Supreme Court Upholds Availability of Premium Tax Credit in States That Have a Federal Exchange
The Supreme Court issued its opinion today upholding the availability of premium tax credits for individuals who purchase health insurance through a federal Exchange, King v. Burwell, No. 14-114 (U.S. June 25, 2015). The opinion maintains the status quo - it does not change anything under the Patient Protection and Affordable Care Act ("ACA"), and individuals and employers should proceed with ACA compliance.
The ACA requires most individuals to have health coverage or to pay a fine to the IRS. Individuals may get health coverage through several avenues, including an employer sponsored health plan and an Exchange (an Exchange is a marketplace where individuals may shop for health insurance coverage). The ACA provides premium tax credits to certain lower income individuals to help them pay for health insurance purchased through an Exchange. The ACA also requires large employers (those with at least 50 full-time employees in the prior calendar year) to offer health coverage to at least 95% of full-time employees. In addition, the employer provided coverage must be "affordable" and provide "minimum value," as defined by the ACA. An employer who fails to offer coverage to the requisite percentage of full-time employees, or who offers such coverage but it is not affordable or does not provide minimum value, is subject to a penalty tax, but only if at least one full-time employee obtains health coverage through an Exchange and receives a premium tax credit.
The King v. Burwell decision arose out of language in the ACA that provides for the premium tax credits only if the individual has enrolled in an insurance plan through "an Exchange established by the State." Many states have not established an Exchange; in those states, the federal government has established the Exchange. Plaintiffs argued that the ACA does not provide for premium tax credits in those states that have a federal, rather than a state, Exchange. The Supreme Court found the language relating to the establishment of an Exchange to be ambiguous when read in context with the overall scheme of the ACA, noting that the ACA "contains more than a few examples of inartful drafting." When read in context with the other provisions of the ACA, the Court ruled that ACA's statutory scheme works only if the ACA is interpreted to mean that the premium tax credit, and other ACA provisions, apply equally to those states that have a federal Exchange.
Accordingly, individuals and businesses should proceed with ACA compliance. Individuals should make sure they have the required health coverage, or understand that they may be subject to a penalty for failure to have coverage. Large employers should make sure that they offer affordable, minimum value health coverage to the requisite percentage of full-time employees, understanding that failure to do so may result in a penalty if any full-time employee obtains health coverage through an Exchange and receives a premium tax credit.
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