On June 25, 2015, the United States Supreme Court issued the much anticipated decision in King v. Burwell and concluded that the tax credits allowed to eligible taxpayers for premiums paid under a Marketplace health insurance plan are available irrespective of whether a taxpayer enrolled in a state-operated exchange or a federal exchange. By doing so, the Supreme Court rejected the challengers’ literal reading of the applicable provision in the Affordable Care Act (the “Act”), which provides that tax credits are allowed if enrollment occurs though “an Exchange established by the State.”

The Supreme Court expressly acknowledged that the tax credits are a key component of the Act and are meant to make health insurance affordable for households with incomes between 100% and 400% of the federal poverty line. The Supreme Court also noted that the literal reading suggested by the challengers would render many provisions of the Act inapplicable. The Act would then be mostly ineffective in its attempt to require most individuals to obtain health insurance. The Court decided that the language at issue could not be read in isolation, but had to be interpreted in the context of the Act read in its totality. The Court stated that “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.” It then concluded that tax credits are allowed to all eligible taxpayers, even if they enrolled through a federal exchange.

This decision constitutes the second rejection by the Supreme Court of a major challenge to the Affordable Care Act. It is a clear indication that employers should continue to take appropriate steps in their implementation of health care reform.