On June 25, 2015, the U.S. Supreme Court issued a highly anticipated ruling upholding the extension of subsidies to insurance coverage purchased on the Federal marketplace.This decision focused on the interpretation of the Affordable Care Act’s (ACA) 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” While recognizing that the ACA “contains more than a few examples of inartful drafting,” Chief Justice Roberts, writing for the six-Justice majority, wrote that this language was ambiguous and that “[t]he words of a statute must be read in their context and with a view to their place in the overall statutory scheme.” In his opinion, Justice Roberts further stated 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. Justice Scalia further referred to the majority’s opinion as “pure applesauce” and “interpretive jiggery-pokery” that ignored the plain language of the ACA. He also said that instead of referring to the ACA as “Obamacare,” “[w]e should start calling this law SCOTUScare."
What does this ruling mean for employers? Most employers have already spent countless hours determining whether they are an “applicable large employer” for purposes of the ACA’s “employer mandate.” This decision does not affect such determinations. Rather, the ruling confirms the continuation of the “mandate,” and extends the possibility of penalties employers whose employees purchase coverage and receive subsidies on a Federal exchange. Employers should be reminded, however, that the ACA does not actually mandate that employers provide coverage for their full time employees; however, penalties are triggered when an employee signs up for coverage in an exchange and receives a premium tax credit (or subsidy). This “requirement” has been phased in, and became effective January 1, 2015, for employers with 100 or more full time (or full time “equivalent”) employees. The requirement goes into effect for employers with 50 or more full time or full time equivalent employees on January 1, 2016. Employers with less than 50 FTEs are not subject to the penalty.
Although the Supreme Court’s decision has been described as the second time the Supreme Court has saved “Obamacare,” there are many issues that continue to remain in debate. The “Save American Workers Act,” which passed in the U.S. House of Representatives on January 8, 2015, proposes to amend the Tax Code to change the definition of “full-time employee” under the ACA to the industry standard of 40 hours per week, rather than the current ACA standard of 30 hours per week. This bill is still pending in the Senate. Employer groups are also pursuing additional changes to the ACA, such as streamlining the reporting requirements and pushing for the repeal of the upcoming “Cadillac” tax. We will continue to keep you updated on these and other ACA developments.
For now, employers that have been waiting on the King v. Burwell decision to get into compliance with the ACA are encouraged to do so as soon as possible to avoid potential penalties.