In a new threat to the Affordable Care Act the U.S. Supreme Court announced November 7 that it will review lower court decisions on an Internal Revenue Service interpretation of a key provision in the landmark healthcare reform law.

At issue are conflicting federal appeals court decisions on the exact meaning of language in the Affordable Care Act that government subsidies may be available to individuals who enroll in health insurance through exchanges that “are established by the state.”  

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Supreme Court Will Review Affordable Care Act: What Does It Mean?

Tue Nov 11, 2014

In a new threat to the Affordable Care Act the U.S. Supreme Court announced November 7 that it will review lower court decisions on an Internal Revenue Service interpretation of a key provision in the landmark healthcare reform law.

At issue are conflicting federal appeals court decisions on the exact meaning of language in the Affordable Care Act that government subsidies may be available to individuals who enroll in health insurance through exchanges that “are established by the state.”

IRS, in providing regulatory guidance, interpreted that language broadly to mean that ACA subsidies would also be available to individuals who purchase insurance on an exchange established by the federal government.

A three-judge panel of the D.C. Appeals Court found that IRS erred and that such subsidies are illegal. Another federal appeals court conceded that the statutory language is ambiguous but held that the 2010 law intended that government subsidies be permissible for the federal insurance exchange.

The federal-state distinction is significant because 36 states decided not to establish their own exchanges, leading some 5 million people to enroll in the federal exchange, 90 percent of whom qualified for a federal tax credit subsidy.

A previous blog provided details on federal appeals court decisions in July of this year in Halbig v. Burwell in the U.S. Court of Appeals for the District of Columbia and in King v. Burwell in the Fourth Circuit Court of Appeals in Richmond, VA.

Arguments are expected before the High Court in March and a final decision next June.  If the Court agrees with the D.C. Circuit Court of Appeals that IRS misinterpreted the Affordable Care Act, and therefore that enrollees in the federal exchange are not entitled to government subsidies, it could have disastrous consequences for the healthcare reform law.

The most obvious effect of an adverse Supreme Court decision would be that the majority of ACA enrollees would no longer be entitled to subsidies to help pay their insurance premiums. Most would then find premiums for bronze, silver, gold or platinum level coverage unaffordable, further depressing enrollment and spiking premiums.

More ominously for the law, the so-called “Individual Mandate” that people buy health insurance or pay a fine, would no longer be viable, since without subsidies most would be unable to afford mandated coverage.

Finally, declaring subsidies illegal for federal exchanges would undermine the employer “Play or Pay” mandate, since penalties for failure to offer affordable coverage to full-time employees can be only triggered by subsidy payments.

Put simply, striking down subsidies for federal exchange enrollees would be tantamount to the Supreme Court striking down the Affordable Care Act itself.

2015 Outlook

The Affordable Care Act, President Obama’s signature healthcare reform law, was put in double jeopardy last week. First, on Election Day Republicans won control of the U.S. Senate, pledging in their campaigns to peel back significant portions of the healthcare reform law.

Three days later the Supreme Court announced that it would review the IRS interpretation of the subsidies provision, signaling that it might undo a central pillar of the law.

These two events guarantee that the Affordable Care Act will be in the national spotlight next year, with legislation percolating on Capitol Hill and a dramatic High Court decision to be handed down in June. They also gurantee that from an employer compliance standpoint, the only thing certain about the ACA is uncertainty.