Supreme Court Upholds ACA Subsidies in Every State

Written by Eva A. Rasmussen

The Supreme Court has recently upheld a critical aspect of the Affordable Care Act by holding that tax subsidies continue to be valid in the 33 states that have federally facilitated exchanges (King v. Burwell (No. 14-144)) in a 6-3 decision.

The ACA expressly provides that tax subsidies are authorized for insurance purchased through an exchange established by a state but does not expressly provide that the subsidies are authorized for purchases through a federally facilitated exchange when a state has declined to establish its own exchange.

The Court held that when the provisions authorizing the subsidies are read in the context of the entire legislation, it is clear that Congress intended that subsidies be available in every state regardless of whether the exchange was established by a state or the federal government. The subsidies are essential to further the Congressional goal of expanding health insurance.

If subsidies were not available to those purchasing insurance from a federally facilitated exchange, the number of individuals subject to the individual mandate would be greatly reduced as the mandate does not apply if the cost of insurance exceeds 8% of household income. Without a subsidy, the cost of insurance would exceed such amount in many cases. If the individual mandate does not apply, many basically healthy people may wait until they become ill to purchase insurance, resulting in adverse selection and greatly increasing insurance costs. As the ACA requires insurers to treat the entire individual market as a single risk pool, premiums for individual insurance purchased outside of an exchange would also skyrocket.

If a statute is considered ambiguous, courts generally defer to the interpretation of the statute by the agency charged with its operation, the IRS in this case. However in this case, even though the Court's interpretation is consistent with the IRS' guidance, the Supreme Court declined to give deference to the IRS' interpretation. Justice Roberts stated that this was an issue of "deep economic and political significance that is central to this statutory scheme" so the issue should not be left to an agency without explicit direction from Congress. This is significant as it forecloses the possibility that the IRS under a different administration might adopt a different interpretation.

Now that this challenge to the ACA has been resolved, employers should continue their efforts to ensure that their plans are in compliance with the ACA, especially the employer mandate to provide insurance which becomes effective in 2016 for employers with 50-99 employees and complying with new reporting requirements.

If you have any questions, please contact Eva Rasmussen (earasmussen@cbdm.com) or Richard Muser (rkmuser@cbdm.com), lead attorneys at CB&D's Employee Benefits, Executive Compensation and ERISA Litigation Group.

About the Author
Eva A. Rasmussen
Benefits Counsel
Eva A. Rasmussen concentrates on the design, implementation and communication of qualified plans and deferred compensation arrangements as well as...
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