The Supreme Court has ruled
in King v. Burwell that the ACA's premium tax credits are
available to qualified individuals who purchase medical coverage
through either state or federally run Marketplaces.
Background. The ACA added a section to the Internal Revenue
Code ("Code") which provides that the amount of premium
assistance is based on the premium paid by a taxpayer enrolled
through a Marketplace "established by the State." Each
state is to establish its own Marketplace. However, if a state fails
to establish its own Marketplace by January 1, 2014, the ACA requires
the Department of Health and Human Services to establish a
Marketplace within that state.
To date, only 16 states have
set up their own Marketplace. In the other states, the Marketplace
has been set up by the federal government or combines aspects of
state and federal control.
The plaintiffs in King
argued that the applicable Code section clearly provides that an
individual must enroll in a state Marketplace in order to receive
premium tax credits. The federal government countered that the law,
when read as a whole, authorizes tax credits for any "applicable
taxpayer" because a Marketplace established by a state includes
a federally run Marketplace established on behalf of a state.
The Fourth Circuit Court of
Appeals ruled in favor of the federal government, stating that the
relevant Code section was ambiguous and therefore, it was required to
apply the doctrine of judicial deference to the IRS's interpretation
of the law.
Supreme Court Decision. The Court also ruled in favor of the federal
government, holding that despite the section's ambiguity, the ACA's
overall statutory scheme indicates that the premium tax credits are
not exclusively available to individuals purchasing coverage through
state run Marketplaces. Interestingly, the Court dismissed the Fourth
Circuit's use of judicial deference to resolve the matter. Instead,
the Court found that the availability of premium tax credits in states
with federally run Marketplaces presented an issue of such "deep
economic and political significance" that Congress could not
have intended to delegate discretionary authority to regulators such
as the IRS.
Takeaways for Employers. For employers, the King decision means
that the ACA's employer shared responsibility provisions remain
unchanged in all states. As a reminder, the employer shared
responsibility provisions impose a tax on a applicable large
employers ("ALEs") (i.e., an employer with at least the
equivalent of 50 full-time employees) that do not offer a minimum
level of affordable health insurance to employees and their
dependents. Specifically, an ALE is subject to an employer
shared responsibility payment if at least one of its full-time employees
receives a premium tax credit through a Marketplace.
Given the Court's decision
in King that premium tax credits are available in all states
and not just those with a state-run Marketplace, ALEs will be subject
to the employer shared responsibility tax regardless of the state in
which their employees live. Accordingly, to avoid the tax, employers
must carefully consider the health insurance offered to employees.
NOTE Next week's Alert will discuss the
Supreme Court's decision in Obergefell v. Hodges regarding
same-sex marriage and its effect on welfare benefit plans.