The Supreme Court heard oral arguments in King v. Burwell, a case that will determine whether the Affordable Care Act allows tax subsidies for health insurance purchased through federal exchanges. A ruling for the plaintiffs could significantly impact employer penalties under the employer mandate by limiting penalties only to employees who receive subsidies through state exchanges, rather than federal exchanges used by many states. Employers should continue their compliance efforts and await the Supreme Court's ruling in late June before making any changes.

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Willis Human Capital Practice, National Legal & Research Group
On March 4, 2015, the United States Supreme Court heard oral arguments in King v. Burwell.
The case involves the availability of premium tax credits for health coverage purchased through
the federal exchanges under the health care reform law. The Patient Protection and Affordable
Care Act (PPACA) authorizes refundable federal income tax credits to help lower-income
taxpayers to pay for health coverage obtained through the health insurance exchange (also
known as the Marketplace) established by a state under § 1311 of PPACA.
A copy of the transcript of the oral argument is available here:
http://www.supremecourt.gov/oral_arguments/argument_transcripts/14-114_lkhn.pdf.
Background
In July 2014, a panel for the U.S. Court of Appeals for the Fourth Circuit issued a ruling in King
v. Burwell on the availability of tax credits for health coverage purchased through the federal
exchanges. King v. Burwell centers on (1) whether the terms of the health care reform law limit
subsidies to coverage purchased through exchanges established by states, and (2) whether such
subsidies are available for both state and federal exchange coverage under IRS regulations
interpreting the health care reform law. The panel unanimously found the applicable statutory
language to be ambiguous and upheld the IRS rule as “a permissible exercise of the agency’s
discretion.”
Discussion
This case is important to employers since a successful challenge could affect the extent to which
an employer is subject to pay or play penalties. An employer may incur pay or play penalties if
the employer fails to offer certain individuals (i.e., every one of its full-time employees) the
opportunity to enroll in coverage that meets certain standards (i.e., minimum essential coverage
that includes dependent coverage and, with respect to employees’ coverage, is affordable and
provides minimum value). However, the penalties will not be triggered unless and until the
employer receives a certification of assistance with respect to at least one of the employer’s full-
time employees, indicating that the employee has obtained insurance exchange coverage for
him/herself (coverage that an employee obtains for a dependent is disregarded) and has qualified
to receive premium assistance or cost-sharing reduction with respect to that coverage. If the
Supreme Court finds that the IRS exceeded its authority in promulgating these regulations, then
the pay or play penalties could only be triggered by those full-time employees who receive a tax
credit for state exchange coverage (since employees receiving coverage through federal
WEEK OF MARCH 9, 2015:
Health Care Reform Update - Supreme Court Hears Oral
Arguments in King v. Burwell

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Health Care Reform Update | Willis Human Capital Practice, National Legal & Research Group
exchanges would not be eligible for tax credits). Given that the federal government has
established exchanges in the majority of states, this would have a significant impact on
employers and health care reform generally.
A decision in King v. Burwell is not expected until late June. Since it is not possible to predict
with any degree of accuracy how the Supreme Court will rule, employers would be best served
by staying the course with their current compliance efforts and waiting for official guidance
before making modifications.
This information is not intended to represent legal or tax advice and has been prepared solely for informational
purposes. You may wish to consult your attorney or tax adviser regarding issues raised in this publication.