On June 25, 2015, the United States Supreme Court released its much anticipated King v. Burwell decision regarding the validity of premium assistance issued by Federally-run Marketplaces. Chief Justice Roberts, writing for the 6-3 majority, agreed with the Internal Revenue Service’s (IRS) interpretation that premium assistance under the Patient Protection and Affordable Care Act of 2010 (the “ACA”) is available to individuals who purchase coverage on both State-run and Federally-run Marketplaces. With the Supreme Court’s King ruling, the provisions of the ACA have prevailed in two of four key challenges (the Court upheld the individual mandate, but rejected a requirement that states expand Medicaid, in National Federation of Independent Business v. Sebelius and rejected the contraceptive mandate in Burwell v. Hobby Lobby Stores, Inc.).
The primary issue in King was whether the statutory language of the ACA authorized the IRS’s interpretation that premium assistance is available to individuals who purchased insurance coverage through Federally-run Marketplaces. The ACA added Section 36B to the Internal Revenue Code (the “Code”), which provides that the amount of premium assistance is based on the premium paid by a taxpayer enrolled through a “[Marketplace] established by the State under Section 1311” of the ACA. Section 1311 of the ACA provides that States must establish a Marketplace, but if no Marketplace is established by the deadline (January 1, 2014), Section 1321 of the ACA requires the Department of Health and Human Services (HHS) to establish “such [Marketplace]” within the State.
The petitioners (those challenging the IRS’s interpretation) argued that Code Section 36B is unambiguous, stating that to receive premium assistance, an individual must enroll in a Marketplace established by the State and the IRS had no authority to interpret the statute otherwise. The respondents (the IRS, HHS and Department of Labor) also argued that the language of the ACA is unambiguous while coming to the opposite conclusion – based on Section 1321 and other sections of the ACA, a Marketplace established by a State includes a Marketplace established by the Federal government due to the State’s failure or decision not to establish its own. The district court dismissed the petitioners’ action holding that the language in Code Section 36B unambiguously made premium assistance available to individuals purchasing coverage on any Marketplace. Affirming the district court, the Fourth Circuit held that the language was ambiguous, but judicial deference to the IRS’s interpretation of the language was required under Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).
The Supreme Court ruled in favor of the Federal government, holding that although the language in Code Section 36B is ambiguous, the ACA’s overall statutory scheme and the structure of Code Section 36B itself indicate that premium assistance is not limited to individuals purchasing coverage on State-run Marketplaces. In reaching its decision, the Court rejected the framework under Chevron because the availability of premium assistance in states with Federally-run Marketplaces presented an issue of such “deep economic and political significance” that Congress would not have delegated to regulators.
Instead, the Court conducted its own analysis and determined that a statutory interpretation that premium assistance is available only to individuals purchasing coverage on State-run Marketplaces would effectively eliminate two of the ACA’s three major reforms (i.e., tax credits and the coverage mandate) in states with Federally-run Marketplaces. Without those market reforms, the insurance market in states with Federally-run Marketplaces would face “death spirals,” particularly where insurance companies continued to be subject to guaranteed issue and community rating requirements. That result, the Court decided, could not have been the intent of Congress. Therefore, the Court affirmed the Fourth Circuit, albeit on different grounds, and interpreted Code Section 36B as applying to both State-run and Federally-run Marketplaces.
The King decision is significant in the sense that, absent further state or Congressional action, a decision in favor of the petitioners could have significantly impacted the insurance marketplace, subsidies and the individual and employer mandates in the affected states. However, standing alone, the implications on ACA implementation are minimal. For the time being, ACA implementation will move forward, individuals meeting income requirements throughout the country will remain eligible for premium assistance and employers will remain subject to the employer mandate.