The Supreme Court Rulings – Tax Credits in Federal Exchanges & Same-Sex Marriage (Benefit Minute)

Posted in: Benefit Minute, Employee Benefits

In two recent Supreme Court decisions, the Court upheld premium tax credits for coverage purchased on federal Exchanges and ruled that same-sex marriage is a constitutional right. Both of these decisions have potential impact on benefit plans offered by employers.

Court Upholds Tax Credits on Federal Exchanges

In a 6-3 ruling, the Supreme Court upheld the availability of premium tax credits on federal Exchanges, rejecting a literal reading of the statutory language (“through an Exchange established by the State”) that would have limited tax credits to state-based Exchanges.

While the Court acknowledged the strong arguments for adopting the plain meaning of the Affordable Care Act (ACA) statutory language, the majority concluded that the context and structure of the law required a broader interpretation than a natural reading of the phrase “established by the State.” The Court determined this phrase was ambiguous in the context of the law as a whole.

The ACA requires states to establish Health Insurance Marketplaces (state Exchanges) through which qualified individuals may purchase health insurance coverage to avoid a tax penalty (individual mandate). If a state chooses not to establish an Exchange, the ACA directs the Department of Health and Human Services (HHS) to “establish and operate such Exchange within the State.”

The ACA also added Section 36B to the Internal Revenue Code, which provides for health insurance premium tax credits for individuals who purchase health insurance “through an Exchange established by the State” and meet other eligibility criteria. Only 16 states and the District of Columbia set up a state Exchange. HHS established the Exchanges in the other 34 states with enrollment through The definition of Exchange was interpreted in IRS final regulations to include both state Exchanges and federal Exchanges. As a result, individuals who purchase health insurance through either a state or federal Exchange were eligible for premium tax credits.

In King v. Burwell, four individuals in a state with a federal Exchange wanted to avoid the ACA’s individual mandate and challenged the legality of premium tax credits in federal Exchanges. They argued the cost of Exchange coverage, if not reduced by tax credits, would not be affordable and exempt them from the individual mandate penalty.

The Arguments
The plaintiffs argued that the plain language of the ACA permits premium tax credits only in states with state-run Exchanges. The government maintained that the IRS was well within its regulatory authority to interpret the ACA to allow premium tax credits in federal Exchanges and that the context of the ACA, when read as a whole, clearly anticipated tax credits would be available through a state or federal Exchange.

The Ruling
In its decision, the Court concluded that the ACA did not delegate interpretive authority to the IRS. It also rejected a plain reading of the law as it relates to the premium tax credits. Instead, the majority found that the phrase “through an Exchange established by the State” was ambiguous in the context of other ACA provisions, obliging the Court to consider the intent of the law. They also determined that, based on the interlocking nature of the ACA’s market reforms, Congress intended to provide premium tax credits through both state and federal Exchanges.

The dissenting justices wrote that the majority went too far in looking at premium tax credits in the context of the law as a whole. They felt that the analysis should have been more narrowly limited to the specific and clear language of the statute. Justice Scalia stated that the ACA should now be called “SCOTUScare.”

The ruling maintains the status quo; premium tax credits will remain available for qualifying individuals regardless of whether they obtain coverage on a state or federal Exchange. The ACA remains the law and individuals and employers must continue to comply with applicable requirements.

Supreme Court Rules on Same-Sex Marriage

In a 5-4 ruling, the Supreme Court ruled that states must issue marriage certificates to same-sex couples, as well as recognize same-sex marriages performed in other states.

The Ruling
The Court concluded marriage is a fundamental right under the Constitution and same-sex couples cannot be deprived of the right to marry under the Fourteenth Amendment’s guarantee of equal protection. The decision requires states to license marriage between same-sex couples and recognize a lawfully licensed same-sex marriage performed in another state. The ruling eliminates conflicts between federal and state law and between laws of different states.

The ruling will allow for easier administration of employee benefit plans because treatment will be consistent regardless of the state of residence of employees. While nothing in the Court’s decision requires employers to recognize same-sex spouses for all benefit plan purposes, insured plans will have to comply with state law, and employers who do not provide benefits consistently to same-sex and opposite sex spouses will be at increased risk of sex discrimination lawsuits.

© PSA Insurance and Financial Services. Group insurance products offered through PSA Financial, Inc. The Benefit Minute provides general information for your reference.
Please see your benefits consultant to review your specific situation.

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