Summary
On June 25, 2015, the United States Supreme Court (the "Court"), in the high-profile decision of King v. Burwell, upheld the availability of tax credits under the Affordable Care Act ("ACA") for individuals purchasing health insurance in states with a federal health insurance exchange. The Court’s ruling provides stability for hospitals, physicians and insurers and for the more than 6 million individuals who have purchased health insurance in states operating with a federal exchange.
Under the ACA, states were required to create and operate health insurance exchanges where consumers could purchase health insurance. If a state did not create an exchange, the ACA provided that the federal government, through the U.S. Department of Health and Human Services, would operate an exchange in that state. Currently, 34 states have exchanges operated by the federal government.
At its core, the issue decided by the Court was one of statutory interpretation. The ACA provides refundable tax credits to individuals with household incomes between 100 and 400 percent of the federal poverty line. The tax credits apply to any taxpayer enrolled in an insurance plan through, as written in the ACA, "an Exchange established by the State." 26 U.S.C. § 36B (emphasis added). IRS regulations subsequent to the enactment of the ACA clarified that taxpayers could receive tax credits "regardless of whether the Exchange is established and operated by a state . . . or by HHS."
The petitioners in King were individuals from Virginia, a state with a federal exchange, who did not want to purchase health insurance. They filed suit to challenge the ACA because, if they did not qualify for tax credits under a federal exchange, their personal cost for health insurance would be greater than 8 percent of their respective incomes and, as such, exclude them from the ACA’s requirement to be covered by health insurance. The petitioners’ claims were dismissed by a District Court and that dismissal was affirmed by the Court of Appeals for the Fourth Circuit.
The Court, in an opinion authored by Chief Justice Roberts, characterized the issue of whether tax credits are available to individuals purchasing health insurance on the federal exchanges as a "question of deep ‘economic and political significance’ that is central to [the] statutory scheme." The Court read various other sections of the ACA to be consistent with an interpretation applying tax credits to the exchanges run by the federal government, in addition to ones operated by the states. The Court emphasized that failing to extend the tax credits to individuals purchasing insurance through a federal exchange would have the collateral consequence of many of these individuals not purchasing insurance at all. Thus, the Court ruled, two of the ACA’s three key reforms would be negated and it was "implausible that Congress meant the [ACA] to operate in this manner."
While the dissent, written by Justice Scalia, considered the majority to be performing "interpretive jiggery-pokery," the six Justices in the majority concluded that, "Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the later."
With the Court’s decision, it is expected that reform efforts – innovations and integrations – will continue across the health care delivery system.
Saul Ewing attorneys are well versed in the ACA and the federal laws and regulations affecting the health care delivery system. For more information on this Client Alert, please contact the authors or the attorney at the firm with whom you are regularly in contact.
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