By now, we all know that the Supreme Court upheld the Affordable Care Act, also known as Obamacare. But are you one of the many that doesn’t really understand how it was being challenged in the first place?
The basic idea is that there are certain people who are opposed to the ACA — whether for political, social, economic or other reasons — and they are taking every opportunity they can find to repeal or curtail it. The best approach in this kind of legal challenge situation is to find language in the law that is ambiguous or incorrect. In this case, the challenge was with the language “an Exchange established by the State.”
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.” An IRS regulation interprets this as making the credits available on an exchange “regardless of whether the Exchange is established and operated by a State…or by [Health and Human Services].”
The best explanation I’ve seen for what happened in the end was by Bloomberg BNA state tax law editor Annabelle Gibson, quoted in Roger Russell’s article from Accounting Today:
“King V. Burwell upholds the validity of tax credits for individuals living in states that use the federal exchange, HealthCare.gov,” said Bloomberg BNA state tax law editor Annabelle Gibson. “That means individuals who purchase insurance through HealthCare.gov that are eligible for credits will continue to receive them to help pay for their health insurance.”
“The court focused on determining Congress’ intent when enacting the ACA when determining whether the words ‘Exchange established by the State’ include federal and state run exchanges,” she said.
“The court wrote that allowing credits for insurance purchased on any exchange will avoid the ‘calamitous result that Congress plainly meant to avoid’ when enacting the ACA, as the ACA was meant to increase access to health care throughout the United States,” Gibson remarked.
Applicable large employers who are subject to the employer mandate will continue to be liable for penalties for failing to offer minimum essential insurance coverage to their employees and their dependents, if employees purchase health insurance through any exchange and receive a tax credit, according to Gibson.
“If the tax credits had been struck down, employers in states using the federal exchange would not have been liable for a penalty even if an employee had purchased insurance through a federal exchange, because under the strict wording of the ACA, the penalty only applies if an employee received a tax credit to pay for their insurance,” she said. “Because the subsidies have been upheld, the employer mandate remains in place for all applicable large employers.”
Individuals in all states remain subject the individual mandate under the ACA, she indicated. “If subsidies had been struck down, then the cost of health care would have gone up for many people and it was possible that the cost of purchasing health care could have been greater than eight percent of those individual’s income, exempting them from the ACA’s coverage requirement,” she said. “That type of situation could have pushed insurance marketplaces into a ‘death spiral.’”
“However, because the subsidies remain intact, people can continue to use them to help pay for their health insurance, likely bringing the cost of their insurance under the 8 percent level,” said Gibson. “That means that the individual mandate would still apply if someone didn’t purchase health insurance.”
Great explanation — which had me presuming that there would be no accounting implications from the decision, since the status quo was being preserved. The decision found that the IRS regulations could continue being interpreted as intended.
However, another, related article from the same publication and author illustrated that in fact, there are some important implications that stem from this decision. In Serious Implications from the Supreme Court’s ACA Decision, Russell quotes Michael Greenwald, partner and corporate & business tax practice leader at Friedman LLP:
“If there were companies that were on the verge of not offering insurance, and sending their employees to the exchanges and paying the penalty, now they don’t have to worry about the exchanges not being there,” he said. “The bigger question was whether the law would be in place at all. The message is that the law will be in place for a while.”
Source: Supreme Court Upholds ACA Subsidies | Accounting Today News