King v. Burwell – Will the Supreme Court Tip the ACA Dominos? Part 1

Locke Lord LLP

The health care industry has been closely watching four cases challenging whether federal subsidies could be used to reduce costs to consumers for health insurance purchased on an Affordable Care Act (ACA) Exchange in a state whose Exchange was run by the federal government, and not by some state instrumentality or nonprofit. Although an Indiana court has yet to rule on one such case, two federal courts ruled that the ACA clearly and unambiguously authorized subsidies only when health insurance is purchased on state-based Exchanges before the Fourth Circuit in King v. Burwell sided with the Obama Administration in what was characterized as a close call. With the oh-so-close split in federal courts, the U.S. Supreme Court accepted King v. Burwell for review. Now, after oral arguments heard in March, the fate of King v. Burwell is just a couple weeks away. In this blog post, we will examine the background leading up to this Supreme Court case.

We should keep in mind that King v. Burwell and other similar cases have not challenged the validity of the ACA, per se, because these cases are premised on both the validity and strict construction of the ACA as presently drafted. However, a decision against the Obama Administration in King v. Burwell based on the plaintiffs’ arguments, no matter how narrowly decided, tugs at the very fabric of the ACA’s framework.

The ACA established that, with certain exceptions, all Americans must maintain minimum essential health coverage or pay a tax penalty. Although the U.S. Supreme Court in National Federation of Independent Business v. Sebelius determined that this ACA provision was not a “mandate,” it is still commonly referred to as the ACA’s “individual mandate.” Similarly, large employers can be assessed tax penalties if their full-time employees are not offered affordable, comprehensive coverage in the workplace and, instead, obtain subsidized insurance coverage through an ACA Exchange. Large employers are not really required to furnish their employees comprehensive health care coverage, and may opt to pay the tax penalty instead, but the ACA’s employer “pay or play” provisions are often referred to as the “employer mandate.” The employer mandate also is widely perceived as a means to incentivize large employers to offer health coverage that will disqualify employees from receiving federal subsidies to defray the cost of health insurance purchased on an ACA Exchange – thus, saving the federal government money it would otherwise have to pay out in subsidies.

In our next blog post, we will analyze the relevance of the individual mandate and employer mandate in the King v. Burwell case.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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