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By a vote of 6-3, the United States Supreme Court (SCOTUS) upheld the Patient Privacy and Affordable Care Act (ACA), ruling that the intent of the law was to ensure nationwide health care coverage.  In doing so, the Court rejected the legal challenge to the law based on the wording of one section related to subsidies provided for low-income persons.

For tax professionals, the ruling means that the Affordable Care Act will continue in its present form unless revised by Congress. It’s still possible that Congress may adopt last-minute changes to the act that could throw the tax season into new disarray.

In its ruling today, the Supreme Court upheld the decision of the Fourth Circuit Court of Appeals in the case of David King, Et Al., Petitioners V. Sylvia Burwell, Secretary Of Health And Human Services, Et Al. (No. 14–114).  King and three other Virginia residents had sued over the wording of the act, arguing that the law clearly stated that only individuals enrolled in an “Exchange established by the State” were eligible for subsidies of their health care, and not those enrolled in a Federal health exchange.

“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter,” Chief Justice John G. Roberts Jr. wrote for the majority. Roberts noted that the ACA adopted three major reforms: a guarantee of insurability, a requirement for individuals to maintain health care coverage, and a system of financial incentives through subsidies and tax credits for those who could otherwise not afford the coverage.  These reforms, he said, are inter-dependent, and thus the subsidies are part of the intent of the law.

Justices Kennedy, Ginsburg, Breyer, Sotomayer and Kagan joined Chief Justice Roberts in this opinion.  The dissenting opinion, written by Justice Scalia, was supported by Justices Thomas and Alito.

In his dissent, Scalia notes that “The Act that Congress passed makes tax credits available only on an ‘Exchange established by the State.’ This Court, however, concludes that this limitation would prevent the rest of the Act from working as well as hoped. So it rewrites the law to make tax credits available everywhere.  We should start calling this law SCOTUScare.”

“The somersaults of statutory interpretation they have performed (‘penalty’ means tax, ‘further [Medi­caid] payments to the State’ means only incremental Medicaid payments to the State, ‘established by the State’ means not established by the State) will be cited by litigants endlessly, to the confusion of honest jurisprudence,” he summarizes.  “And the cases will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites. I dissent.”

The decision is the second decision of the US Supreme Court upholding the health care law. In 2012, in National Federation of Independent Business v. Sebelius, the Court upheld Congress’ power to enact most provisions of the ACA. Justice Kennedy, who dissented in 2012, this time sided with the majority.

Had the Court ruled in favor of the King plaintiffs, as many as 6.4 million healthcare subscribers in 36 states who use the Federal healthcare exchange would have lost those subsidies.  Since only 10.2 million people are signed up through the exchanges, such a ruling would likely have meant the end of the Affordable Care Act in its present form.  It would also have thrown the health care marketplace into disarray, forcing millions of individuals out of the health care system.

Challenges to the law remain, however, both in Congress and in the courts:

  • House Speaker John Boehner of Ohio said Republicans, who have voted more than 50 times to undo the law, will “continue our efforts to repeal the law and replace it with patient-centered solutions that meet the needs of seniors, small business owners, and middle-class families.”
  • Senate Majority Leader Mitch McConnell also vows to amend the law, commenting on the floor of the Senate that, “Today’s ruling won’t change Obamacare’s multitude of broken promises, including the one that resulted in millions of Americans losing the coverage they had and wanted to keep. Today’s ruling won’t change Obamacare’s spectacular flops, from humiliating website debacles to the total collapse of exchanges in states run by the law’s loudest cheerleaders. Today’s ruling won’t change the skyrocketing costs in premiums, deductibles, and co-pays that have hit the middle class so hard over the last few years.”
  • In March of 2015, the Supreme Court refused to take up the case of Coons v. Lew, a Constitutional challenge to the ACA over creation of the Independent Payment Advisory Board (aka “Death Panel”) that would limit spending for Medicare. The US court of Appeals for the 9th District had held that since the IPAB had not yet been formed, the suit was premature. It is expected to be filed again.
  • Mayhew v. Burwell is a suit brought by the State of Maine challenging the ACA’s requirement that states maintain their Medicaid eligibility rules as defined in 2009 until 2019. The state maintains that such a requirement is unconstitutional in that it threatens to cut federal funding for all of Maine’s Medicaid programs.  The hearing before the First Federal Circuit Court ruled against Maine, but the state has requested that it be taken up next year by the Supreme Court.
  • Attorney General Mike DeWine of Ohio has paired with Warren County, OH, and four state universities to file suit against fees imposed by the ACA. The fees are earmarked to pay for the Transitional Reinsurance Program, intended to stabilize fees in the individual healthcare markets in 2014 – 2016.  No court action has been taken to date.

How should tax planning and preparation professionals prepare for the tax season in 2016?  Here are three steps that may help:

  • Renew your tax preparation software or service, and any appropriate research materials, as soon as possible. Since the developers of these services maintain close contacts with the IRS on the changes as they occur, early renewal will give tax professionals an advance look at changes as they emerge.
  • Stay educated about efforts to amend the law. In particular, follow the ACA Basics posts on the Taxing Subjects blog. Our goal is to post information concerning law changes to the ACA as quickly as possible as they develop, so that you have an opportunity to adjust to them.
  • Stay connected through state and national associations and conferences. These organizations and their gatherings are not only an excellent way to network, but a means to voice opinions about pending legislation that could affect how the laws will affect your clients.

 

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