On June 25, 2015, the Supreme Court of the United States (SCOTUS) decided that tax credits will be made available to individuals who purchase health insurance coverage on both federal and state exchanges (on-line marketplaces where people compare and purchase insurance plans). We discussed the case, King v. Burwell, in a blog and podcast last December.

By way of background, under the Affordable Care Act (ACA), with some exceptions, individuals must purchase health insurance or pay a penalty. One exception being that if the health insurance is too expensive in relation to an individual’s household income, then to make coverage affordable, the ACA provides that individuals with household incomes between 100-400% of the federal poverty line are eligible for tax credits when they purchase health insurance through “an Exchange established by the State.”

When implementing the tax credits under the ACA, the Internal Revenue Service released a regulation that interprets the ACA language (“an Exchange established by the State”) to mean that tax credits are available on ALL exchanges regardless of whether the exchange is established and operated by a “state.”

The petitioners in King v. Burwell were four individuals who live in Virginia, which has a federal exchange. They believe that the exchange in Virginia is not “an Exchange established by the State” and therefore they should not be eligible for tax credits. Without tax credits, the coverage is too expensive for them and as a result they are exempt from the requirement to purchase health insurance.

In a 6-3 decision, SCOTUS held that it must read the words “in their context and with a view to their place in the overall statutory scheme,” and, when read in context, the phrase “an Exchange established by the State” is ambigu­ous. According to the Court, it must reject petitioners’ interpretation because “it would destabilize the individual insurance market in any State with a Federal Exchange […] [and] the [ACA] would not work in a State with a Federal Exchange.”

The majority’s opinion is now the law and you can read their decision here. However, Justice Scalia drafted an unsurprising, logical dissent that is also worth reading. Some of the highlights from his dissent are set out below.

Justice Scalia asks the simple question: “[c]ould anyone maintain with a straight face that [‘an Exchange established by the State’] is unclear?” He notes that, “[i]t is hard to come up with a clearer way to limit tax credits to state Exchanges than to use the words ‘established by the State.’ And it is hard to come up with a reason to include the words ‘by the State’ other than the purpose of limiting credits to state Exchanges.”

The ACA uses the phrase “established by the State” seven times, but does not repeat that same phrase by rote throughout the ACA. Instead, many clauses of the law use a more general term such as “Exchange” or “Exchange established under [§18031].” Justice Scalia states that it “is common sense that any speaker who says ‘Exchange’ some of the time, but ‘Exchange established by the State’ the rest of the time, probably means something by the contrast.”

According to the majority, without the tax credits, the number of people covered by the individual mandate shrinks, resulting in a destabilized individual insurance market. However, Justice Scalia points out that “[i]f true, these projections would show only that the statutory scheme contains a flaw; they would not show that the statute means the opposite of what it says.” And, “even if making credits available on all Exchanges advances the goal of improving healthcare markets, it frustrates the goal of encouraging state involvement in the implementation of the [ACA]. […] It is entirely plausible that tax credits were restricted to state Exchanges deliberately-for example, in order to encourage States to establish their own Exchanges. […] If there was a mistake here, context suggests it was a substantive mistake in designing this part of the law, not a technical mistake in transcribing it.” However, “[i]f Congress enacted into law something different from what it intended, then it should amend the statute to conform to its intent. […] In the meantime, SCOTUS ‘has no roving license…to disregard clear language simply on the view that . . . Congress ‘must have intended’ something broader.'”

Notwithstanding Justice Scalia’s dissent, the effect of the majority’s decision is that millions of individuals who received tax credits for coverage purchased through the federal exchange, can count on continuing to receive them, as long as they meet the eligibility requirements; and, the ACA withstands yet another challenge.

If you have questions related to this decision or any of the provisions of the ACA, please call Attorney Jillian Jagling at 401-824-5100 or email [email protected]. We welcome your comments, questions and suggestions.

Source: King v. Burwell