Six states are urging the Supreme Court to uphold a challenge to tax subsidies allowed for under the Affordable Care Act, in a closely-watched case that could have major implications for the health care reform law.

In March, the Supreme Court will hear arguments in King v. Burwell and is expected to decide by June whether consumers who sign up for health insurance on the public marketplace can receive premium tax credits in states that have not established their own exchange.

See related: SCOTUS to review ACA subsidies; experts predict little change

At issue is the wording of the health care reform law that says individuals qualify for the tax credits when they buy insurance on a marketplace “established by the state.” Only 14 states have set up their own marketplaces, with the rest, mostly Republican states, relying on the federal exchange.

The states of Oklahoma, Alabama, Georgia, Nebraska, South Carolina and West Virginia together have filed an amicus brief in the case, urging the high court to overturn an appeals court ruling that upheld the tax subsidies, which the six states call “illegal.”

“The IRS ignored the plain language of the Affordable Care Act and essentially rewrote the law to hand out illegal subsidies in all 50 states,” says Oklahoma’s Attorney General Scott Pruitt. “That’s not what the language of the ACA says and not what Congress intended when it gave states the power to decide whether to set up their own state-based exchanges.”

As a collection of states, he adds, “We support the ACA challenge that will be decided by the Supreme Court and are hopeful a ruling in our favor will ensure the IRS and other executive agencies are held accountable to enforce the laws as written by Congress.”

Employer hardship

The tax subsidies, in particular, the states argue, create a hardship for large employers in their states.

“The federal government’s payment of a subsidy—for even a single employee—triggers costly obligations for employers within that state (including the states themselves) as a result of application of the so-called ‘large employer mandate,’ placing such states at a competitive disadvantage in employment,” the brief states.

In fact, punitive costs associated with the employer mandate could be shot down if the court finds illegal the IRS’ final rule extending premium tax credits to individuals on the federal exchange, says Jean Hemphill, a partner in Ballard Spahr’s Philadelphia office.

“Both types of employer mandate penalties are triggered only when an employee enrolls for coverage in an exchange plan and receives a premium tax credit or cost-sharing reduction,” she says. “If no premium tax subsidies are payable in those states, the employer mandate penalties will never be triggered in those states. There will be no penalty for violating the employer coverage mandate in those states.” 

See related: Employers won’t feel immediate sting from federal court ACA subsidy ruling

Alden Bianchi, practice group leader of law firm Mintz Levin’s employee benefits and executive compensation practice, told EBA he predicts the high court will reject the challenge to the subsidies, with the understanding that the ACA never intended for that literal an interpretation of the law.

“At the end of the day, I’d be surprised to see the court side with the challenge,” he said.

The Supreme Court’s decision will be filed by June. Until then, Bianchi said, “It’s status quo.”

“The ACA is the law of the land,” he said, adding that employers and benefit advisers should proceed with that understanding. 

“There’s nothing to change or do,” he said.

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