The US Supreme Court today announced its decision in a critical tax case with significant ramifications on the Affordable Care Act (ACA). In the case of King v. Burwell, in a 6-3 decision the Court ruled that taxpayers who purchase health insurance on a federal healthcare marketplace exchange (federal exchange) are entitled to subsidized premium credits.
The case centered around whether the IRS exceeded its authority to interpret a certain provision in the ACA as allowing federally subsidized premium credits to enrollees in the federal exchange. The language in the statute (26 U.S.C § 36B(b)(2)(A)) could be interpreted to limit the availability of these credits to taxpayers enrolling in qualified health plans on the state sponsored exchanges (state exchanges). Many observers argue that such an interpretation does not reflect Congressional intent as the time the ACA was enacted. Under the ACA states are free to either setup their own exchange for their residents or allow their residents to purchase healthcare insurance on the federal exchange if they weren’t otherwise insured.
Why is this important?
Under the ACA, employers can be assessed a penalty if their employees are offered a subsidy. If the subsidies cannot be offered to those individuals participating on the federal exchange, employers in those states presumably would not be liable for the penalty. This could create a funding issue to maintain the law. Another critical aspect is that with the lack of subsidies for those purchasing insurance via the federal exchange is that the insurance would become unaffordable for many, if not most, individuals enrolled or planning to enroll on the federal exchanges.
Impact of the Court’s decision.
With today’s decision, individuals purchasing health insurance through either the federal or a state sponsored exchange remain eligible for federal subsidies to offset the cost of their health coverage.
For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.
The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.