United States: Supreme Court Upholds Premium Subsidies In 34 States With Federally-Facilitated Marketplaces

Last Updated: July 1 2015
Article by Cadwalader, Wickersham & Taft LLP

Most Read Contributor in United States, August 2019

Today the U.S. Supreme Court handed down its much anticipated decision in King v. Burwell, a case challenging the legality of Federal subsidies provided to individuals in the 34 States that did not establish State-based American Health Benefit Exchanges ("State Exchanges"), and instead provide individual marketplace coverage through "Federally-facilitated Exchanges." 1

In a 6-3 decision (Roberts, Kennedy, Ginsburg, Breyer, Sotomayor and Kagan), the Supreme Court upheld a key interpretation of the Patient Protection and Affordable Care Act, Pub. L. No. 111-148, 124 Stat. 119 (2010), as amended by the Health Care and Education Reconciliation Act, Pub. L. No. 111-152, 124 Stat. 1029 (2010) ("ACA"). In the second opinion authored by Chief Justice Roberts in a judicial challenge to the ACA, the Court held that individuals in States where the Federal government operates health insurance Exchanges are eligible for subsidies that help them purchase insurance through the Exchanges.2

It had been speculated that the invalidation of premium subsidies in States operating Federally-facilitated Exchanges would have caused millions of people with subsidized ACA health insurance to drop their coverage, causing serious disruptions in State insurance marketplaces.

Significantly, today's decision could pave the way for formal merger agreements involving the nation's major insurers, which some analysts believed were on hold pending the outcome of the case.3 On the other hand, while the ACA has been identified as a factor driving revenue growth in the sector, Exchange business represents a relatively small portion of overall profitability of publicly-traded insurance companies.4 The stock prices of hospitals, which were expected to be the most adversely impacted by an invalidation of subsidies, rose in the wake of today's decision.5

At issue in King v. Burwell was the interpretation of Section 1401(a) of the ACA, codified as Section 36B of the Internal Revenue Code, which provides for premium tax credits to qualified taxpayers to defray the cost of individual health coverage for qualified health plans offered "through an Exchange established by [a] State under 1311 of the [ACA]" to comply with the ACA's "individual mandate" requiring individuals to obtain "minimum essential coverage" effective January 1, 2014.6 The Internal Revenue Service ("IRS") promulgated regulations interpreting the term "Exchange" for the purpose of 26 U.S.C. § 36B to cover both State Exchanges and Federally-facilitated Exchanges, finding that the language of Section 36B and other provisions of the ACA "support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange . . . and the Federally-facilitated Exchange" and that "the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges."7 Sixteen States and the District of Columbia operate State Exchanges, and 34 States participate in Federally-facilitated Exchanges, including seven States (Arkansas, Delaware, Illinois, Iowa, Michigan, New Hampshire and West Virginia) which participate in State Partnership Exchanges approved by the U.S. Department of Health and Human Services ("HHS") in which States assume primary responsibility for carrying out certain activities in the Federally-facilitated Exchange related to plan management, consumer assistance and outreach, or both.8

On November 7, 2014, the Supreme Court granted certiorari in King v. Burwell after two Federal Courts of Appeals reached opposite conclusions when considering whether the IRS exceeded its authority in promulgating the regulations extending premium tax credits under the ACA to both State and Federal Exchanges.9 Oral argument occurred on March 4, 2015. The petitioners, four Virginia citizens who claimed they did not want to purchase health insurance and would be exempt from the "individual mandate" tax penalty if Federal subsidies did not make health insurance coverage affordable in their State, argued that the IRS regulations granting subsidies for coverage purchased through all Exchanges contradicts the text of Section 1401(a) restricting subsidies to Exchanges "established by the State" under Section 1311 of the ACA.10 In contrast, the Federal government11 argued that the premium subsidies are central to the goals of the ACA and supported by the context of the statute.12 The Court sided with the Federal government, holding that "Section 36B [of the Internal Revenue Code] allows tax credits for insurance purchased on any Exchange created under the [ACA]."13 The Court reasoned that, when read in context, "the phrase 'an Exchange established by the State' . . . is properly viewed as ambiguous" and could refer to "all Exchanges—both State and Federal—at least for purposes of tax credits."14 The Court then turned to the "broader structure of the Act" and determined that the "statutory scheme compels the Court to reject petitioners' interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange"15 and lead to the "type of calamitous result that Congress plainly meant to avoid."16

