This article is the first in a three-part series on the most recent Affordable Care Act case to be heard by the U.S. Supreme Court, King v. Burwell.
Congress enacted the Affordable Care Act (“ACA”) in March 2010 to “increase the number of Americans covered by health insurance and decrease the cost of health care.” While this goal initially appeared simple, the ACA has proved to be perplexing. Since its enactment, the ACA has presented the U.S. Supreme Court with significant legal challenges. In June 2012, the U.S. Supreme Court interpreted and upheld the constitutionality of the ACA as an exercise of Congress’ taxation power. Moreover, in March 2015, nearly three years later, the ACA will again present the significant legal challenge of statutory construction before the Court in the case of King v. Burwell.
The Burwell case comes from an appeal of a decision from the U.S. Court of Appeals for the Fourth Circuit upholding the IRS’s interpretation of the ACA to grant tax credits to individuals who purchase health insurance on both the state and federal exchanges. Specifically, the plaintiff in Burwell challenges the ACA language as to whether the Act allows health care enrollees to receive insurance subsidies when they purchase health insurance on an Exchange established by the federal government.
In order to increase the availability of affordable insurance plans, the ACA provided for the establishment of “American Health Benefit Exchanges” through which individuals could purchase health care coverage. While one section of the ACA requires each state to establish an Exchange where consumers can purchase health care, another section provides that if a state “elects” not to establish an Exchange, the Department of Health and Human Services (“DHHS”) would operate an Exchange within the state.
The ACA also requires most Americans to obtain minimal health care coverage or pay a tax penalty imposed by the IRS. However, the ACA allows some low-income individuals to be exempt from obtaining coverage under an unaffordability exemption if the annual cost of health care coverage exceeds eight percent of their household income. The plaintiffs in Burwell contend they should be eligible for the unaffordability exemption based on the language of the ACA.
The ACA provides tax credits to low and middle-income Americans to offset the cost of insurance policies purchased on the Exchanges. The statutory language of the ACA allows tax credits to be calculated according to the cost of an insurance policy purchased through a state-established exchange. Yet, under the regulations promulgated by the IRS, health care coverage is calculated based on tax credits received by individuals who purchase health insurance through either a state-run or a federally facilitated Exchange. Therefore, under the IRS regulations, very few individuals would qualify for the unaffordability exemption.
Currently, only sixteen states, plus the District of Columbia, have elected to set up their own state Exchanges while the remaining thirty-four states rely on federally-facilitated Exchanges. The Burwell plaintiffs, who are Virginia residents and therefore, served by a federally facilitated Exchange, would be exempt from the individual mandate under the ACA unaffordability exemption. However, because of the tax credits they would receive as a result of the IRS Rule, they would not be eligible for the exemption and instead, would incur some financial cost because they would be forced to either purchase insurance or pay the individual mandate penalty.