Ruling against ObamaCare IRS subsidies would save Illinoisans billions in penalty costs

There is a silver lining should the Supreme Court rule against the ACA: Illinoisans would no longer be subject to an estimated $6.5 billion in IRS penalties.

Illinois’ last-minute push to enact a state-funded ObamaCare exchange is undoubtedly intended to ensure against an upcoming U.S. Supreme Court challenge to IRS insurance subsidies granted under the Affordable Care Act, or ACA.

But lawmakers who support a state-funded health insurance exchange are tacitly granting permission to the federal government to impose billions of dollars in penalties on Illinois citizens.

At issue in King v. Burwell is the plain text of the ACA, which states that IRS subsidies can only be issued in states that have established a state-funded exchange. Should the Supreme Court strike down ObamaCare subsidies in states that have not established a state-funded exchange, individuals in Illinois could lose their health-insurance subsidies. However, the same holds true for the hefty IRS taxes and penalties on individuals and businesses that are triggered by the subsidies. These would also disappear.

The IRS would no longer have the ability to subject approximately 16,000 Illinois employers – employing 3.8 million Illinoisans – and 455,000 Illinois individuals to IRS penalties under the ACA. Based on the most recent individual and employer mandate revenue estimates from the Congressional Budget Office and Illinois’ share of the nation’s uninsured population from the American Community Survey, Illinois individuals and employers will be sending about $6.5 billion in penalties to the IRS over the next decade. About $1.6 billion will come from individuals and $4.9 billion will come from employers.

In other words, the president’s signature health-insurance legislation essentially pits about 175,000 Illinoisans who are receiving an ObamaCare subsidy for the purchase of health insurance against the millions of Illinoisans who could be directly and negatively impacted by the law’s penalties.

There should be little doubt that federal lawmakers would need to remedy the situation given that the vast majority of states, which did not establish their own exchanges, would all be in the same boat. Furthermore, such a ruling would be welcome news for millions of Illinoisans whose jobs have or could be threatened as a direct result of this law.

Illinois lawmakers must carefully evaluate the potential impact of the penalties on Illinois’ well-being before rushing to establish a state-funded exchange.