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Supreme Court Upholds Nationwide Healthcare Subsidies

Publications - Client Alert | June 25, 2015

Today the United States Supreme Court issued its opinion in King v. Burwell, the case challenging whether the Internal Revenue Service (IRS) can offer tax credit subsidies to individuals enrolled in health insurance through a federally operated Exchange. The Court ruled 6-3 that this action is within the IRS’s power. The decision means that low- and middle-income individuals who purchase coverage through a federal Exchange will remain eligible for tax credit subsidies.


One of the central features of the Affordable Care Act (ACA) is the establishment of Exchanges, which are competitive marketplaces for individuals to shop for and purchase qualified health plans. Lower income individuals who enroll in a qualified health plan through an Exchange are eligible for subsidized coverage in the form of tax credits. Under the ACA, Exchanges can be established by a state or, if a state does not choose to establish an Exchange, the federal government. Thirty-four states have federally operated Exchanges.

To provide subsidized Exchange coverage, the ACA added Section 36B to the Internal Revenue Code (the Code). Section 36B grants tax credits to certain individuals enrolled in a qualified health plan “through an Exchange established by the State” (emphasis added). In the regulations implementing Section 36B, however, the IRS defined “Exchange” as an Exchange established by the state or the federal government. It is through these IRS regulations that individuals who purchase health coverage through a state- or federally run Exchange are eligible for tax credits.

The argument put forth in King v. Burwell was that the plain language of Code Section 36B prevents the IRS from creating regulations that expanded the availability of tax credits to coverage purchased through federally run Exchanges.

The Court’s Opinion

In deciding that the IRS can provide subsidies to individuals who purchase insurance through federally run Exchanges, the Court found that the language in Code Section 36B was ambiguous, namely, that it could apply either to state-run Exchanges or to all Exchanges. The Court also examined the ACA as a whole. It noted that one of the key purposes of the ACA was to offer tax subsidies to eligible taxpayers. If the IRS could offer subsidies in state-run Exchanges only, the marketplaces would see a “death spiral”—a large increase in premiums paired with a large decrease in enrollment. The Court reasoned that Congress could not have intended the ACA to lead to this result. Hence, the Court concluded that Code Section 36B must be read to allow the IRS to offer subsidies in all Exchanges, regardless of whether they are state or federally run.

Additional Information

If you have any questions about the Supreme Court’s decision in King v. Burwell or would like additional information on the ACA, please contact your Kutak Rock attorney or a member of the Kutak Rock Employee Benefits practice group.