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Supreme Court Upholds Tax Credits for Health Insurance

AARP urged the Supreme Court to uphold the Affordable Care Act’s provision of tax credits for people purchasing health insurance in states using the federal health insurance exchange.

Background

A provision of the Patient Protection and Affordable Care Act (or ACA, or “Obamacare”) makes available federal tax assistance with premium payments for low-income individuals who buy insurance on the health insurance exchanges. Each state has the option to establish its own health exchange for its residents; but 34 states did not set up state exchanges instead allowing their residents to purchase health insurance through the federal government site, healthcare.gov.  A group of individuals and some businesses sued to deny tax credits to people in the 34 states who purchased health insurance on healthcare.gov, arguing that the law was written to provide tax credits only to those who reside in states that set up their own exchanges and that the premium tax credits were meant to be an incentive to states to create exchanges.

AARP Foundation Litigation attorneys filed AARP’s friend-of-the-court brief in the U.S. Supreme Court in conjunction with other organizations. AARP’s brief argued that the tax credits are available for qualified purchasers on federal and state exchanges. The brief pointed out that the ACA created incentives and obligations through a variety of complicated mechanisms. Reading one provision out of context is counter to the law and renders many other provisions of the ACA meaningless or illogical. For example, denying tax credits to those who purchase health insurance on the federally-facilitated exchange would allow large employers to skirt their obligation of offering adequate and affordable health insurance to their employees. The brief argued that plaintiffs misread the statutory language and ignored the intent of Congress.

The Supreme Court ruled precisely that way, interpreting the four words in question within the statutory context, structure, and purpose of the ACA and finding that Congress intended to make tax credits available in all states. The Supreme Court explained that reading the provision on tax credits as separate from the rest of the statute – which was unequivocally intended to expand health care coverage – was both illogical and did not follow well-established rules of statutory interpretation.

What’s at Stake

Prior to the ACA, health care for many low-income pre-Medicare adults was unavailable, unaffordable, or inadequate. Many people were denied coverage based on their preexisting medical conditions. Those without insurance were three times less likely to be up to date with clinical preventive services than those who were insured. Those who enrolled in Medicare at age 65 who were not covered by health insurance tended to be in worse health and were more costly to the public than those who had been covered by insurance prior to becoming eligible for Medicare. As of March 2015, over 6.3 million people who purchased insurance on the federally-facilitated exchange qualified for tax credits. The ruling in King v. Burwell recognizes that this financial assistance is an essential reform of the health care law, without which it would not function.  Importantly, the ruling allows the ACA to continue providing critical health care coverage for millions of low-income pre-Medicare adults who previously found insurance unavailable, unaffordable, or inadequate.

Case Status

King v. Burwell was decided by the U.S. Supreme Court.  Other cases in federal appellate courts considering the same issue have been stayed pending the Court’s decision.