The U.S. Supreme Court has upheld an IRS regulation authorizing tax subsidies for state health care exchanges established and run by the federal government.
King v. Burwell challenges the implementation of federal insurance marketplaces under the Affordable Care Act.
Issue: Should subsidies for health insurance under the Affordable Care Act be available under federally-run exchanges in states that did not set up their own insurance marketplace?
Holding: Individuals may continue receiving subsidies under federal exchanges, and employers in all states are still subject to the "Pay or Play" penalty.
Executive Summary: The U.S. Supreme Court has upheld an IRS regulation authorizing tax subsidies for state health care exchanges established and run by the federal government. In King v. Burwell, the Court held that the language of the Affordable Care Act (ACA) is ambiguous and that the IRS regulation is a reasonable interpretation of the Act. Accordingly, subsidies remain available for health care coverage purchased on federally facilitated exchanges, and employers in those states are not exempt from the employer mandate. For a detailed discussion of the use of healthcare exchanges and the IRS regulation, please see our prior Alert, Federal Courts Issue Conflicting Decisions on Affordable Care Act Subsidies. Although a decision finding the subsidies invalid could have had major implications for the viability of the ACA, today's decision does not raise such issues, and employers should continue to comply with the requirements of the law.
What this Means for Employers: The Court's decision upholding the IRS's interpretation of the subsidy provision means that implementation of the ACA's provisions will continue as scheduled, at least for now. Accordingly, employers should continue to comply with the requirements of the law and should take steps to ensure they will be in compliance with any provisions that have not yet taken effect, such as the large employer mandate. However, employers should be prepared for opponents of the ACA to propose legislation that would repeal portions of the Act or cut off funding that the Administration needs to implement portions of the Act. In sum, it is unlikely that we have seen the last challenge to the Act, although future challenges will likely be directed at specific provisions.
If you have any questions regarding the Court's decision or other employee benefits issues, please feel free to contact the author of this Alert, Katelyn Winslow, kwinslow@fordharrison.com, or any member of FordHarrison's Employee Benefits practice group. You may also contact the FordHarrison attorney with whom you usually work.