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December 7, 2015

Supreme Court upholds ACA’s use of tax credits

Happy young couple paying bills online in computer app

The U.S. Supreme Court has upheld a key portion of the Patient Protection and Affordable Care Act (ACA) - the provision by which people can receive tax credits to help pay for health insurance. The case was King v. Burwell, decided by the Court in June.

The 6-3 opinion was written by Chief Justice Roberts. The Chief Justice said that the ACA "adopts a series of interlocking reforms designed to expand coverage in the individual health insurance market." The three key reforms are:

  1. Prohibiting insurers from considering a person’s health when deciding whether to issue insurance and how much to charge for insurance;
  2. Requiring people to acquire insurance or pay a penalty to the Internal Revenue Service; and
  3. Providing tax credits to people earning less than 400 percent of the poverty level to help make insurance more affordable.

The Kaiser Family Foundation estimated that in 2014 more than 17 million people were eligible for tax credits to help purchase insurance on exchanges.

Who is eligible to receive tax credits?

The case turned on the meaning of a phrase in the ACA that describes the people who are eligible to receive tax credits. Under the act, the amount of the tax credit depends in part on whether a person enrolled in an insurance plan through "an Exchange established by the State." Under the ACA, states had the option of creating their own exchanges to sell insurance, and if the states did not, the federal government would establish the exchanges.

As of 2015, 16 states set up their own insurance exchanges. The federal government set up the remainder of exchanges, in some cases in partnership with the states.

The plaintiffs in King were four individuals living in Virginia who did not wish to purchase health insurance. In Virginia, the exchange was established by the federal government. As part of their argument, the plaintiffs asserted that tax credits were available only to persons who obtained insurance through an exchange established by a state - and that tax credits were not available if insurance was obtained through an exchange established by the federal government. If that view had prevailed, millions of people would have lost the tax credits.

How the decision was made

Chief Justice Roberts acknowledged that the drafting of the phrase in question (as well as some other portions of the 900-page law) was "inartful" and "ambiguous," making it less than clear if people who obtained insurance on a federal exchange were eligible for tax credits. To decide how to construe the statute, the Chief Justice looked to a prior opinion of the Court that held, "the words of a statute must be read in their context and with a view to their place in the overall statutory scheme."

In this case, the chief justice said, "Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them." He noted the interlocking nature of the act’s provisions and argued, "the coverage requirement would not work without the tax credits." Thus, the majority of the Court held that federal exchanges, as well as state exchanges, were included in the phrase "established by the State," at least for the purpose of granting tax credits.

Vigorous dissent by Scalia

Justice Scalia, joined by Justices Thomas and Alito, vigorously dissented. Justice Scalia said that the phrase "established by the State" was amply clear, referring only to exchanges set up by the states. The majority’s reasoning, he said, was "absurd," "pure applesauce," and "interpretive jiggery-pokery."

He added: "I wholeheartedly agree with the Court that sound interpretation requires paying attention to the whole law, not homing in on isolated words or even isolated sections. Context always matters…. It is a tool for understanding the terms of the law, not an excuse for rewriting them."

Justice Scalia thought it plausible that the choice of language in the act was deliberate - perhaps a way to encourage states to establish their own exchanges. If there was a problem with the language, he said, it should be fixed by Congress and not the Court. Quoting another Court opinion, Justice Scalia said, "This Court…has no free-floating power ’to rescue Congress from its drafting errors.’"

Decision favored by the public

A poll conducted by the Kaiser Family Foundation reported that 62 percent of Americans approved of the Supreme Court’s decision to make health insurance subsidies available in all states to people of low and moderate income; 32 percent disapproved of the ruling. The remainder said they had no opinion or declined to answer. Democrats were more likely to approve of the decision (82 percent) than Republicans (29 percent). The approval rating by Independents was 61 percent.

The Affordable Care Act has had two significant victories in the Supreme Court.

The constitutionality of the ACA now seems well-settled, although arguments about the law still are likely to continue in Congress and on the campaign trail.

Jeff Atkinson teaches health care law at DePaul University College of Law in Chicago.



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