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Supreme Court hears arguments in challenge to health care premium tax credits

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The Supreme Court on March 4 heard oral arguments in King v. Burwell, No. 14-114 (2015), which challenges whether taxpayers obtaining health insurance coverage through a federally established insurance exchange can use Section 36B premium tax credits. A successful challenge would eliminate credits for taxpayers in 37 states and would have larger implications for overall health care reform legislation and the excise taxes that employers face when their employees receive coverage.  

Under Section 36B, the Affordable Care Act (ACA) created a new tax credit subsidy for certain taxpayers who obtain health insurance coverage under new state exchanges created by the law. The ACA also provided that if a state decided not to create an exchange, the federal government would create one instead.  

Section 36B authorizes federal tax credit subsidies for health insurance coverage that is purchased through an “Exchange established by the State,” but the IRS promulgated regulations under Treas. Reg. Sec. 1.36B-2 stating that the Section 36B credit is available to taxpayers who are enrolled in exchanges run by either the state or the federal government.

The petitioners who challenged the law and the IRS regulations argue that based on the statutory language of the ACA, the Section 36B credit is available to only those taxpayers who obtain health insurance through a state-established exchange and not a federal exchange. The government contested this, arguing that the IRS’s interpretation of the statute was permissible.  

A ruling against the IRS’s interpretation would mean that taxpayers in the 37 states that have exchanges run by the federal government wouldn’t qualify for credits. In addition, if the regulations were ultimately ruled invalid, employers with employees in only the 37 states with federal exchanges would presumably no longer be required to pay excise taxes for any failure to meet ACA coverage requirements. Employers with employees in the 13 states and the District of Columbia that use state-run exchanges would still be subject to excise tax if the coverage requirements weren’t satisfied.

Cutting the tax credits for taxpayers in 37 states could influence the effectiveness and interaction of other ACA provisions, and could make it difficult to continue administering the ACA as it is. House Ways and Means Committee Chair Paul Ryan, R-Wis., along with other committee chairs, are preparing alternative legislative plans to transition from the ACA if the Supreme Court rules against the government. The current plan would allow states to create refundable credits for individual health insurance expenses, but details aren’t yet available.

Supreme Court justices appeared to challenge the arguments lawyers for both sides, and it is difficult to predict an outcome based on oral arguments. The Court’s decision is expected by the end of June.

Contacts
Eddie Adkins
+1 202 521 1565
eddie.adkins@us.gt.com

Jeffrey Martin
+1 202 521 1526
jeffrey.martin@us.gt.com

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