Jun 25, 2015


The Obama administration breathed a sigh of relief today, as the U.S. Supreme Court, in a 6-3 decision, upheld the use of health insurance subsidies that was the central issue in King v. Burwell.  Chief Justice Roberts, writing for the Court, states, “If the petitioners are right…only one of the Act’s three major reforms would apply in States with a Federal Exchange. The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral.” The Court went on to say that it is implausible that Congress meant the Act to limit subsidies only to the States that established their own exchanges.

As a reminder, the case revolved around four words in the ACA – “established by the State.” Section 1311 of the ACA provides that health insurance subsidies are available for individuals enrolled in health plans through an Exchange “established by the State.”  The IRS has interpreted these words to permit subsidies for all health plans purchased through any exchange. The petitioners argued that these four words would only permit subsidies for residents of States that established their own exchanges, not the 34 States whose residents use the federal government exchange, through the website. If the petitioners had been successful, the ACA would have been potentially thrown into disarray, leaving Congress and the White House struggling with how to fix it.

Chief Justice John Roberts opinion for the Court was joined by frequent swing vote Justice Kennedy and the liberal justices, Bader Ginsburg, Breyer, Sotomayor and Kagen.  By upholding the federal subsidies, the ACA will continue to operate in its current form. The majority opinion also contains language that may be helpful to the current administration in future challenges to the ACA. Chief Justice Roberts states that the ACA has more than a few examples of inartful drafting, and finds that the phrase “established by the State” is ambiguous, and that the Court should look to the broader structure of the Act to determine a meaning that would be compatible with the rest of the law.  This analysis may lead lower courts to conclude that other provisions of the ACA that may be ambiguous should be upheld where possible.

 In a strong dissent, Justice Scalia, joined by Justices Thomas and Alito, declares that the decision was “quite absurd… in spite of the Court’s 21 pages of explanation.” Justice Scalia also emphasized that “The normal rules of interpretation seem to always yield to the overriding principle of the present Court: The Affordable Care Act must be saved.” His opinion is that the Court’s statutory interpretations regarding the ACA rewrites the law and “we should start calling this law SCOTUScare.”

After this decision, the Republicans controlling Congress will likely have to advance new legislation amending or repealing the law, although it is even more likely to be vetoed by President Barack Obama after this decision. This decision also sets up the 2016 presidential election as the ACA’s next big test, although it could be difficult to uproot the ACA even if Republicans take the White House.

The ACA will continue on its path to implementation in its entirety.  Employers should continue to prepare for compliance with the ACA’ s “Play or Pay” requirements, while keeping abreast of the ongoing litigation of remaining issues surrounding the ACA. For a copy of the U.S. Supreme Court’s opinion, click here

For more information on complying with the provisions of the ACA, including the “Play or Pay” employer mandate, contact your Executive Compensation and Employee Benefits Counsel at Smith, Gambrell & Russell, LLP.   

This client alert is intended to inform clients and other interested parties about legal matters of current interest and is not intended as legal advice.        

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