In a 6-3 decision, the Supreme Court ruled on Tuesday that health insurance tax credits are available on 34 federal exchanges. The court’s opinion in King v. Burwell focused largely on the consequences of ruling to the contrary – the destruction of health insurance markets. The technical legal question that was considered in this case was whether a federal exchange is “an exchange established by the state” that may offer tax credits.
The Supreme Court said yes, concluding that “an exchange established by the state” is ambiguous, but that it became clearer when viewed in the context of the entire statute. Specifically, the court said if tax credits weren’t available on federal exchanges, “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.”
Chief Justice Roberts’ analysis of the “an exchange established by the state” language is simple and pragmatic:
"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. [The statutory language at issue] can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt."
Thus the status quo remains: If an individual otherwise eligible for a tax credit buys health insurance on a state or a federal exchange, the tax credit will be available. Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan joined the majority opinion. Justices Scalia, Thomas, and Alito dissented. (Stay up-to-date on Supreme Court cases important to state and local governments through the State and Local Legal Center.)
Now that ACA is again established as law of the land, GFOA continues to monitor a mechanism built into the ACA that would partially fund the law. The so-called “Cadillac Tax” (arguably a misnomer due to its broad potential impact) is a non-deductible excise tax of 40% of the value of employer-sponsored health coverage that exceeds certain benefit thresholds – $10,200 for self-only coverage and $27,500 for family coverage. The tax is expected to affect the health plans of employers of all types, but it will hit health plans of state and local governments especially hard, as benefits serve as a main tool for recruitment and retention in the public sector.
GFOA continues to monitor legislative efforts during this Congress to eliminate the excise tax, including two bills introduced that would suggest bi-partisan support. Congressman Joe Courtney (D, CT) introduced H.R. 2050 and Congressman Frank Guinta (R, NH) introduced H.R. 879 earlier this year. Both bills would effectively repeal the excise tax, but neither has bi-partisan support standing alone. As congressional discussions continue on these legislative proposals, GFOA will continue to keep you informed on the status of these discussions and continue to encourage you to engage your members on the potential impact of the excise tax on your jurisdiction.
If you are able to send a letter on behalf of your jurisdiction, please also consider sending it along to Emily Brock, senior policy advisor, GFOA Federal Liaison Center.