Affordable Care Act’s Tax Credits Comes Before the Supreme Court

Posted by Donna Craig in Mar, 2015

On March 4, 2015, the United States Supreme Court will hear oral arguments in King v. Burwell.  The issue in the case is the legality of an Internal Revenue Service’s (IRS) decision to extend tax credits to individuals who purchased health insurance through federal insurance Exchanges and federally facilitated insurance Exchanges (“federal Exchanges”). Michigan has partnered with the federal government in offering a federally facilitated insurance exchange to its citizens, and as a result those insured through Michigan’s insurance Exchange may be directly impacted by the outcome of this case.  Michigan is not alone though.  Thirty-three other states have opted either to have a federal insurance Exchange, or like Michigan, a federally facilitated insurance Exchange.

What’s at Issue? – In particular the language in the Affordable Care Act being scrutinized is how “through an Exchange established by the State” will be interpreted. A group of Virginia residents brought this case based on their objection to purchasing health insurance coverage.  They argue the applicable Affordable Care Act’s language is unambiguous and should be interpreted to mean that individuals who purchase health insurance through a federal Exchange do not qualify for tax credits. The government disagrees and argues that the IRS’s decision to extend tax credits to federal Exchanges should stand.  The IRS has been issuing tax credits through both federal and state insurance Exchanges since January 2014.

The Impact? – If the Supreme Court rules in the government’s favor, the premium subsidies for state and federal insurance Exchanges will continue to be paid, regardless of whether they are enrolled in a state Exchange or in a federal Exchange.  If the Supreme Court rules in favor of the Virginia petitioners, and determines that the IRS’s interpretation is not valid, those individuals in Michigan’s insurance Exchange and those enrolled in 33 other states with federal Exchanges will no longer receive premium subsidies.

If individuals insured in federal Exchanges in Michigan and 33 other states no longer receive insurance premium tax credits, they may be forced to drop coverage.  This could adversely impact part-time workers who may no longer be able to afford insurance coverage without receiving a tax credit, and individuals with serious health conditions who are more expensive to insure. This could lead to health insurance companies pulling out of insurance Exchanges.

In addition, if the Supreme Court rules against the government, it would eliminate the requirement that large employers offer coverage to full-time employees in these 34 states. Currently a large employer pays a penalty if: (a) it does not offer employer-sponsored health coverage to its full-time employees; and (b) its employees qualify for premium tax credits.  If employees don’t qualify for premium tax credits, then the penalty to large employers would not be triggered.

The Supreme Court’s ruling is expected in June 2015.