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Supreme Court Applies Health Insurance Tax Credits Nationwide

Gavel(July 1, 2015) By a 6 to 3 decision, on June 25th the U.S. Supreme Court interpreted the Affordable Care Act (ACA) to provide health insurance tax credits to individuals in States with Federal insurance Exchanges.  The law will thus apply uniformly throughout the country, although 16 States and the District of Columbia have established their own Exchanges and the remaining 34 States have elected to have the Federal government create an Exchange for them.   The controversy centered on the section 18031 of the ACA, providing that the amount of the health insurance tax credit depends in part on whether the individual has enrolled in an insurance plan through “an Exchange established by the State under section 1311.”

The lawsuit originated with several Americans who wanted to lose their tax credits so that their health insurance would exceed eight percent of their income, in which case they would be exempt from the ACA’s mandatory insurance coverage.  They argued that because the Federal government had created the Exchange in their State, they were not enrolled in an Exchange “established by the State under section 1311.”  The ACA created a Federal healthcare system with several mandates in addition to compulsory insurance coverage:

1) insurers must offer coverage to all individuals in the State (“guaranteed issue”);

2) insurers may not vary premiums according to health (“community rating”); and

3) the Federal government must provide tax credits to individuals with household incomes between 100 and 400 percent of the Federal poverty line.

According to Chief Justice Roberts, who wrote the majority opinion:  “Congress found that the guaranteed issue and community rating requirements would not work without the coverage requirement…And the coverage requirement would not work without the tax credits.  The reason is, without the tax credits, the cost of buying insurance would exceed eight percent of income for a large number of individuals, which would exempt them from the coverage requirement.”  Chief Justice Roberts noted that absent mandatory insurance coverage, individuals wait until they become sick to buy insurance.  As a result, insurers must raise premiums and many leave the market.  This is known as the “death spiral,” which may be avoided only by legislating all the pieces of the healthcare puzzle.

In essence, the majority of justices said that Congress could not have intended to withhold health insurance tax credits from States with Exchanges created by the Federal government.   First, the phrase at issue is ambiguous, in part because other sections of the ACA assume that tax credits will be available on both State and Federal Exchanges.  For example, section 18031(i)(3)(B) requires all Exchanges to distribute “fair and impartial information concerning…the availability of premium tax credits…”  Second, a reading of the ACA as a whole militates against the reading urged by the petitioners because “it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid.”  In 2014, approximately 87 percent of people who bought insurance on a Federal Exchange did so with health insurance tax credits, and virtually all would become exempt from mandatory insurance coverage without the tax credits, according to a government report.

In his dissent, Justice Scalia argued that the phrase at issue is unambiguous and that Congress could have intended to incentivize States to establish their own Exchanges.  He stated:  “Words no longer have meaning if an Exchange that is not established by a State is “established by the State.’”  Moreover, the ACA uses the phrase “an Exchange established by the State” on seven different occasions, but sometimes refers to Exchanges without the qualifying language.  As such, according to Justice Scalia, Congress “probably means something by the contrast.”

Gloria Frank_051815_0016-2Gloria Frank, Esq. is a health law attorney with the firm, Liles Parker, Attorneys & Counselors at Law.  Liles Parker has offices in Washington DC, Houston TX, McAllen TX and Baton Rouge LA.  Our attorneys represent health care professionals around the country in connection with government audits of Medicaid and Medicare claims, licensure matters and transactional projects.  Need assistance?  For a free consultation, please call: 1 (800) 475-1906.

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