iFor the second time in three years, the U. S. Supreme Court has upheld a key provision of the Affordable Care Act. The Supreme Court ruled last week in King v. Burwell that premium tax credits are available to lower-income individuals who buy health insurance on a federal exchange, as well as to those who buy insurance on a state exchange. The ruling means that the Affordable Care Act will persist in its current form, at least for now, and employers must continue to grapple with its restrictions, mandates, and reporting requirements.
The Dispute Over Premium Tax Credits
The Affordable Care Act (or “ACA”) requires individuals to maintain adequate health coverage, and it provides refundable premium tax credits so that lower-income individuals will be able to afford the coverage. As worded, however, ACA awards premium tax credits only if the individual has purchased health insurance through an insurance exchange “established by [a] State.”
Only 16 states and the District of Columbia have established their own health insurance exchanges. The remaining 34 states have chosen to allow the federal government to establish and operate a health insurance exchange for their residents.
The IRS issued a regulation confirming that premium tax credits would be available to all lower-income individuals who purchased health insurance through an exchange, regardless of whether they purchased the insurance through a state or federal exchange. The petitioners in King v. Burwell challenged this regulation, arguing that the statute did not authorize the IRS to provide premium tax credits for insurance purchased through the federal health exchange.
If the petitioners were not eligible for premium tax credits, they would not be required to buy health insurance, because their insurance premiums would be unaffordable. Accordingly, if the petitioners won, they would avoid the individual mandate.
ACA’s Fate Depends on the Outcome
Two federal courts concluded in different cases that the statute was clear, but each court had a different view of what the statute said. A district court in Virginia held that ACA unambiguously extended premium tax credits to individuals who purchased coverage through a federal exchange. The appellate court for the District of Columbia held that ACA unambiguously restricted premium tax credits to individuals who purchased coverage through a state exchange.
One thing, at least, did seem clear: the fate of the Affordable Care Act depended on the outcome of the dispute. If premium tax credits were not available in the states relying on the federal exchange, the individual mandate would not be effective, because too many people would be excused from buying health coverage. Without the individual mandate, the individual health insurance market would enter a “death spiral” in which adverse selection would drive up insurance premiums to unsustainable levels.
The dispute also had a direct bearing on the future of the employer mandate. Employers with more than 50 employees are required to provide affordable health coverage to their full-time employees or pay an excise tax. The excise tax is assessed, however, only if an individual without affordable coverage from an employer purchases individual coverage through an exchange and qualifies for a premium tax credit. If premium tax credits were not available in the 34 states with a federal exchange, employers would not owe an excise tax when they failed to offer affordable health coverage to employees in those states.
The Supreme Court Wades In
The Supreme Court concluded that ACA’s premium tax credit provision was ambiguous. In a departure from usual practice in such cases, the Supreme Court did not defer to the IRS’s interpretation of the statute. Instead, the Court conducted its own analysis and concluded that Congress must have intended to provide premium tax credits to lower-income individuals who purchased health insurance on a federal exchange, since the statutory health reform regime could not function otherwise.
The details of the Supreme Court’s decision are of interest to legal scholars: the decision raises important questions concerning deference to federal agencies, the separation of powers, and the Court’s authority to re-write a poorly-drafted statute. A scathing dissent accuses the majority of engaging in “interpretive jiggery-pokery” and declares, “We should start calling this law SCOTUScare.”
For employers, however, the Supreme Court’s decision has more immediate and practical consequences. Some observers had hoped that if the decision denied premium tax credits for health insurance purchased on a federal exchange, Congress would be forced either to repeal ACA or to enact legislation to repair the statute. Even if the statute survived, the decision would have provided an opportunity to seek changes in some of its more unpopular provisions, such as the employer mandate and the “Cadillac” tax on high-cost health plans.
With the premium tax credit issue resolved, however, it appears that the Affordable Care Act will continue without the need for immediate legislative intervention. Although legislation targeting specific provisions is still possible, the incentive for Congress to agree on any significant change is greatly reduced. For the present, employers are left to make the best they can of the statute as enacted.