The Court's decision avoids what some commentators had feared would be an adverse selection "death spiral." The vast majority of Exchange enrollees benefit from premium assistance. According to a February 2015 HHS research brief, 87 percent of enrollees in Federally-facilitated Exchanges had received a premium tax credit.17 Without the subsidy, it was feared that many of the 6.4 million enrollees in Federally-facilitated Exchanges who currently rely on subsidies would have lost their insurance, forcing insurers to raise premiums to cover the cost of caring for higher-needs, higher-costs individuals more likely to retain coverage.18 Insurance premiums in the individual market could have surged by as much as 47% by some estimates, potentially causing additional enrollees to drop coverage.19

Such an outcome would have impacted health care providers, particularly hospitals, which could have seen a reversal of financial gains experienced from having a greater number of insured patients, together with more unpaid medical bills and charity care requests.20 Some analysts predicted that stock prices of publicly-traded hospitals could rally as much as 8% as a result of a Supreme Court decision upholding subsidies.21 This prediction had been exceeded for some hospital companies by the close of market today.

Invalidation of subsidies in Federal Exchanges would have also threatened the "individual" and "employer mandates." It had been estimated that the elimination of subsidies would have caused 83% of formerly subsidy-eligible individuals to become exempt from the ACA's "individual mandate" penalty because the cost of insurance would have exceeded 8% of their income.22 With the penalty removed, these individuals would have had less incentive to maintain insurance. It had also been speculated that the invalidation of subsidies would have enabled employers in Federally-facilitated Exchange States to offer non-compliant coverage or no coverage without being threatened with the imposition of "assessable payments." This is because the eligibility of an employer's employees for the Federal premium tax credit triggers the "assessable payments" penalty that applies to "applicable large employers" if they do not offer full-time employees and their dependents the opportunity to enroll in "minimum essential" employer-sponsored health care coverage that is both "affordable" and provides "minimum value." The penalty is only triggered when at least one full-time employee purchases coverage through an Exchange for which "an applicable premium tax credit or cost-sharing reduction is allowed or paid."23

The Court's validation of the IRS rule means that subsidies will continue to be administered through all Exchanges – both State and Federally-facilitated. This maintains the status quo, as, despite the disagreement among the Federal Courts of Appeals, the IRS rule authorizing premium subsidies in all Exchanges has remained in effect throughout the Supreme Court litigation.

A number of other cases challenging other aspects of the ACA or its implementation are still pending in Federal Courts. While today's decision does not affect those cases directly, it could make courts less receptive to such challenges.24 That said, many of the major Republican candidates for the 2016 presidential election oppose the ACA, and some have promised to repeal or replace it. Thus, despite President Obama's pronouncement following the decision that "the Affordable Care Act is here to stay," the long term future of at least certain aspects of the ACA remains unclear.


1 King v. Burwell, No. 14-114, slip op. (U.S. June 25, 2015).

2 Slip op. at 4. Justice Roberts also authored the opinion in National Federation of Independent Business v. Sebelius, 132 S.Ct. 2566 (2012), which upheld the ACA's "individual mandate" as a constitutional exercise of Congress' taxing power, but found the Medicaid expansion provision of the ACA to violate the Constitution by threatening States with the loss of their existing Medicaid funding if they declined to comply with the expansion.

3 Russ Britt, How Obamacare Factors Into Merger Talks - Pending Decision on Health Law Could Change Playing Field, MarketWatch (June 17, 2015), available at http://www.marketwatch.com/story/how-obamacare-factors-into-merger-talks-2015-06-17.

4 Bob Herman, For Big Insurers, A Legal Blow to Federal Subsidies May Be Glancing, Modern Healthcare (Dec. 11, 2014), available at http://www.modernhealthcare.com/article/20141211/NEWS/312119948.

5 For example, according to stock quotes published in the Wall Street Journal, HCA Holdings was up 8.82% and Tenet Healthcare Corp. was up 12.24% for the day.

6 26 U.S.C. §§ 36B(b)(2), 5000A(a).

7 26 C.F.R. § 1.36B-1; 45 C.F.R. § 155.20; 77 Fed. Reg. 30,377, 30,378 (2012). Section 1311 of the ACA, codified at 42 U.S.C. §18031, requires each State, no later than January 1, 2014, to establish an "American Health Benefit Exchange" that "facilitates the purchase of qualified health plans," and meets certain statutory requirements. Such State-established exchanges are referred to as "State Exchanges." Section 1321 of the ACA, codified at 42 U.S.C. § 18041, authorizes the Secretary of HHS, directly or through a not-for-profit entity, to establish a "Federally-facilitated Exchange" in any State where a State Exchange is not operating. See also 45 C.F.R. § 155.20 (defining "Federally-facilitated Exchange" as "an Exchange established and operated within a State by the Secretary under section 1321(c)(1) of the [ACA]").

