United States Supreme Court Upholds Tax Subsidies To Individuals In All States

Posted by Donna Craig in Jun, 2015

On June 25, 2015 the Supreme Court of the United States (“SCOTUS”), in a 6-3 decision in the King v Burwell case, ruled in favor of individuals who purchase health insurance in federal Exchanges. The crux of the case came down to four words in the Affordable Care Act (“ACA”) which allowed individuals who are qualified to receive tax credits and purchased their health insurance “through an Exchange established by the State”.  The Internal Revenue Service administratively interpreted “established by the State” to include both state and federal health insurance Exchanges.

The Internal Revenue Service (“IRS”) interpreted the ACA language to allow tax credits to anyone “enrolled in one or more qualified health plans through an Exchange, regardless of whether the Exchange is established and operated by a State or by the federal Department of Health and Human Services”.  Based on the IRS’ interpretation, the  IRS has been providing tax subsidies since January 2014 to those qualified to receive such tax credits, regardless of whether individuals are enrolled in a state Exchange or federal Exchange.

SCOTUS’s majority opinion was written by Chief Justice John Roberts, with Justices Ginsburg, Sotomayor, Kagan, Breyer, and Kennedy siding with his majority opinion.  The dissenting opinion was written by Justice Scalia, with Justices Alito and Thomas in support.  While the majority of the Justices concluded the language “through an Exchange established by the State” was ambiguous, they looked to the broader structure of the ACA, and affirmed the lower court’s (Fourth Circuit) decision, citing that “Congress passed the ACA to improve health insurance markets, not to destroy them.  If at all possible, we must interpret the ACA in a way that is consistent with the former, and avoids the latter.  In the Court’s majority opinion, the IRS’s interpretation “can fairly be read consistent with what we see as Congress’s plan, and that’s the reading we adopt.”

Until today, the 34 States[1] who had federal Exchanges ran the risk that tax credits would no longer be available to their citizens resulting in individuals losing health insurance because they would no longer be able to afford health coverage.  Today’s decision means that those individuals who purchase health insurance through a federal Exchange, if also qualified for a tax subsidy, will continue to receive their tax subsidies.

[1] Alabama, Alaska, Arizona, Arkansas, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming