King v. Burwell

A review of the issue and what’s at stake

June 16, 2015

Question before the Supreme Court

This month, the Supreme Court will rule on yet another Obamacare-provoked controversy. The case — King v. Burwell — involves an IRS regulation that provides health insurance subsidies in the form of refundable tax credits, contrary to the plain text of the law. The central question before the court is whether the executive branch can interpret laws to essentially rewrite what Congress passed.

As written, Obamacare limits these subsidies to people buying insurance in exchanges established by states, not the federal government. Specifically, the law says that people may receive a premium tax credit if they enroll through “an Exchange established by the State.” Despite this, the IRS authorized the subsidies in all states, regardless of whether states established an exchange.

The plaintiffs in King are suing on behalf of millions of people subjected to Obamacare’s individual mandate penalties by the IRS’ regulation. Without the subsidies, Obamacare coverage would meet the law’s definition of “unaffordability” for many people. They would be allowed an exemption from the individual mandate tax penalty. The subsidies also trigger penalties under the employer mandate, so IRS’ actions expanded the employer mandate beyond what the law allowed.

Five things at stake for Americans

Protecting Taxpayers: A ruling for King would end unauthorized federal spending

The IRS rule increased taxes and spending beyond what was authorized by Congress. In doing so, the IRS shifted costs from exchange policyholders to taxpayers. According to the Congressional Budget Office’s most recent estimates, Obamacare’s subsidies will increase Washington’s debt by $849 billion over the next decade. The Urban Institute estimates that a ruling for King would reduce federal spending on subsidies by$340 billion over the next decade.

Growing the Economy: A ruling for King would lead to more and better jobs

Because of the unworkability of the employer mandate and the compliance burdens it imposes, the administration has delayed and modified it twice. Despite these delays, the employer mandate will take full effect next year. Businesses and their employees are only assessed employer mandate penalties if at least one worker receives an Obamacare subsidy. If the court strikes down the IRS rule, it would largely repeal the employer mandate in all states relying on the federal exchange.

Last month, the American Action Forum projected that such a ruling would free 262,000 businesses from the employer mandate and would lead to 237,000 new jobs. Worker pay at small and medium-sized firms would increase by around $900 per year, and more than three million part-time workers could gain additional hours.

Source: American Action Forum

Freedom from the Individual Mandate: A ruling for King would end an unprecedented tax

The health care law created, for the first time, a federal tax on people who do not purchase a specific product. A court ruling striking down the IRS rule would also free millions of people in states with federal exchanges from this individual mandate tax because of the affordability exemption. The American Action Forum estimates that a ruling for King would free more than 11 million people from the individual mandate tax, with an average of $1,200 in tax relief.

Healthcare Transparency: A ruling for King would show the true cost of Obamacare coverage

The subsidies paper over the cost of Obamacare’s many mandates and rules. These requirements increased the average price of individual market coverage by an average of 49 percent in just the first year the law took effect. Rate request filings for 2016 indicate that much higher premiums are in store for enrollees next year. According to the American Action Forum’s projections, a ruling for King could affect the out-of-pocket premium share of 6.6 million federal exchange enrollees who are currently receiving subsidies. On average, these enrollees are receiving subsidies to cover about three-quarters of the cost of their coverage, and the average annual subsidy is $3,156.

Preserve Separation of Powers: A ruling for King would restrain an out-of-control executive

A court ruling striking down the IRS regulation would help ensure that future administrations do not rewrite laws to implement tax and spending schemes without congressional authorization.