CHA News Article

U.S. Supreme Court Issues Decision in King v. Burwell
Upholds IRS regulations making subsidies available in states with federally facilitated marketplaces

Today, the U.S. Supreme Court issued its decision in King v. Burwell, the second challenge to the Affordable Care Act (ACA) to reach the Court. The Supreme Court decided by a 6-3 vote to uphold the Internal Revenue Service (IRS) regulation making subsidies available in states with federally facilitated marketplaces (FFM). Subsidies will continue to be administered through all marketplaces. The petitioners challenged the legality of premium and cost-sharing subsidies on the exchanges that were established by the Department of Health and Human Services (HHS) in 34 states. They contended that the tax code restricts subsidies to individuals who enroll in coverage through a state-based marketplace (SBM) when it provides that the amount of the subsidy is based on premiums in an exchange “established by the State.”

The Administration, however, defended an IRS rule that makes subsidies available on SBMs and FFMs alike, contending that section 1321 of the ACA makes FFMs equivalent to SBMs. In its decision, the Court states, “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B [of the Internal Revenue Code, amended by the ACA to provide for premium tax credits to help eligible individuals and families afford health insurance coverage] can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt…The Court holds that when the Patient Protection and Affordable Care Act says ‘Exchange established by the States’ it means ‘Exchange established by the State or the Federal Government’.”

Implications of Court’s Decision

An adverse ruling would have put millions of individuals who obtained coverage under the ACA in states with an FFM at risk of becoming uninsured without further action on the part of federal and state policymakers. To date, 14 states (including the District of Columbia) have elected to set up their own marketplaces, and three states have a federally supported SBM. The remaining 34 states would have been affected by the Court’s decision, including seven states with a state-partnership marketplace (SPM), and 27 states with an FFM. Individuals in the 27 states currently relying on an FFM and the seven states with an SPM would have lost access to subsidies. Nearly 7.5 million individuals who selected a plan for 2015 in a state with an FFM or SPM qualified for premium subsidies, and it is estimated that more than 12.5 million people are eligible for premium subsidies in states with an FFM or SPM. Without premium assistance, the vast majority of these enrollees would have likely dropped their coverage because they wouldn’t have been able to afford the unsubsidized cost, potentially resulting in severe and perhaps fatal disruption of the individual insurance markets in these states.

Additionally, an adverse decision would have essentially nullified the requirement that large employers offer coverage to full-time employees (FTE) in these states. The penalty associated with the employer mandate is triggered when a FTE is not offered employer-sponsored coverage and qualifies for a marketplace premium or cost-sharing subsidy. If marketplace subsidies were unavailable in states with an FFM, the penalty against a large employer that does not offer coverage would not be triggered.

While an adverse ruling would have had no immediate effect on Covered California and its 1.2 million consumers receiving subsidies because it is an SBM, California could have been affected in the following ways:

  • The [potential] revisions to the health law would have affected all state exchanges and would have possibly reduced the amount of federal assistance available to consumers;
  • The Court’s ruling could have confused Covered California enrollees, causing them to stop paying premiums;
  • Multi-state health plans participating in exchanges could have been adversely impacted, which could have affected premiums nationwide.

More than 1.3 million Californians are enrolled in Covered California, and nearly 90 percent receive some level of federal subsidy. About 120,000 enrollees pay less than $10 per month after accounting for that assistance. Overall, Californians received $3.2 billion in premium subsidies during the first open enrollment period. The average monthly subsidy was $436 per household.

The Court’s decision is attached.