On June 25, 2015, the Supreme Court ruled, in a 6-3 decision, that subsidies for individuals who purchase health insurance on Federally-facilitated health insurance Exchanges are legal under the Affordable Care Act (ACA). This HR Alert provides an overview of the issues involved in King v. Burwell, the Supreme Court’s stated reasoning for upholding Federal Exchange subsidies, and the possible implications of this decision.
Why Is the Decision in King Important?
Generally, the ACA relies on two major provisions to increase insurance coverage:
–An individual mandate requiring (most) individuals to obtain health insurance coverage or else pay a penalty; and
–A system of subsidies intended to make health insurance coverage affordable through subsidized health insurance Exchange coverage for those without Medicaid or employer-sponsored health coverage
The ACA allows States to set up their own Exchange or participate in a Federal Exchange. The plaintiffs in King argued that individuals in states with Federally-facilitated Exchanges are not eligible for subsidized health insurance. Currently, 34 states do not have their own Exchange but rely on a Federal Exchange instead. Consequently, it is estimated that between five and eight million individuals would have lost access to tax credits or subsidies (and consequently, health coverage) if the Court had overturned subsidies for individuals who purchase insurance on a Federal Exchange.
What Was Plaintiffs’ Argument in King?
The plaintiffs in King contended that three sections of ACA make it clear that subsidies are not available for States that rely on a Federally established Exchange:
—Section 1311(d)(1) of the ACA which states, “An Exchange shall be a governmental agency or nonprofit entity that is established by a State.”
—Section 1321(c)(1)(B) of the ACA which provides that if a State fails to set up an Exchange, “the Secretary shall (directly or through agreement with a not-for-profit entity) establish and operate such Exchange within the State and the Secretary [of HHS] shall take such actions as are necessary to implement such other requirements.”
—Section 1401(a) (adding a new Code Section 36B) of the ACA which delineates taxpayers who are eligible for subsidies under ACA, describes eligible taxpayers as those enrolled in health care plans acquired “through an Exchange established by the State under 1311” of the ACA.
Based upon the clear meaning of the statutory provisions listed above, plaintiffs argued that subsidies are unavailable to those who purchase insurance on a Federal Exchange.
What Was the Government’s Argument in King?
Acknowledging that the relevant statutory ACA provisions make no specific mention of subsidies in Federally established Exchanges, in 2012 the IRS issued Final Rules on the Health Insurance Premium Tax Credit, which provide, in relevant part, as follows:
“Federally-Facilitated Exchange. The statutory language of section 36B and other provisions of the [ACA] support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. (Emphasis Added)”
One of the primary issues in King was whether the language was sufficiently ambiguous, and the IRS’s role sufficiently central, that the IRS’s interpretation allowing subsidies for insurance purchased on the Federal Exchange should be accorded Chevron deference. Chevron deference is a principle of administrative law requiring courts to defer to interpretations of statutes made by those government agencies charged with enforcing them, unless such interpretations are unreasonable. The government argued in favor of Chevron deference and the IRS’s interpretation that the subsidies were meant to be available to individuals who purchase health insurance on either the State or Federal Exchange.
What Was the Court’s Reasoning In the King Decision?
Chief Justice Roberts wrote the Court’s majority opinion and was joined by Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotamayor and Elena Kagan. Justice Roberts noted that when analyzing an agency’s interpretation of a statute, the Court often applies the framework in Chevron; however, he declined to apply such framework in King. Instead, Roberts reasoned that the Court reviewed the broader structure and the intent of the ACA to determine whether one of the permissible meanings of the statutory provision at issue produced a substantive effect that was compatible with the rest of the law.
Justice Roberts acknowledged plaintiffs’ argument that the statutory language is “ambiguous.” However, according to Justice Roberts, the Court was compelled to reject plaintiffs’ interpretations because it would destabalize the individual insurance market in any State with a Federal Exchange and likely create “death spirals” that Congress designed the ACA to avoid. Additionally, Justice Roberts noted that the statute (Code Section 36B) itself suggests that tax credits are not limited to State Exchanges, citing the statute’s allowance of tax credits for any “applicable taxpayer” with a household income between 100 and 400 percent of the federal poverty line.
Justice Roberts concluded the majority opinion by acknowledging that the plaintiffs’ plain-meaning argument was compelling. However, the ACA’s context and structure required the conclusion that tax credits are available for any Exchange created under the ACA. Such credits are necessary, according to Roberts, for the Federal and State Exchanges to function properly and to avoid the “calamitous” result that Congress plainly intended to avoid.
What Are the Potential Implications of the King Decision?
While the Court’s decision reaffirms the ACA implementation, Congress may still pursue strategies to significantly alter the ACA. The ACA debate is also likely to reignite as part of the 2016 presidential campaign. Although obstacles to the ACA remain, the Court’s decision in King makes it less likely that the subsidies will be overturned by a future president without significant support from Congress. Additionally, with the Court’s ensuring that every State will have equal access to Federal subsidies, it is expected that more States will revert to Federally-facilitated Exchanges for enrolling individuals in health insurance.
Hall Benefits Law, LLC
