In the King v. Burwell case, the Supreme Court ruled on June 25, 2015 to uphold federal tax subsidies. As discussed in our blog post from February 17, the case challenged the legality of health insurance tax subsidies provided to low and middle-income people in the 34 states where the federal government is operating the public exchange under the Patient Protection and Affordable Care Act (ACA).

Currently, 16 states have established their own exchanges, and the other 34 states have relied on the federal government to operate their exchanges. The opponents contended that the ACA’s plain language limits federal tax subsidies to individuals who purchase insurance from exchanges “established by a state.” The federal government, on the other hand, argued that the ACA authorizes all individuals to receive federal tax subsidies purchased through an exchange, whether federal or state-run, based on IRS regulations interpreting the ACA.

The law at its most basic design contains four key points:

  1. Health insurance availability for everyone without charging higher rates or denying coverage for pre-existing conditions
  2. Federal tax subsidies for lower and middle-income people
  3. An Individual Mandate requiring individuals to purchase insurance or pay a penalty tax
  4. An Employer Mandate obligating most employers to offer insurance to full-time employees or pay a penalty tax

In King v. Burwell, the Supreme Court decided 6 to 3 that despite various sections of the law being ambiguously written, when read in context, the law must be read to mean that the key foundational pieces stand. The passage “…an Exchange established by the State” refers to states or the federal government, as that is the only way the law would make sense in context and uphold the principles described above. Otherwise, the Court recognized that without the requirement for individuals to enroll and subsidies to make the coverage affordable, the ACA simply “would not work.” The Court justified its decision by noting that Congress passed the ACA to “improve health insurance markets, not to destroy them.” Any contrary decision, the Court noted, would lead to a “death spiral” for the ACA.

In summary, since the Supreme Court ruled in favor of federal tax subsidies, nothing has changed for employers. Applicable large employers still have to make offers of ACA compliant insurance coverage, track and aggregate employee hours for accurate eligibility determinations, and adhere to the tedious and complex government reporting regulations.

Please contact our ACA Solutions team to learn how we can help you comply with our ACA Government Reporting solution.