This blog was last updated on June 27, 2021
In a 6-3 decision, the U.S. Supreme Court issued a ruling June 26 in the King v. Burwell case that upheld tax subsidies as provided by the Patient Protection and Affordable Care Act, also known as Obamacare.
Chief Justice Roberts wrote the opinion. Voting in favor were justices Ginsburg, Sotomayor, Kagan, Kennedy and Breyer. Justice Antonin Scalia wrote the dissenting opinion and was joined in his dissent by justices Thomas and Alito.
“The key to the decision was the phrase in the law ‘established by the state.'”
The key to the decision was the phrase in the law “established by the state.” The question before the court was whether that phrase meant individual states or a more broad definition that included the federal government.
Under the law, taxpayers were eligible for tax credits that would help them afford health insurance if they purchased it through a health exchange. The law stipulated if taxpayers’ states did not provide a health care exchange where they could buy insurance, they could purchase it on the federal exchange at healthcare.gov.
As reported by Forbes contributor, Kelly Phillips Erb, the law defined an exchange as “a State Exchange, regional Exchange, subsidiary Exchange and Federally-facilitated exchange.”
With the King v. Burwell case in question, petitioners argued that residents in Virginia would not be eligible for tax credits because a health care exchange wasn’t established in that state. If taxpayers didn’t receive credits, it would likely make the cost of buying insurance more than 8 percent of their income and thus make them exempt from being required to be covered by health insurance, the article stated.
One of the healthcare law’s reasons for being is to make health insurance more affordable as well as mandating participation. Had the Supreme Court ruled against, it would have been a crippling blow to the law overall.
Reaction
While President Obama applauded the decision and said that Obamacare was “here to stay,” opponents vowed they would continue attempts to repeal the law.
Bloomberg BNA state tax law editor Annabelle Gibson said in an Accounting Today article the court preserved what the law’s authors were trying to do all along.
“The court wrote that allowing credits for insurance purchased on any exchange will avoid the ‘calamitous result that Congress plainly meant to avoid’ when enacting the ACA, as the ACA was meant to increase access to health care throughout the United States,” Gibson said.
Gibson also said large employers that are subject to the employer mandate “will continue to be liable for penalties for failing to offer minimum essential insurance coverage to their employees and their dependents, if employees purchase health insurance through any exchange and receive a tax credit.”
Other issues to address
Now that the tax subsidy issue has been decided, tax experts would like the federal government to tackle some other tax compliance and tax reporting issues pertaining to the ACA.
“The ACA’s employer mandate could be a troublesome issue for employers and businesses this year and next.”
Because of its tax implications, the ACA’s employer mandate could be a troublesome issue for tax professionals and businesses this year and next.
Businesses are required to provide affordable coverage beginning this year and 2016 for some smaller businesses. The cost of single coverage cannot exceed 9.56 percent of the employee’s gross income for 2015, according to the IRS. Businesses with fewer than 25 employees are eligible for the Small Business Healthcare Tax Credit to help offset health care costs. Businesses with fewer than 50 employees are eligible to buy coverage through the Small Business Health Options Program at healthcare.gov. Businesses with 50 or more full-time equivalent employees will need to file an annual information return indicating what health insurance they offered employees.
All employers that provide self-insured health coverage to their employees “must file an annual return reporting certain information for each employee they cover,” according to the IRS.
One of the more significant provisions of the ACA is establishing a minimum amount of coverage that health plans must provide. However, there are some gray areas, such as employee reimbursement plans.
According to another article in Accounting Today, the IRS deemed employee reimbursement programs fell outside the scope of the ACA’s health plan requirements.
However, the American Institute of Certified Public Accountants wants Congress to reconsider the IRS’s position. In a letter to Congressional tax lawmakers sent June 17, Troy Lewis, chair of the AICPA’s Tax Executive Committee, wrote that health reimbursement arrangements provided by employers give more people access to affordable health care and should be exempt from the ACA’s minimum health plan requirements.
“The AICPA believes the [health reimbursement] arrangements support the objective of Congress by expanding affordable health care coverage to employees, partners, more than two-percent S corporation shareholders and sole proprietors by subsidizing the cost of their health coverage. However, in order to avoid the imposition of the excise tax, the amount of which can be catastrophic, many employers have eliminated these arrangements. This result is contrary to the objective of the Affordable Care Act to expand affordable health care coverage to all Americans,” Lewis wrote.
