Employers should follow compliance strategy until Supreme Court rules on exchange subsidies


According to a court ruling issued in July 2014, the IRS is not allowed to provide subsidies to individuals purchasing health insurance coverage on federally run exchanges. How does this ruling impact your company’s large group plan?


As of right now, the ruling does not impact your large group plan.

A three judge panel in the District of Columbia ruled that the IRS may only provide subsidies for insurance purchased under state-established exchanges, and not for insurance purchased under exchanges established by the federal government on behalf of the states. However, on the same day, the Fourth Circuit reached the opposite conclusion, and upheld the validity of the tax credit subsidies for insurance purchased via federally established exchanges. In response to the conflicting rulings, the IRS indicated that it has no plans to delay premium subsidies while these cases work their way through the legal system. It seems likely that the U.S. Supreme Court will have the final say.

If the Supreme Court rules that tax subsidies provided by federally facilitated exchanges are invalid, this might impact your large group plan if the company operates in one of the 36 states with a federally facilitated exchange. The employer mandate penalties under the Patient Protection and Affordable Care Act (ACA) are only triggered when an employee goes to an exchange and receives a subsidy for benefits. If employees are not eligible for a subsidy, no penalties would be triggered against the employer.

Until the rulings on these cases are final, it is important to continue to follow your ACA compliance strategy.

Source: Halbig v. Burwell (DCCir 2014) No. 14-5018; King v. Burwell (4thCir 2014) No. 14-1158.

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