Supreme Court rules on Obamacare tax credits

June 25, 2015

King v. Burwell
Docket number: 14-114
Court: United States Supreme Court
Court membership
Chief Justice John G. Roberts Associate Justices Antonin Scalia Anthony Kennedy • Clarence Thomas Ruth Bader Ginsburg • Steven G. Breyer Samuel Alito • Sonia Sotomayor • Elena Kagan

By Sarah Ramirez
On June 25, 2015, the Supreme Court of the United States decided King v. Burwell (2015). At issue in the case was the legality of certain tax credits under the Patient Protection and Affordable Care Act, also known as Obamacare.

The Affordable Care Act stated that individuals are eligible for tax credits to help pay for plans "which were enrolled in through an Exchange established by the State." However, the Internal Revenue Service (IRS) granted the tax credits "regardless of whether the Exchange is established and operated by a State (including a regional Exchange or subsidiary Exchange) or by HHS.". Many states objected to the IRS rule of granting tax credits to individuals purchasing on the federal exchange. They found the tax credits objectionable because individuals who received tax credits would actually trigger tax penalties for their employers. Furthermore, the availability of tax credits made it harder for individuals to opt out of purchasing insurance on the basis of hardship. In order to shelter their residents from these penalties, many states had chosen not to establish exchanges at all; currently, only 16 states and the District of Columbia have established exchanges.

The Court ruled 6-3 to uphold the tax credits for purchasing on the federal exchange. Chief Justice Roberts delivered the opinion of the Court, joined by Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan. Justices Antonin Scalia, Clarence Thomas and Samuel Alito dissented.

In the opinion, the Court applied a two-part test in interpreting the Affordable Care Act: "we ask whether the statute is ambiguous and, if so, whether the agency’s interpretation is reasonable." The Court found that, when taken in context, the phrase "established by the State" was ambiguous, because other parts of the Affordable Care Act treated the federal and state exchanges as equivalent and assumed that tax credits would be available through either. The Court then turned to the issue of whether the IRS interpretation was reasonable. The Court described the Affordable Care Act as "a series of interlocking reforms" and noted that its other reforms would enter "a death spiral" without the tax credits. Thus, they argued, granting tax credits to those purchasing on the federal exchange was not only reasonable but "necessary" in order to accomplish Congress' goals in passing the Affordable Care Act.

In his dissenting opinion, Justice Antonin Scalia criticized the Court's interpretation of the statute: "The Court holds that when the Patient Protection and Affordable Care Act says 'Exchange established by the State' it means 'Exchange established by the State or the Federal Government.' That is of course quite absurd, and the Court’s 21 pages of explanation make it no less so."

President Barack Obama praised the ruling, declaring that "the Affordable Care Act is here to stay" and that "millions of Americans" would get to keep their tax credits and health insurance. The ruling upholds tax credits for an estimated 6.4 million Americans.