Source: https://www.jacksonlewis.com/resources-publication/what-supreme-court-s-decision-affordable-care-act-subsidies-means-employers
Timestamp: 2019-04-22 16:46:45+00:00

Document:
The Internal Revenue Service was authorized to issue regulations extending health insurance subsidies to coverage purchased through health insurance exchanges run by the federal government or a state, the U.S. Supreme Court has ruled in a 6-3 decision. King v. Burwell, No. 14-114 (June 25, 2015).
This means employers cannot avoid employer shared responsibility penalties under Internal Revenue Code section 4980H (“Code § 4980H”) with respect to an employee solely because the employee obtained subsidized exchange coverage in a state that has a health insurance exchange set up by the federal government instead of by the state. It also means that President Barack Obama’s 2010 health care reform law will not be unraveled by the Supreme Court’s decision in this case. The law’s requirements applicable to employers and group health plans continue to apply without change.
Internal Revenue Code section 36B (“Code § 36B”), created by the Patient Protection and Affordable Care Act of 2010 (“ACA”), provides that an individual who buys health insurance “through an Exchange established by the State under section 1311 of the Patient Protection and Affordable Care Act” (emphasis added) generally is entitled to subsidies unless the individual’s income is too high (or too low, in which case, the individual is entitled to Medicaid or another subsidized health program). Thus, the words of the statute conditioned one’s right to Code § 36B subsidies on one’s purchase of ACA § 1311 state-run exchange coverage.
Since 2014, an individual who fails to maintain health insurance for any month generally is subject to a tax penalty under Code § 5000A unless the individual can show that no affordable coverage was available. The law defines affordability for this purpose in such a way that, without a subsidy, health insurance would be unaffordable for most people.
The plaintiffs in King, residents of one of the 34 states that did not establish a health insurance exchange under ACA § 1311 (hereinafter called a “1311 exchange”), argued that if subsidies were not available to them, no health insurance coverage would be affordable for them and they would not be required to pay a penalty for failing to maintain health insurance. The IRS, however, made subsidized exchange coverage available to them just as if they resided in a state with a 1311 exchange.
Each State shall, not later than January 1, 2014, establish an American Health Benefit Exchange (referred to in this title as an “Exchange”) for the State that (A) facilitates the purchase of qualified health plans; (B) provides for the establishment of a Small Business Health Options Program … and (C) meets [specific requirements enumerated].
Section 1311 further provides for the Secretary of the Treasury to impose certain administrative and operational requirements on each state in order for the state to receive funding for its 1311 exchange. An entirely separate section of the ACA provides for the establishment of a federally-run exchange for individuals to buy health insurance if they reside in a state that does not establish a 1311 exchange. That section – ACA § 1321 – also withholds funding from a state that has failed to establish a 1311 exchange.
Notwithstanding the statutory language Congress used in the ACA (i.e., literally conditioning an individual’s eligibility subsidized exchange coverage on the purchase of health insurance through a state’s 1311 exchange), the Supreme Court determined that the language is ambiguous. Having found that the text is ambiguous, the Court stated that it must determine what Congress really meant by considering the language in context and with a view to the placement of the words in the overall statutory scheme.
“Move along – nothing to see here, folks!” Regardless of whether one agrees with the Supreme Court’s King decision, the decision obviates any practical purpose for further discussion about whether the IRS had authority to extend taxpayer subsidies to individuals who buy health insurance coverage on federal exchanges.
Move on to the ACA’s next major compliance requirements for employers: Employers with fifty or more fulltime and fulltime equivalent employees need to ensure that they are tracking hours of service and are otherwise prepared to meet the large employer reporting requirements for 2015 (due in early 2016)). (For details, see our articles, Health Care Reform: Employers Should Prepare Now for 2015 to Avoid Penalties and What’s Next for the Affordable Care Act…Information Reporting.) Employers of any size that sponsor self-funded group health plans need to ensure that they are prepared to meet the health plan reporting requirements for 2015 (also due in early 2016). All employers that sponsor group health plans also should be considering whether and to what extent the so-called Cadillac tax could apply beginning in 2018.
If you have any questions about this or other workplace developments, please contact the Jackson Lewis attorney with whom you regularly work.

References: v. 
 § 4980
 § 36
 § 36
 § 1311
 § 5000
 § 1311
 § 1321