On March 4, 2015, the US Supreme Court heard oral arguments in a federal court case entitled King v. Burwell that hinges on the interpretation of a six-word phrase (the “Six-word Phrase”) in the Affordable Care Act (“ACA”). The Six-word Phrase states the federal government can offer tax credits in the form of subsidies to help individuals pay for health insurance through “an Exchange established by the state.”
Under the ACA, Health Insurance Exchanges (online marketplaces where Americans can purchase affordable health insurance) can be state-operated or federally-operated. Sixteen states and the District of Columbia have established state-operated exchanges, leaving 34 states, including Florida, that are federally-operated. The Six-word Phrase has created conflicting interpretations among courts and the Internal Revenue Service (“IRS”) as to whether the tax credit extends only to individuals who purchase health insurance on state-operated exchanges or whether it extends to individuals who purchase health insurance on state-operated or federally-operated exchanges. The IRS implemented a regulation that extends the tax credit to all individuals who purchase health insurance on a Health Insurance Exchange, regardless of whether it is state-operated or federally-operated.
In King v. Burrell, the US Court of Appeals, Fourth Circuit, concluded the plain language in the Six-word Phrase is susceptible to multiple interpretations and deferred to the IRS’s interpretation. Thus, the lower appellate court held tax credits extend nation-wide to all individuals who purchase health insurance on Health Insurance Exchanges, regardless of whether they are state-operated or federally-operated. The decision sets forth the interpretation adopted by the Obama administration.
The US Supreme Court’s ruling will have significant impacts on the ACA. Supporters of the ACA believe if tax credits are only available in state-operated exchange states, 8.2 million Americans could lose their coverage under the ACA because without the subsidies, they will be unable to afford health insurance. Supporters also believe insurance rates could increase as much as 35% in states with federally-operated exchanges because insurance companies will likely increase premium prices.
It is unknown when a decision will be handed down by the US Supreme Court; however, cases heard in a particular session are typically ruled upon before the summer recess begins, which is the end of June.