The Affordable Care Act Lives On

On June 25, 2014, the U.S. Supreme Court ruled 6-3 to allow millions of Americans to continue to receive subsidies received through federal health insurance exchanges established by the Affordable Care Act (ACA).

The case was King v. Burwell, and the issue was whether people in states where health insurance was purchased through the federal-run marketplace were eligible for subsidies under the ACA, or whether those subsidies were limited to state-run exchanges. Subsidies outlined in the ACA made healthcare affordable to low and middle income Americans. Over 7 million Americans who signed up for health insurance through the ACA-created marketplaces in both state and federal exchanges were eligible for tax credits. Without these credits, many Americans would be exempt from the individual mandate because the cost of healthcare would be too high.

When the ACA was implemented, states had the option to create their own marketplace or use the federally-established Healthcare.gov. Thirty-four states, including Virginia, did not establish their own exchanges but, instead, allowed residents to purchase health insurance through the federal marketplace. Four Virginia residents brought suit arguing that, based on the words “established by the state” found in the ACA[1], subsidies were only intended for those individuals who purchased health insurance through state-run exchanges. A conflicting IRS regulation allows for subsidies for individuals who purchased health insurance “through an exchange,”[2] and an “exchange” can be formed “regardless of whether the exchange is established and operated by a State… or by HHS.”[3] Legislators involved in writing the ACA chalked the discrepancy up to nothing more than a drafting error based on “inadvertent language” in the ACA, and none publicly supported the plaintiff’s contentions that Congress intentionally restricted subsidies to the state marketplace.

HLTHeadline_6.9.15Plaintiffs argued for a literal interpretation of the ACA and propounded that Congress intentionally restricted the payment of tax subsidies to state-run exchanges to encourage states to develop their own marketplace. The government argued, and the Supreme Court agreed, on a broader interpretation of the entire ACA, and proposed that the IRS regulation was a permissible interpretation.

The majority stated their role as justices was “confined to say what the law is,” and “respect[ing] the role of the legislature,” asserting that they should looking to the legislative plan of the ACA, which was to improve healthcare markets, not destroy them. The majority found that although the words “established by the state” seem unambiguous in isolation, the meaning of those words are weakened by looking at the ACA as a whole. The court concluded that a small drafting snafu should not prevent qualifying individuals from receiving and retaining subsidies.

The dissent opined that “words no longer have meaning” if the “interpretive jiggery-pokery” promulgated by the majority is correct. The dissent agreed with the majority that statutes must be understood by looking to the context of the law, but cautioned the majority from using context as an excuse to rewrite the law. The dissent stated that there are only two ways to set up an exchange: either through the state marketplace or the federal marketplace. The dissent reasoned that, by saying an exchange set up through the federal marketplace is the same thing as an exchange set up through the state marketplace, the phrase “by the state” would have no operative effect, violating elementary principles of statutory interpretation. The dissent concluded that the ruling was yet another “somersault of statutory interpretation” the Supreme Court has performed to save the ACA.

This ruling allows the ACA to continue functioning as it did before, allowing all Americans who are insured through the ACA to continue to receive subsidies whether their insurance is purchased through a state or the federal marketplace.

To view the opinion click here.

[1] See 26 U.S.C. 36B(b)(2)(A)

[2] See 26 CFR 1.36B-2(a)(1)

[3] See 45 CFR 155.20

Download a PDF.

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