Employee Benefits-Supreme Court Rules That Code Section 36B Tax Credits (That Is, The Health Care Subsidies) Are Available When Health Insurance Is Purchased On A Federal Exchange

In King v. Burwell, No. 14-114 (Supreme Court 2015), the Court faced a key question arising under the Affordable Care Act.

The Background: The Affordable Care Act contains a number of reforms, including:

— the requirement that individuals either purchase health insurance coverage or pay a penalty to the IRS (unless the cost of purchasing insurance would exceed eight percent of that individual’s income);

–making insurance more affordable by giving refundable tax credits, under section 36B of the Internal Revenue Code, to individuals with household incomes between 100 percent and 400 percent of the federal poverty line; and
–requiring the creation of an “Exchange” in each State–basically, a marketplace that allows people to compare and purchase health insurance plans.

The Exchanges, Tax Credits And The Issue: The Affordable Care Act gives each State the opportunity to establish its own Exchange, but provides that the Federal Government will establish “such Exchange” if the State does not. Relatedly, the Act provides that tax credits “shall be allowed” for any “applicable taxpayer,” but only if the taxpayer has enrolled in an insurance plan through an Exchange established by the State. Section 36B(a) -(c). The Issue becomes whether the tax credits are available when the individual has enrolled in (that is, purchases) health insurance offered under an Exchange established by the Federal Government. An IRS regulations indicates that the tax credits are so available.

Holding By The Court: Section 36B’s tax credits are available to individuals in States that have a Federal Exchange, and who purchase health insurance through that Federal Exchange.