ACA Opponents Argue That States’ Refusals to Establish Exchanges Protects Employers From Penalties

July 27, 2012

Notwithstanding the Supreme Court’s decision upholding the Affordable Care Act, the law’s opponents have seized on a provision which authorizes state exchanges to provide premium tax credits but does not give federal exchanges the same authority.  Under the ACA, the employer penalty is triggered when any full-time employee receives a premium tax credit through an exchange.  However, the law’s opponents argue that because the Act's language only provides for premium tax credits in exchanges “established by a state,” the tax penalties could not be imposed on businesses in states with federal exchanges.  According to Virginia Attorney General Ken Cuccinelli, “Virginia and other states can shield businesses from hefty fines for not providing adequate health insurance for employees…simply by refusing to set up their own state-based insurance exchanges.”  Congressional Democrats disagree.  While they may recognize the “glitch” in the law's language, they argue that it was clearly understood in the drafting process that premium tax credits could be administered through federal or state exchanges.  This is further bolstered by recent IRS regulations explaining that premium tax credits are available through both types of exchanges.  Cuccinelli’s response: “Laws trump regulations.”  He points out that the law “says ‘established by a state,’” so “it’s kind of hard to get around that.”  He also noted, however, that states cannot take the lead in this litigation, but instead “it would be up to a business to challenge any fines imposed on it,” which is something “not expected to happen before 2015.”