Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.
The U.S. Supreme Court has agreed to weigh in on the issue of whether the IRS has the authority, under the Affordable Care Act (ACA), to extend tax credits to consumers shopping on the federal Marketplaces.
Pursuant to the requirements of the ACA, each state has a Marketplace where individuals and small businesses can purchase healthcare coverage. Under the ACA, the states had the right to decide whether they would establish and manage their own Marketplaces or have them run by the federal government. The federal government runs the insurance Marketplaces in the 36 states that declined to establish their own Marketplaces. Currently, individuals whose household income falls below a certain threshold and who purchase insurance via their state’s Marketplace qualify for tax subsidies from the IRS to offset the cost. The subsidies are available regardless of whether a state’s Marketplace is run by the state or federal government. However, litigants in both Halbig v. Burwell (D.C. Circuit) and King v. Burwell (Fourth Circuit), have challenged the validity of subsidies provided where the Marketplace is run by the federal government. Their argument centers on references in the ACA that tie these subsidies solely to an “Exchange established by the State.” On the same day in July that the U.S. Court of Appeals for the D.C. Circuit ruled against federal subsidies in Halbig, the Fourth Circuit unanimously found in favor of federal subsidies in King.
The U.S. Supreme Court granted certiorari to challengers of the King v. Burwell decision. If the Supreme Court sides with the challengers, tax credits will not be available to consumers in states where there is no state-established Marketplace and insurance may become unaffordable for many consumers in these states. We will continue to follow this issue and report on further developments.