Today, in King v. Burwell, the United States Supreme Court held that subsidies for coverage under all marketplace health exchanges pursuant to the Patient Protection and Affordable Care Act (the “ACA”) remain available.
Amongst other mandates, the ACA requires each state to create an “exchange” that, in essence, is a marketplace for individuals to purchase health insurance. If a state does not establish an exchange, the ACA further provides that the federal government will establish an exchange. The ACA also provides for subsidies (in the form of tax credits) to any taxpayer who has enrolled in an insurance plan through an exchange established by a state. The IRS interpreted the operative provision in the ACA to allow for tax credits for coverage provided through any exchange, whether established by a state or the federal government. Focusing on the language in the ACA that provided for the tax credits, four individuals in Virginia (which has a federal exchange) challenged the position taken by the IRS and claimed that Virginia’s exchange does not meet the “state exchange” requirement and, as such, individuals in Virginia should not receive any tax credits. For these four individuals (and many other taxpayers), not receiving a tax credit would result in coverage being more expensive than 8% of their income, which would exempt them from the ACA’s “individual mandate” requirement under which individuals must either maintain health insurance coverage or pay a penalty on their individual income tax return.
In a 6-3 decision authored by Chief Justice Roberts, the Court held that tax credits are available in states that have a federal exchange. In so holding, the Court interpreted the language of the ACA itself, rather than merely deferring to the IRS’s interpretation of the statute. Determining that the language regarding tax credits is ambiguous in its application to federal exchanges, the Court looked to other provisions of the ACA for context and found that it would “make little sense” to treat the federal exchanges differently from state exchanges for this purpose.
This is a very significant decision for employers and plan sponsors. It is the second major case attacking the ACA in which the Supreme Court has upheld the act. Today’s decision also effectively upholds the ACA’s employer mandate or “employer shared responsibility” provision, which requires larger employers to provide minimum levels of affordable health coverage to their full-time employees or risk paying significant penalties. The employer mandate and the ACA in general will therefore remain the law for the foreseeable future. Employers and plan sponsors should therefore continue their efforts to both understand the application of the ACA (and the employer mandate in particular) and either ensure compliance or be prepared for the financial impact of non-compliance.