Most employers are likely aware that the Supreme Court recently announced its decision in King v. Burwell, 576 U.S. ___ (2015), upholding the authorization of premium tax credits to eligible individuals who enroll in healthcare coverage through a federal exchange pursuant to the Affordable Care Act (“ACA”). Some employers might now be asking whether this decision will affect their business. The simple answer—it probably will not, provided that covered employers are in compliance with the ACA’s employer mandate. A little background may be helpful.
To facilitate the purchase of “minimum essential” healthcare coverage, which the ACA requires that most Americans either obtain or pay a penalty for failing to do so, the ACA provides for the establishment of American Health Benefit Exchanges (the “Exchanges”). Sixteen states and the District of Columbia established Exchanges (the “State-run Exchanges”). Because the remaining 34 states have not, the U.S. Department of Health and Human Services has, pursuant to its authority under the ACA, stepped-in and created Exchanges on their behalf (the “Federally-facilitated Exchanges”).
To further the ACA’s goal of expanding coverage for low- and middle-income individuals, the ACA authorizes federal tax credits (the “Premium Tax Credits”) to offset the cost of coverage purchased “through an Exchange established by the State.” In May 2012, the IRS promulgated a final regulation interpreting the ACA as authorizing Premium Tax Credits for individuals who enroll in coverage through both State-run and Federally-facilitated Exchanges (the “IRS Rule”).
This is relevant to some employers because, under the ACA, employers who employ 50 or more full-time or full-time equivalent employees (“Applicable Large Employers”) must offer affordable minimum-value coverage to full-time employees and their dependents (the “Employer Mandate”). If an Applicable Large Employer does not offer such coverage, and one of its full-time employees enrolls in healthcare coverage through an Exchange and receives a Premium Tax Credit, the Applicable Large Employer will be subject to the ACA’s pay-or-play penalties.
The petitioners in King v. Burwell challenged the IRS Rule, arguing that under the ACA’s plain language, Premium Tax Credits are only available to individuals enrolling in healthcare coverage “through an Exchange established by the State”—i.e., State-run Exchanges. If the petitioners were correct, then Premium Tax Credits would not be available to those enrolling in coverage through a Federally-facilitated Exchange. The result would be that more than six million people would lose their Premium Tax Credits and pay-or-play penalties would not be triggered for Applicable Large Employers whose full-time employees enrolled in healthcare coverage only through Federally-facilitated Exchanges.
The Supreme Court, however, rejected the petitioners’ argument, and stated that notwithstanding the ACA’s language authorizing Premium Tax Credits to those who enroll in coverage “through an Exchange established by the State,” that language must be placed in its statutory context. And when placing this language in its statutory context, it is clear that Congress intended for Premium Tax Credits to be offered to those enrolling in coverage through both State-run and Federally-facilitated exchanges. Were this not the case, explained Chief Justice Roberts, writing for the majority, health insurance markets would likely be pushed into a death spiral, and “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them.”
Thus, Applicable Large Employers may be assessed pay-or-play penalties for violations of the Employer Mandate regardless of whether their employees reside in states with State-run or Federally-facilitated Exchanges. If such employers are already in compliance with the Employer Mandate, this decision should have no effect on them. Further, small employers (those with fewer than 50 full-time or full-time equivalent employees) are not subject to the Employer Mandate, so this decision should have no effect on them either.