More than six million Americans enrolled in health benefit Exchanges established by the Federal Government will retain their tax subsidies for purchasing health insurance following the United States Supreme Court’s 6-3 decision in King v. Burwell, announced June 25, 2015. In brief, the Supreme Court ruled that a section of the Patient Protection and Affordable Care Act (“ACA”) providing tax subsidies to certain individuals who enroll in health plans through “an Exchange established by [one of the fifty] State[s]” also extends those subsidies to individuals who enroll through an Exchange established by the Federal Government.
As the Supreme Court explained, the ACA adopts “three key reforms.” First, the ACA adopts the guaranteed issue and community rating requirements. Second, the Act requires “individuals to maintain health insurance coverage or make a payment to the IRS,” while creating “an exemption from the coverage requirement for anyone who has to spend more than eight percent of his income on health insurance.” Finally, the Act seeks “to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100 percent and 400 percent of the federal poverty line.” Under the key statutory provision at issue in the case, tax subsidies are available to individuals who enroll in health plans through “an Exchange established by the State.” 42 U.S.C. § 18031. The 2012 IRS regulations, however, made the tax subsidies “available on both State and Federal Exchanges.” 45 C.F.R. § 155.20.
The petitioners in King v. Burwell did not want to purchase health care coverage and lived in Virginia, one of the 34 States for which the Federal Government had established the Exchange. The petitioners argued that absent the IRS’s rule interpreting the statutory phrase “an Exchange established by the State” to include exchanges established by the Federal Government, they would not have been eligible for the ACA’s tax subsidies. And, without the tax subsidy, petitioners would be forced “to spend more than eight percent of [their individual] income[s] on health insurance” and would therefore be exempted from the requirement to buy insurance.
Summary of Ruling
In a 6-3 decision, the Supreme Court held that tax credits are available to individuals in States that have a Federal Exchange. While the majority recognized that “petitioners’ plain-meaning arguments are strong,” it explained that even “when deciding whether the language is plain, the Court must read the words ‘in their context and with a view to their place in the statutory scheme.’” Looking at that broader context, the majority held that the tax subsidies should be available in States with Federal Exchanges. First, the majority pointed out that if a State chooses not to establish an Exchange, the ACA tells the Secretary to establish “such Exchange.” The majority argued that “by using the words ‘such Exchange,’ the Act indicates that State and Federal Exchanges should be the same.” Second, interpreting the statute as prohibiting subsidies in States with Federal Exchanges would undermine two of the three key reforms of the ACA, the provision of tax credits and the coverage requirement, meaning that “only one of the Act’s three major reforms would apply in States with a Federal Exchange.” The majority held that it was “implausible that Congress meant the Act to operate in this manner.” Finally, the ACA promises tax credits to those with a household income between 100 percent and 400 percent of the federal poverty line but, under the petitioners’ interpretation “those provisions are an empty promise in States with a Federal Exchange” since such individuals would “be eligible for a tax credit, but the amount of that tax credit would always be zero.”
In sum, the Court held that the ACA was intended “to improve health insurance markets, not to destroy them” and that the statute should be interpreted “in a way that is consistent with the former, and avoids the latter.” The petitioners’ interpretation, by contrast, “would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid.”
In a stinging dissent, Justice Scalia accused the majority of bending over backward to avoid the plain meaning of the statutory provision (“Contrivance, thy name is an opinion on the Affordable Care Act!”), and suggested that the law, which is colloquially known as Obamacare, should now be called “SCOTUScare.”