Supreme Court ACA Decision Maintains Status Quo

The U.S. Supreme Court ruling about health exchange subsidies under the Patient Protection and Affordable Care Act (ACA) “is really a status quo decision,” says J.D. Piro, senior vice president at Aon Hewitt and leader of Aon Hewitt’s Health Law Group, about the court’s decision in King v. Burwell. “No employer has slowed down implementation waiting for this ruling, but now they know they don’t have to change anything.”

Susan Nash, chair of law firm McDermott Will & Emery’s Health and Welfare Plan Affinity Group in Chicago, adds that it gives employers certainty that subsidies will be available and they do not have to look at different health benefit strategies for different states.             

The U.S. Supreme Court decided a case that questioned whether the plain language of the ACA provided for health premium subsidies to be given only to individuals who purchase insurance on state-run exchanges and not in states where the exchanges are federally run. The high court determined that the law “allows tax credits for insurance purchased on any exchange created under the act.”

“If it had gone the other way, there would have been a huge number of implications,” Piro notes. Since employer penalties for not offering affordable coverage to employees are triggered when an employee goes to an exchange for coverage and receives a subsidy, for the 34 states, plus D.C., where the exchanges are federally run, federal tax subsidies would have stopped and employers would not have been subject to a penalty.

In addition, some employers have considered whether their employees might be better served through steady coverage in exchanges, especially pre-65 retirees. The Supreme Court ruling provides “relief for some employers that have used exchanges as part of their health care delivery strategy for part-time workers or pre-65 retirees,” Nash tells PLANSPONSOR. “They can breathe easy that this strategy will play out correctly.”

Employers still considering this strategy can move forward, Piro adds.

In its ruling, the Supreme Court said: “Petitioners’ plain-meaning arguments are strong, but the act’s context and structure compel the conclusion that [the law] allows tax credits for insurance purchased on any exchange created under the act.”

The high court determined that, when read in context, the phrase “an exchange established by the state under [42 U.S. Code Section18031]” is properly viewed as ambiguous.

The court noted that the ACA adopted three key reforms: the guaranteed issue and community rating requirements; the requirement for individuals to maintain health insurance coverage or make a payment to the Internal Revenue Service (IRS), unless the cost of buying insurance would exceed 8% of that individual’s income; the effort to make insurance more affordable by giving refundable tax credits to individuals with household incomes between 100% and 400% of the federal poverty line.

According to the ruling, if one of the ACA’s three major reforms—the tax credits—would not apply, the coverage requirement would not apply in a meaningful way, because so many individuals would be exempt from the requirement without the tax credits. “If petitioners are right, therefore, only one of the act’s three major reforms would apply in states with a federal exchange,” the ruling says.

Piro tells PLANSPONSOR employers should now be thinking about complying with IRS reporting rules starting in 2016. “After that, there’s the excise tax on high-cost health plans http://www.plansponsor.com/irs-issues-guidance-about-aca-cadillac-tax/ starting in 2018, and employers need to look at how close they are to the threshold [for triggering the tax] and when they will go over it, and how to reduce liability,” he says.

“To the extent an employer has not started looking at who it needs to report on and what data to gather, it needs to get busy on that because there’s lots of data required,” Nash adds.

“This case was the last major judicial hurdle that the Affordable Care Act had to clear before full implementation,” Piro states.

Industry groups say lawmakers need to refocus, too. “With the legal case settled, Congress should use this opportunity to repeal the burdensome and unnecessary taxes, mandates and reporting requirements imposed by the ACA,” says Annette Guarisco Fildes, president and CEO of the ERISA [Employee Retirement Income Security Act] Industry Committee (ERIC). “Specifically, we want Congress to repeal the 40% health care excise tax, the employer mandate and all the related reporting requirements.”

According to ERIC, these measures cause employers to devote costly resources to unnecessary compliance burdens and taxes, funds that are better spent on benefits for employees and other critical business needs.  

“We caution Congress against concluding that it is ‘business as usual’ after this ruling and continuing partisan wrangling over the future of the Affordable Care Act. The long-term fate of the law may be unclear, but employers are required to comply with it right now, and several serious problems with the law need to be addressed,” American Benefits Council President James A. Klein says.

The council recently unveiled a package of legislative recommendations for making the law less onerous for employer health plan sponsors.