In January, we reported that the Supreme Court of the United States granted review in King v. Burwell to decide whether under the Patient Protection and Affordable Care Act (ACA) the Federal Government could offer subsidies to individuals who purchase health insurance through federally-funded exchanges. The ACA requires all Americans to have health insurance or pay a fine. As an incentive for individuals to purchase health coverage, the ACA encourages states to create exchanges, or marketplaces, where individuals can shop for insurance. Federal exchanges operate in states that fail to establish their own exchanges. California is one of fourteen states that created a state exchange, known as Covered California. To make insurance affordable for low-income consumers, the ACA offers federal subsidies, or tax credits, to qualified individuals through the state and federal exchanges. Approximately three-dozen states have federally-run exchanges with more than six million people receiving subsidies through these federal exchanges.
Yesterday, the Supreme Court ruled that ACA permits the Federal Government to provide subsidies to qualified individuals through both state and federally-run exchanges. The Supreme Court’s holding answered the question of whether an ambiguous phrase in the law was to be interpreted to only permit the Federal Government to provide subsidies to individuals who bought insurance through “Exchanges established by the State,” but not available through the federally-run exchanges.
The Internal Revenue Service’s (IRS) ACA regulation says that subsidies are permitted in state and federally-run exchanges. The plaintiffs/appellants argued, however, that the plain language of the ACA, which reads that qualified tax payers may receive subsidies when enrolled in “[e]xchanges established by the State,” precluded subsidies for persons enrolled in federally-run exchanges.
The Supreme Court agreed with the IRS’ interpretation, finding that “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.” Interpreting the statutory language to prohibit subsidies in federally-run exchanges would destabilize the individual insurance market, a central tenet of the ACA, and have disastrous economic consequences which Congress did not intend.
As California established a state-run exchange, this Supreme Court decision does not have direct implications for California. However the June 25, 2015 decision could have long term impacts, including signaling that the ACA’s statutory language should not be interpreted in a way that diminishes individual rights’ to purchase affordable and minimum essential health care coverage.