Supreme Court Decides Premium Subsidy Case.

Benefits Insights, Fall 2015

In a closely watched case, King v. Burwell, the US Supreme Court ruled in a 6-3 decision that premium subsidies in states with Federally-operated marketplaces are allowed under the Affordable Care Act (ACA).

The ACA contains premium subsidies for certain individuals but it was argued that the legislative language only addressed subsidies for qualifying individuals receiving coverage through state run exchanges. Internal Revenue Service (IRS) implementing regulations interpreted the ACA language to authorize premium subsidies as being available to all individuals even those purchasing coverage through Federally-operated exchanges.

If states chose not to establish and operate their own marketplace, a Federally-operated marketplace would be established for those states. Plaintiffs in King v. Burwell argued that the ACA does not specifically authorize premium subsidies in these states. Approximately 34 states have a Federally-operated marketplace.

A majority of the Supreme Court ruled, “Those credits are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.”

This decision could have affected individuals that receive premium subsidies in states with Federally-operated exchanges as well as spill over to potentially impact the employer mandate in those states as well. To avoid penalty taxes, large employers, those with 50 full-time employees or more, must provide affordable minimum essential coverage and must not have any employee receiving a cost sharing subsidy or premium support tax credit. However, in those states with a Federally-operated exchange there would have been no Federal spending to cause a penalty.

Since the Supreme Court decided to recognize the IRS position that subsidies are available in all states, ACA implementation will continue. Please stay tuned as FCE continues to provide additional ACA implementation guidance.

Supreme Court Decides Premium Subsidy Case