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32 Yale J. Reg. Online 1 (2015)

handle is hein.journals/jregb32 and id is 1 raw text is: How King v. Burwell Creates Tax Problems for Consumers and What The Treasury Can Do About It Andy S. Grewal' After the Supreme Court agreed to hear King v. Burwell,2 a case addressing whether taxpayers can receive Section 36B premium tax credits for health insurance policies purchased on federally established exchanges (federal policies), commentators have expressed concerns about a potential death spiral in the health insurance market. Under the worst case scenario, the absence of credits for federal policies will deter consumers from future enrollment. With this smaller enrollment pool, premiums will spike sharply during the 2015-2016 Affordable Care Act enrollment season, the first following the Court's anticipated June 2015 ruling. Those price increases will further deter enrollment, and the Act will eventually collapse.3 This focus on future enrollment seasons masks the potentially harsh tax consequences for consumers who purchase federal policies during the 2014- 2015 enrollment season. Many such consumers cannot pay the sticker price for federal policies and receive tax credits to assist with their monthly insurance payments. However, an adverse decision in King v. Burwell would generally require that they pay back those credits. This conclusion might seem surprising to 2014-2015 purchasers of federal policies. Under the ACA's advance payment mechanisms, consumers seemingly take the premium tax credit immediately upon the purchase of a federal policy.4 Unsophisticated consumers-or even sophisticated ones-can easily assume that advanced payments do not have to be paid back.5 After all, those payments go straight to insurers and never appear on consumers' bank accounts. 1. Associate Professor of Law, University of Iowa. Comments, corrections, and criticisms are welcome at agrewal@iowa.uiowa.edu. 2. King v. Burwell, 759 F.3d 358 (4th Cir.), cert. granted 135 S. Ct. 475 (2014). 3. See, e.g., Jonathan Cohn, Here's What the Supreme Court Could Do to Insurance Premiums in Your State, NEW REPUBLIC (Nov. 11, 2014), http://www.newrepublic.com/article /120233/king-v-burwell-how- supreme-court-could-wreck-obamacare- states. 4. See 42 U.S.C. § 18082(a)(3) (2012) (establishing the advance payment regime). For a discussion of the rules relating to the computation of the advance payment amount, see Lawrence Zelenak, Choosing Between Tax and Nontax Delivery Mechanisms for Health Insurance Subsidies, 65 TAxL. REv. 723, 726-28 (2012). 5. See Robert Pear, White House Seeks to Limit Health Law's Tax Troubles, N.Y. TIMES (Jan. 31, 2015), http://www.nytimes.com/2015/02/01/us/politics/white-house-seeks-to-limit- health-laws-tax-troubles.html (noting that many consumers did not realize that advance payments may need to be paid back).