The U.S. Supreme Court issued its opinion in the King v. Burwell case today. The opinion is a “win” for the Affordable Care Act (ACA) as Court held that federal tax credits are available for the purchase of insurance in every state, regardless of whether a state’s health insurance exchange (now called a “Marketplace”) was established by the state’s government (State Marketplace) or the Federal government (Federal Marketplace).
The case challenged the payment of premium tax credits to individuals living in states with Federal Marketplaces. If successful, the challenge would eliminate a funding source for health insurance in states with Federal Marketplaces and, as the Court put it, send those states into an economic “death spiral.” Approximately 2/3 of states in the country have Federal Marketplaces.
The parties challenging the tax credits pointed to the pertinent language of the ACA (which can be found in Section 36(B) of the Internal Revenue Code) which provides tax credits for individuals who have enrolled in insurance through “a [Marketplace] established by the State . . . .” According to the challengers, this plain language can only mean that tax credits are not available to individuals who have purchased insurance through a Federal Marketplace.
The Court acknowledged the strength of this argument, but ultimately found the “established by State” language ambiguous. The Court noted numerous provisions in the ACA, even ones using the same “established by State” or similar language, that did not differentiate between Federal and State Marketplaces. For example, all Marketplaces must provide consumer information about tax credits, provide an electronic calculator to compute the effect of tax credits and report information about the tax credits to the Treasury Department. The Court found that these provisions would make no sense if tax credits were not available in Federal Exchanges. The Court blamed the ambiguity on the ACA’s “inartful drafting,” which according to the Court, was caused by how it was passed.
Given the ambiguity of the “established by State” language, the Court analyzed the intent and purpose behind the ACA and reviewed the statute as a whole to come to its decision. The Court held that the ACA is based on three fundamental principles: (1) insurance companies cannot deny or charge more for insurance based on an individual’s health condition; (2) individuals have to buy insurance or pay a tax penalty, unless the insurance costs more than 8% of their income (which was the subject of the Court’s opinion three years ago); and (3) for those individuals between 100-400% of the poverty line, the federal government will issue a premium tax credit to go toward the cost of insurance in the Marketplace (which is the subject of this opinion). The Court explained that without the tax credit, not enough people would buy insurance – according to the Court, approximately 87% of people who bought Federal Marketplace insurance in 2014 used tax credits – and that if not enough people buy insurance, insurers would not be able to meet their obligations without drastically raising premiums. The end result would be that “death spiral” where insurance would be unaffordable and few people would be covered (until a catastrophic event occurred).
The Court reasoned that when Congress wrote the ACA, it intended for the law to work; it did not intend for the funding mechanism to be dismantled so easily – as noted above, 2/3 of states have Federal Marketplaces and 87% of the insurance purchased in those Marketplaces in 2014 was with tax credits. The Court ended its opinion stating: “Those credits are necessary for the Federal [Marketplaces] to function like their State [Marketplace] counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.”
The result of the opinion is that it will be business as usual in the health insurance market for the foreseeable future.