U.S. Supreme Court Upholds IRS PPACA Rule Regarding Subsidies

In this case, the Court was asked to interpret language contained in the Patient Protection and Affordable Care Act of 2010 (“PPACA”) that authorizes individuals who purchase health insurance through a marketplace known as an “exchange” to receive tax credits a/k/a subsidies. The actual language of the PPACA statute provides that individuals may receive a subsidy if they purchase and are enrolled in health insurance through an exchange “established by the State.” Thirty-four states, including South Carolina, opted not to establish a State-based exchange and instead, individuals in these states can only purchase health insurance through an exchange established by the federal government. The ultimate issue for the Court was whether individuals who purchased insurance through a Federal exchange qualified to receive these subsidies.

The Court sided with the federal government and ruled that any individual who purchases health insurance through an exchange, regardless of whether it is a State or Federal exchange, may qualify for the tax subsidy.

This ruling is an important confirmation for large employers that their “Shared Responsibility” obligations under PPACA will not be going away any time soon. Under the framework of PPACA, the Employer Shared Responsibility penalties are only triggered if:  (i) employees who should have been offered health insurance coverage were not offered such coverage by the employer and instead purchased health insurance on an exchange, and (ii) such employees received subsidies. For employers in the 34 states that did not establish state-based exchanges, a ruling against the federal government could have meant that the IRS enforcement scheme of the Shared Responsibility requirements against large employers would have been gutted. However, the Court’s ruling today has largely left that enforcement scheme intact.

A copy of the Court’s opinion can be found at: https://www.supremecourt.gov/opinions/boundvolumes/576BV.pdf