.” The Court opined that when read in context, the text of the statute was ambiguous. This compelled the Court to look to the broader structure of the ACA to determine whether it could give meaning to the text that would produce a substantive effect compatible with the rest of the ACA. The Court rejected the challengers’ interpretation of the law because, according to the Court, such an interpretation would destabilize the individual insurance market in any state with a federal exchange and likely create death spirals that Congress designed the ACA to avoid.
The Court admitted that the challengers’ plain-meaning arguments were strong and required careful consideration, but held that the ACA’s “context and structure” compel the conclusion that the law allows tax credits for insurance purchased on any exchange created under the ACA. The Court went on to say that those credits are necessary to avoid the type of calamitous result that Congress plainly meant to avoid.
Now that the case has been decided, the IRS and the other agencies presumably will focus their efforts on resolving outstanding implementation issues, and employers should continue to focus on compliance efforts, particularly with respect to the new ACA reporting requirements that will require reporting beginning January 2016.