Employee Benefits & Executive Compensation

Action Item: Yesterday's Supreme Court ruling to uphold the premium tax subsidy regime of the Affordable Care Act is of critical importance to individuals and employers alike regarding the availability of federal tax subsidies in states that have not established a health insurance exchange and the applicability of “shared responsibility” excise taxes, respectively.

In King v. Burwell, issued June 25, 2015, the United States Supreme Court upheld the nationwide premium tax subsidy regime of the Affordable Care Act (“ACA”). Much was at stake. The central issue of the case was whether millions of dollars of federal tax subsidies are available for the individual purchase of health insurance in states that have not established a health insurance exchange. Only 15 states plus the District of Columbia have established such exchanges. In all other states, the health insurance exchanges are established and run by the federal government. As a result of the Supreme Court’s holding, all individuals who have a household income between 100 percent and 400 percent of the federal poverty level and are not eligible for robust employer provided coverage, may purchase insurance in the state in which they reside, even if that state has not established an Exchange, and those individuals continue to be eligible to use the premium tax subsidy to do so. The Supreme Court’s decision was 6-3, with Chief Justice Roberts writing the majority opinion. The Supreme Court’s decision was solely and very simply a matter of statutory construction and legislative intent. The Supreme Court correctly observed that without the subsidies, the entire interconnected ACA structure is at risk. In the Supreme Court’s view, such a result could not have been the intent of the Congress that enacted the Affordable Care Act.

Although not frequently discussed, much was also at stake for employers. As we have frequently written, “applicable large employers” are potentially subject to a “shared responsibility” excise tax if they do not offer all full-time employees robust health care coverage and any full-time employee purchases insurance on an Exchange with a premium tax subsidy. A ruling against the premium tax subsidy regime by the Supreme Court would have meant that those employers who only have employees residing in states that have not created an Exchange would have no liability for the excise tax—and less incentive to offer coverage—because those employees literally would not have been eligible for premium tax subsidies. Therefore, for better or for worse, the shared responsibility excise tax regime survives.