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Premium tax credit for everyone, Supreme Court says

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The Supreme Court of the United States has ruled that premium tax credits are available to all qualified individuals, regardless of whether they buy health insurance through a state or federal exchange. The ruling leaves intact the employer free-rider penalties in the 34 states that have not established state exchanges. The case is King v. Burwell, No.  12-114.

What is an “exchange”?

The issue in the case was the meaning of the term “exchange.”  The Affordable Care Act (ACA) encouraged states to establish exchanges through which individuals could buy health insurance policies. The law also established a federal exchange, which operated as a backstop in states that didn’t set up their own exchanges. However, other sections of the law aren’t quite that specific—they mention such exchange.  

The ACA also gives refundable premium tax credits to applicable individuals whose household income is between 100% and 400% of the federal poverty line. According to the text of the law, premium tax credits are available to individuals who buy policies through a state exchange. The IRS, however, in final regulations issued under new § 36B, extended eligibility for those tax credits to any applicable individual, regardless of whether they buy their policies through a state or federal exchange.  

What the Court said

Given the references throughout the law to state or such exchanges, the Supreme Court determined that the phrase state exchange was ambiguous, which meant that the phrase had to be read in context and with a view to its place in the overall statutory scheme. In context, the Court said, whether the tax credits are available on federal exchanges was a question of deep “economic and political significance” that is central to the ACA’s statutory scheme.  

Supreme Court: By using the words “such exchange,” the ACA indicates that state and federal exchanges should be the same. State and federal exchanges would differ in a fundamental way if tax credits were available only on state exchanges—one type of exchange would help make insurance more affordable by providing billions of dollars to the states’ citizens; the other type of exchange would not.  Had Congress meant to limit tax credits to state exchanges, it likely would have done so in the definition of an applicable taxpayer in § 36B or in some other prominent manner. It would not have used such a winding path of connect-the-dots provisions about the amount of the credit.

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