Compensation & BenefitsPublications

Supreme Court cites phrasing to uphold ACA

June 25, 2015Articles
In King v. Burwell, the Supreme Court upheld the structure of the Affordable Care Act (ACA) and once again announced that it remains the law of the land.

The ACA provides a series of sticks and carrots to individuals to obtain health insurance. The sticks are penalties to individuals who fail to obtain health insurance. The carrots are tax subsidies to ensure that the obtained insurance coverage is affordable for those individuals whose household income falls below 400% of the Federal Poverty Line (about $97,000 for a family of four in 2015). The matter at hand in King v. Burwell addressed whether the carrots were permissible to be offered in States where the Federal government established the Exchange from which individual health insurance coverage could be purchased.

The ACA provides that “If … [a State elects to not establish an Exchange] … the Secretary shall … establish and operate such Exchange within the State and the Secretary shall take such actions as are necessary to implement such other requirements.” (emphasis added) However, it also provides that tax subsidies (e.g. carrots) “shall be allowed” only if the taxpayer has enrolled in an insurance plan through “an Exchange established by the State.” The plaintiffs in the King v. Burwell matter challenged the IRS regulation concluding that subsidies were provided for individuals who enrolled in an insurance plan from an Exchange established by the Federal government.

This decision was written by Chief Justice Roberts, one of the more conservative Supreme Court Justices, and was joined by five others from the more liberal wing of bench. Justice Roberts announced that it was clear Congress didn’t intend for “the viability of the entire Affordable Care Act turn on the ultimate ancillary provision: a sub-sub-sub section of the Tax Code.”

Instead, his opinion concluded that the text of the statute itself provides that subsidies are available to individuals in all States – regardless of whether the State or the Federal government established and maintained the Exchange pursuant to which the coverage was purchased. This is important because it effectively forecloses the ability of a future President to reverse the IRS position that subsidies are available in all States through regulatory action.

In reaching this conclusion, the Court’s opinion relied heavily upon the text of the ACA (quoted above) which requires the Federal government to establish and operate “such Exchange” if a State failed to establish a viable Exchange on its own accord. This reference to “such Exchange” provided the Court’s majority with sufficient textual authority to conclude that the reference within the statute’s tax credit provisions to “an Exchange established by the State” included a Federally facilitated Exchange. Since the reference to “such Exchange” created the obligation of the Federal government to establish the non-participating State’s Exchange on the same terms as if the State had done so itself, the Court concluded that there could not be a difference between the State run and Federally facilitated Exchanges.

As noted above, in announcing the conclusion that the text of the ACA provides for subsidies in both State and Federally facilitated Exchanges, the Court foreclosed the ability of this conclusion to be overturned by later regulatory action. Instead, Justice Roberts’ opinion effectively announces that Congress is the venue to seek modifications to the ACA – not the courts. Thus, any future modification to the operation of the “sticks and carrots” methodology adopted by the ACA rests with the legislative branch of the Federal government.