June 25, 2015Client Alert

Supreme Court Upholds Affordable Care Act Subsidies

On June 25, 2015, the U.S. Supreme Court issued its decision in King v. Burwell. The decision held that the federal government has the ability to provide subsidies to individuals purchasing health insurance coverage on a federally-run exchange. In reaching its decision, the Court was required to interpret the text of the Affordable Care Act, which seemingly limited such subsidies to individuals who obtained coverage through an exchange “established by the State.” Thirty-four states do not operate their own exchanges but elected to have the federal government do so. The federal government currently follows the practice of providing subsidies to individuals in states with federally-run exchanges, so the Court’s decision leaves the status quo in place.

The majority opinion, authored by Chief Justice Roberts, held that while the law “contains more than a few examples of inartful drafting,” the overall framework of the law established that Congress intended that subsidies be provided through exchanges in all states, regardless of whether the exchange was established by the state or by the Secretary of the U.S. Department of Health & Human Services.

What does the decision mean for employers?

The Court’s decision means that the implementation of the Affordable Care Act will continue, so employers need to administer their plans to comply with it. In particular, employers of more than 50 full-time employees and full-time equivalents need to continue working through the processing of Forms 1094-C and 1095-C for filing in the early part of 2016. These forms require the employer to report to the IRS those employees who are offered health coverage, those employees who are not offered coverage and why not, and further identify those employees and dependents who are actually enrolled in coverage. Because 2015 will be the first year for which such reporting is required, it is anticipated that such initial reporting will be associated with some uncertainty and greater administrative burden. Accordingly, we recommend that employers familiarize themselves with these reporting requirements and ensure that any problems are discovered sooner rather than later.

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