On Thursday, June 25, the Supreme Court handed down one of its most momentous decisions for employers in years. In simple terms, "Burwell" (Obamacare) won, and "King" (the plaintiffs) lost.

In a case that has grabbed national attention since arguments were made in front of the Court in March, the Supreme Court has rules that the Affordable Care Act may provide nationwide tax subsidies designed to help poor and middle-class people purchase health insurance.

The ruling was six in favor of "Burwell," three in favor of "King." In writing the majority opinion, Chief Justice John G. Roberts, Jr., wrote that the words in question "an exchange established by the state" must be understood as part of a larger statutory plan. "In this instance, the context and structure of the act compels us to depart from what would otherwise be the most natural reading of the pertinent statutory phrase."

Some background: The ACA was set up to encourage each state to set up its own exchange. If it did not, individuals in those states could purchase insurance from a specially set-up Federal exchange.

Since that time, 34 states declined to set up their own insurance exchanges and were placed into a Federal exchange; 13 states, plus the District of Columbia, set up their own health insurance exchanges; and the remaining three states have state marketplaces, but use the Federal exchange to determine subsidy eligibility.

The ACA also included language such that lower-income individuals whose incomes fall within a set range would be eligible for premium assistance tax credits to purchase health insurance "through an exchange established by a state." The statute did NOT say that such credits would be available for purchases made through exchanges established by the Federal government.

However, in 2012, two years after the passage of the ACA, the Internal Revenue Service issued a rule stating that the tax credits would be available to purchases not just under state exchanges, but also in the states in which the Federal government operates the exchange.

This led to a challenge to the IRS's rule that extended ACA exchange subsidies to otherwise qualifying individuals who purchase coverage on the Federal exchange, not just state exchanges. The suit claimed that the IRS acted illegally by extending health insurance subsidies to people in states operating under the Federal exchange. It argued that ACA language stipulates that insurance subsidies should only be available in states that set up their own exchanges, not states that rely on the Federal exchange.

If the plaintiffs had won, the employer mandate would be void in the states utilizing the Federal exchange, because employers could not be penalized if their workers went to the exchanges for insurance. In other words, no exchange subsidies would mean no employer mandate penalties. In sum, employers in the states that did not set up their own exchanges would be exempt from the employer mandate, because no federal outlays would be made to trigger the penalty.

In response to the ruling, Rep. Steve Chabot (R-OH), chair of the House Small Business Committee, made the following statement: "For the last five years, Washington has tried to figure out what's actually in Obamacare. If you really want to understand Obamacare, you don't have to sift through the thousands of pages of poorly-designed and ineptly-implemented law. You just have to look at your premium statement. You have to look at hour health care bills. Americans and small businesses tell us every day how this law is burdening them."

Instant Insights /

PPACA to provide tax subsidies to help poor and middle-class

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