8 CMS Center for Consumer Information & Insurance Oversight, State Health Insurance Marketplaces, available at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/state-marketplaces.html; CMS Center for Consumer Information and Insurance Oversight, Affordable Insurance Exchanges Guidance (Jan. 3, 2013), available at http://www.cms.gov/CCIIO/Resources/Fact-Sheets-and-FAQs/Downloads/partnership-guidance-01-03-2013.pdf.

9 On July 22, 2014, the Fourth Circuit in King v. Burwell, 759 F.3d 358 (4th Cir. 2014), determined that the IRS had not exceeded its authority. On the same date, the United States Court of Appeals for the District of Columbia Circuit reached the opposite conclusion in Halbig v. Burwell, 758 F.3d 390 (D.C. Cir. 2014), finding the IRS regulation to be contrary to the clear language of the statute. On September 4, 2014, the Court of Appeals for the District of Columbia agreed to rehear the case en banc, vacating the previous judgment. On November 12, 2014, the U.S. Supreme Court granted certiorari in King, after which the Halbig court issued an order holding the case in abeyance pending the Supreme Court's decision.

10 King v. Burwell, Brief for Petitioners, available at http://www.americanbar.org/content/dam/aba/publications/supreme_court_preview/BriefsV4/14-114_pet.authcheckdam.pdf.

11 The Respondents in the case are Sylvia Mathews Burwell, as U.S. Secretary of HHS, Jacob Lew, as U.S. Secretary of the Treasury and John Koskinen, as Commissioner of Internal Revenue.

12 King v. Burwell, Brief for the Respondents, available at http://www.americanbar.org/content/dam/aba/publications/supreme_court_preview/BriefsV4/14-114_resp.authcheckdam.pdf.

13 Slip op. at 21.

14 Slip op. at 12-13.

15 Slip op. at 15.

16 Slip op. at 21.

17 Dep't of Health & Hum. Servs., ASPE Research Brief - Health Insurance Marketplace 2015: Average Premiums After Advance Premium Tax Credits Through January 30 in 37 States Using the Healthcare.gov Platform (Feb. 9, 2015), available at http://aspe.hhs.gov/health/reports/2015/MarketPlaceEnrollment/APTC/ib_APTC.pdf.

18 Robert Pear, 13% Left Health Care Rolls, U.S. Finds, N.Y. Times (June 2, 2015), available at http://www.nytimes.com/2015/06/03/us/13-left-health-care-rolls-us-finds.html?_r=0.

19 Trish Riley, et al., King v. Burwell: State Options (Mar. 17, 2015), available at http://www.nashp.org/wp-content/uploads/2015/03/King_v._Burwell_Brief_FINAL.pdf.

20 Melanie Evans, Hospitals Struggle to Plan During King v. Burwell Wait, Modern Healthcare (March 5, 2015), available at http://www.modernhealthcare.com/article/20150305/NEWS/150309938.

21 Cristin Flanagan, Preview: Hospitals Seen at Risk Ahead of Ruling on Tax Subsidies, Bloomberg Law (June 22, 2015).

22 26 U.S.C. § 5000A(e)(1); Larry Levitt & Gary Claxton, Insurance Markets in a Post-King World, The Henry J. Kaiser Family Found. (Feb. 25, 2015), available at http://kff.org/health-reform/perspective/insurance-markets-in-a-post-king-world/.

23 26 U.S.C. §4980H. Generally, an individual is eligible for a "premium tax credit" to purchase coverage through an Exchange only if the individual household income is less than 400 percent of the poverty level and the individual is not eligible to enroll in an affordable employer-sponsored health care plan that is considered "minimum essential coverage" and provides "minimum value." Treas. Reg. § 36B-2.

24 Timothy Jost, Implementing Health Reform: ACA Litigation Beyond King v. Burwell (June 23, 2015), available at http://healthaffairs.org/blog/2015/06/23/implementing-health-reform-aca-litigation-beyond-king-v-burwell/.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright US LLP
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Norton Rose Fulbright US LLP
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions