The United States Supreme Court ruled today in the historic case of King v. Burwell to uphold the IRS regulations extending tax subsidies to insurance coverage purchased on the federal exchange. At the heart of this suit was the proper interpretation of the Affordable Care Act’s language stating that subsidies are available under Section 1311 (1) of the Act to those enrolled in health care plans acquired “through an Exchange established by a State.” The Court decided that this language was ambiguous and disagreed with the challengers who argued that this language only allowed subsidies to be provided to people who buy insurance through health care markets/exchanges that were actually set up by states.  Justice Roberts delivered the Opinion for the Court holding that “…the Act’s context and structure compel the conclusion that [the law] allows tax credits for insurance purchased on the Exchange created under the Act. Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the calamitous result that Congress plainly meant to avoid.” Justices Kennedy, Breyer, Ginsburg, Kagan, and Sotomayor joined in the majority opinion. Justice Scalia filed a dissenting opinion in which Justices Alito and Thomas joined, stating that the majority’s decision that the phrase “Exchange established by the State” actually means “Exchange established by the State or the Federal Government” was absurd.

This decision is an important one for employers since ACA penalties for employers are only triggered when an employee signs up for coverage in an exchange and receives a premium tax credit (or subsidy). Accordingly, the employer mandate remains intact and employers must continue to follow their ACA compliance strategies.