On March 4, the U.S. Supreme Court heard oral arguments in King v. Burwell on the issue of whether subsidies may be offered in states that use an Exchange established by the federal government.

Background. The Affordable Care Act (ACA) states that individuals will be eligible to receive a subsidy with respect to coverage they purchase “through an Exchange established by the State.” The Treasury Department has taken the position that individuals may be eligible for a subsidy if they participate in an Exchange established by a state or the federal government. In King, this interpretation of the ACA was challenged.

Impact of the Court’s Decision.  Whether or not the subsidy is available under all Exchanges is very significant.

• Impact on Individuals. Approximately 87% of over 7 million individuals with coverage under an Exchange established by the federal government receive a subsidy. The large majority of these individuals could not afford the coverage without the subsidy, and probably would have to drop the coverage if the Court decides against the government.

• Impact on Exchanges. A significant drop in coverage in the 34 federally-established Exchanges would severely disrupt coverage in those Exchanges. Many commentators believe that this disruption would lead to spiraling premium increases in those Exchanges, eventually leading to their demise.

• Impact on the Employer Mandate. Employer mandate penalties only apply if an applicable large employer member fails to offer compliant coverage to full-time employees, and a full-time employee buys coverage on an Exchange and receives a subsidy. As a result, an employer, which operates only in states with federally-run Exchanges and which does not comply with the employer mandate, will be able to avoid all employer mandate penalties. As long as other employers offer minimum essential coverage to at least 95% of their full-time employees (70% in 2015), those employers will also avoid all employer mandate penalties.

Petitioners’ (King) Position.  The petitioners contend that an Exchange established by the federal government within a state that failed to establish an Exchange is not “an Exchange established by the State.” Therefore, subsidies may not be provided for coverage purchased through an Exchange established by the federal government. The petitioners further argue that the Treasury Department’s interpretation of the ACA  is not entitled to deference because it is contrary to the unambiguous language of the ACA.

Respondents’ (Burwell) Position.  The federal government counters that the ACA’s “text, structure, and history demonstrate that tax credits are available through the Exchanges in every State.” As a result, subsidies are allowed in states that use an Exchange established by the federal government. Alternatively, because the ACA is ambiguous on the issue, the Treasury’s interpretation of the subsidy provision is entitled to deference.

Analysis. Oral arguments indicated that the Supreme Court is divided on this issue. The justices also showed that many of them have already made up their minds as they argued strenuously against the positions of attorneys for the opposing position. For example:

• At the outset, Justice Ginsburg questioned whether the petitioners were even permitted to challenge this portion of the ACA.   

• Later in oral argument, Justices Kennedy and Sotomayor expressed concern about the potential consequences of agreeing with the petitioners’ reading of the ACA — under which states would be unconstitutionally threatened with the destruction of their health insurance markets as a result of not establishing Exchanges.

• Justice Alito questioned whether the potential consequences could be avoided by issuing an opinion that would only impact future tax years. 

• However, Justice Scalia cautioned that the Supreme Court does not concern itself with the potential consequences of interpreting a law in a certain way if the law can only be interpreted in one way.

Obviously, the impact of this case will not be known until the Supreme Court issues its decision. Whichever way the case is decided, this decision will be one of the most impactful and closely watched of the U.S. Supreme Court’s 2015 term.

Contact Information.  For more information from Mazursky Constantine, please contact Don Mazursky (404.888.8840), Amy Heppner (404.888.8825), Kelly Meyers (404.888.8838) or Angela Roberts (404.888.8822).  For information from VCG Consultants, please contact Leslie Schneider (770.863.3617).