The Affordable Care Act remains intact following a Supreme Court decision supporting the availability of health-insurance subsidies on all exchanges.
In a legal challenge that could have led to the end of the individual mandate and the loss of subsidies for millions of Americans, the Supreme Court ruled in a 6-to-3 decision to retain the current program of federal health-insurance subsidies for eligible individuals finding it difficult to afford health insurance.
Premium tax credits
With the passage of the Affordable Care Act in 2010, individuals are required to purchase health insurance or pay a fee. Each state was expected to set up its own insurance exchange — or health-insurance marketplace — where individuals could consider a range of plans and choose what they wanted to buy. The law also provided for the creation of federal premium tax credits or health-insurance subsidies to help people who struggle financially to pay for insurance.
Thirty-four states chose not to set up their own marketplace and are using the federal exchange, or Federally Facilitated Marketplace. Federal subsidies were provided for consumers purchasing coverage directly from the federal exchange.
In King v. Burwell, the petitioners argued that the law does not authorize the health-insurance subsidies outside of state-operated insurance exchanges, such as the federal exchange. They also contend that the Internal Revenue Service (IRS) overstepped its responsibility in determining that the subsidies can be available through a federal exchange.
The Supreme Court disagreed and decided that the subsidies can be used in state or the federally-run exchanges.
If the court had ruled against the provisions in the ACA, more than six million insured consumers would have seen their premiums increase significantly. In response, many individuals would likely have dropped their coverage. Depending on the volume, it could have had an impact on actuarial assumptions around risk and skewed the risk-pool toward less-healthy individuals. This would have implied rising costs for all other insured people and for employers.
The loss of subsidies would have been disruptive to the employer mandate as well. Penalties associated with the employer mandate also have an impact on the ability of workers to access subsidies.
With the Supreme Court decision now providing clarity on the issue of health-insurance subsidies, individuals can use the information when planning for future health-care costs and income requirements. And employers have more information for long-range planning on the costs of providing insurance to their employees. For more detail on the law and strategies for mitigating the tax impact, see Putnam’s education piece, “A look at health-care reform and its impact on investors.”