Amidst all of the other issues surrounding implementation of the Affordable Care Act, there is an underlying issue about whether or not subsidies (in the form of tax credits) are available for individuals who obtain coverage through the federal exchange marketplace as opposed to the state exchanges. Many states have determined not to offer exchanges, which means exchange coverage in those states would be through the federal exchange. The challenge (or argument as the case may be) is that the law specifically limits subsidies to participants participating in “state” exchange not the federal one. So people in those states would not get subsidies.

Two federal appeals courts have now ruled on the issue and they promptly contradicted each other. In Halbig v. Burwell, the D.C. Circuit Court of Appeals ruled that subsidies are not available to those in the federal exchange. In King v. Burwell, the Fourth Circuit Court of Appeals ruled exactly the opposite, that subsidies are available because the law is ambiguous.  Because of the conflict between the Circuits, this would seem logically to be a case for the Supreme Court to take up, but that will take time so the conflict will likely remain for some time.

For employers, this split may have some significant impact on their ACA compliance planning.  I have heard on many occasions that employers are making decisions regarding offering coverage based on the assumption that it will be cheaper for employees to get subsidized coverage through the exchange. But if the subsidy is not available because there is no state exchange, that assumption may not be correct. Absent subsidies, exchange coverage may not be less expensive than employer-sponsored coverage. So before finalizing compliance based on this assumption, employers should check to see if their state offers an exchange.

According to the CMS, the following states are participating in the federal marketplace, either directly or through a partnership arrangement:

Alabama, Alaska, Arizona, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Louisiana, Maine, Michigan, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Virginia, West Virginia, Wisconsin and Wyoming.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at kmcmurdy@foxrothschild.com or (212) 878-7919.

The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

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