Supreme Court Taking Obamacare Subsidy Case

On Friday November 7, 2014, the U.S. Supreme Court agreed to hear an appeal in a challenge to a portion of the Affordable Care Act of 2010. The challenge has to do with the tax subsidies received by residents in the 34 U.S. states which did not set up their own health care exchanges, opting instead to let their residents purchase insurance through the federal exchange. The IRS ruled previously that those living in these states were eligible for the subsidies despite language in the law to the contrary. This prompted challenges from several of the states that did not set up their own exchanges. The final decision by the Supreme Court will have major implications on taxpayers in these 34 states. Obamacare

The timing of the Supreme Court’s move is highly unusual because the case (Halbig v. Burwell) was still under a review by the D.C. Circuit Court of Appeals. For the Supreme Court to take a lower court case, four of the nine justices must vote in favor. And the fact that the court so quickly agreed to take on this case has led to widespread speculation that there are may be five justices that would vote to invalidate the subsidies and leave millions of Americans unable to afford health plans through the federal exchanges.


The reason this case is now before the Supreme Court is because of the wording in the Affordable Care Act that states that subsidies are only available through “an exchange established by the state.” MIT economist Jonathan Gruber, one of the ACA’s principle architects, stated in 2012 that the law was worded this way in order to encourage states to “get their act together and realize there are billions of dollars at stake here in setting up these Exchanges.” Today, however, White House officials and other defenders of the law are claiming that Congress clearly intended the subsidies to apply to all states regardless of who set up the exchange and that the specific language in the law was a drafting error.

If the Supreme Court sides with the plaintiffs, this could be a devastating blow to the President’s signature legislation. It would invalidate the tax subsidies in the 34 states affected and force the President to go to Congress to ask for an amendment to the law. And since the majority of GOP members of Congress are on record wanting to repeal the law, it is highly unlikely they will be too sympathetic to such a request.

Stay tuned for updates on this case that may affect your ability to purchase subsidized health care through the federal exchanges and remember to check with your local accounting firm for any other changes to tax law that may impact your return in future years.

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