Special Wolters Kluwer Law & Business NetNews for June 25, 2015: Supreme Court upholds ACA subsidies


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  • Supreme Court upholds ACA subsidies

Employee Benefits Management News


Supreme Court upholds ACA subsidies

The Supreme Court has issued a 6-3 ruling in King v. Burwell, holding that Section 36B of the IRS Code’s tax credits are available to individuals in states that have a federal Health Insurance Exchange. The Court determined that, based on the broader structure of the Patient Protection and Affordable Care Act (ACA) Congress did not intend to limit tax credits to state Exchanges. Chief Justice Roberts wrote the majority opinion, joined by Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan; Justice Scalia dissented, joined by Justices Thomas and Alito.

At issue was the legality of an IRS regulation extending tax credits to people who purchased health insurance plans from the federal Exchanges set up in the 34 states that refused to set up state Exchanges authorized by the ACA. The ACA’s subsidy provisions are the key instrument through which the Act makes coverage affordable to individuals who purchase insurance on an Exchange. The ACA provides for advance payment of premium tax credits for people with incomes between 100 and 400 percent of the federal poverty level.

Section 1311 of the ACA allows states to set up Health Insurance Exchanges, and section 1321 requires the HHS Secretary to set up federal Exchanges in states that fail to set up Exchanges. Under section 1401 of the ACA, individuals are offered premium assistance through tax credits if they meet certain requirements, including enrollment “through an Exchange established by the State under section 1311.”

The IRS began issuing tax credits through both federal and state Exchanges in January 2014 (26 C.F.R. Sec. 1.36B-1(k); 77 FR 30377, May 23, 2012) (the “IRS Rule”). The IRS Rule provides that the credits shall be available to anyone “enrolled in one or more qualified health plans through an Exchange,” and then adopts by cross-reference an HHS definition of “Exchange” that includes any Exchange, “regardless of whether the Exchange is established and operated by a State…or by HHS” (26 C.F.R. Sec. 1.36B-2; 45 C.F.R. Sec. 155.20).

The petitioners in King v. Burwell are residents of Virginia—which declined to establish a state Exchange—who do not want to purchase comprehensive health insurance. On February 18, 2014, the district court dismissed the petitioners’ complaint, finding that the IRS Rule was a permissible exercise of administrative discretion because the ACA as a whole clearly evinced Congress’s intent to make the tax credits available in both state and federal Exchanges.

On July 22, 2014, a three-judge panel of the Fourth Circuit unanimously affirmed the district court’s ruling that the IRS Rule was a permissible exercise of administrative discretion, finding that the applicable statutory language was ambiguous and subject to multiple interpretations.

For the full text of the case, see King v. Burwell.

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