On March 4, 2015, the Supreme Court heard oral arguments in the King v. Burwell case. King v. Burwell is the most recent Supreme Court case involving certain provisions of the Affordable Care Act (ACA). The case was appealed to the Supreme Court by the Plaintiffs after the Fourth Circuit Court of Appeals decided that the ACA permits the Internal Revenue Service (IRS) to provide tax credits for health insurance purchased through the federally facilitated Exchange (also referred to as the federal Exchange or Health Insurance Marketplace). Under the plain language of the ACA, individuals who purchase health insurance through state Exchanges are eligible for subsidies or premium tax credits.
At issue is whether individuals who purchase health insurance through a federal Exchange are also eligible for subsidies. Because many states have not moved forward with establishing their own healthcare Exchange, their residents obtain coverage through a federally run Exchange and receive any subsidies through such Exchange as well.
For more information on the King v. Burwell oral arguments, click here.
The Supreme Court is not expected to issue a decision in King until near the end of the current term, in late June or early July, and it is not clear how the Court will rule at that time. As the expected decision approaches, it is important to note that the ACA remains the law and employers must continue to comply.
How the Supreme Court Decision May Affect Employers and Individuals
At first glance, it may seem that an individual’s premium tax credit availability does not directly affect employers, but an employee who is regarded as a full-time employee under the ACA and who receives an Exchange subsidy can trigger the Employer Shared Responsibility penalty.
If the Supreme Court rules that the IRS regulatory interpretation to extend subsidy eligibility to federal Exchange participants is not permitted under the law, residents of the thirty-four states that have not established their own Exchange would not be eligible to receive a subsidy. The practical impact would be that, since no full-time employees in these thirty-four states would be able to receive an Exchange subsidy, Shared Responsibility penalties related to employees in these states would not be triggered. Without subsidized coverage in these states, individuals could potentially find themselves without access to affordable coverage and it is to be determined how this could impact the individual mandate.
If the Supreme Court upholds the ruling of the Fourth Circuit in King, subsidies will remain intact for individuals regardless of whether they obtain coverage on a state or federal Exchange. Keep in mind, however, that subsidies generally are not available for employees who are eligible for employer-sponsored coverage, if the coverage offered meets certain affordability and minimum value thresholds.
No matter how the Supreme Court rules, under the ACA both federal and state Exchanges will still need to report extensive information to the government with respect to the health plans provided through the Exchanges, and employer reporting requirements will also remain intact as well as many other ACA requirements. At this time, employers need to stay the course and be prepared to comply with the employer mandate provision. Our team of experts continues to closely monitor the King v. Burwell decision and we will provide our clients with more information once the Supreme Court issues its decision. Read more about on how we continue to support you and your business in complying with the ACA. In a future edition we will provide you with more detail on how we will help you with the employer reporting requirement that begins early 2016, and the steps you will need to take to be ready.