Obamacare had a big day in court last week--ending with mixed signals, as two federal appeals courts issued conflicting rulings on a major provision of the Affordable Care Act. The key question in the two cases--Halbig vs. Burwell in the Court of Appeals for the District of Columbia Circuit, and King vs. Burwell in the U.S. 4th Circuit Court of Appeals in Richmond, Virginia--is whether people living in the 36 states where health-care exchanges are run fully or partially by the federal government are entitled to income-based subsidies.
The actual language of the Affordable Care Act says that only people who buy health coverage through an exchange "established by the state" can qualify for subsidies. Yet a majority of states opted not to set up their own exchanges, leaving the work to the federal government. So, in May 2013, the IRS issued a clarification of the law that said people in these states could also qualify for subsidies, in keeping with the spirit of the law, which is to get the maximum number of people covered affordably.
In a 2-to-1 ruling, the D.C. court decided that the IRS overreached. (In the Virginia case, the three-judge panel unanimously agreed with the IRS's interpretation.) The conflicting rulings mean that the fight will almost certainly move on to another round. If the view of the Halbig court ultimately prevails, it could mean that an estimated 4.7 million Americans who have already received subsidies through the federal exchange could lose them. On the other hand, because large-employer penalties are triggered only when employees qualify for health-care subsidies, some 250,000 businesses could be freed from their responsibility to provide health coverage.
Is this a game changer for business? Probably not. For now, if you're an employer with 50-plus full-time-equivalent workers, regardless of where you're located, the smartest strategy is to assume that subsidies--and corresponding penalties--will stick. "Over the past 4 or 5 years, the Affordable Care Act has gone through an evolution," says Christopher Ryan, vice president of strategic advisory services at ADP, an employee-benefits administrator. "But multiple rulings and changes have all gone in one direction--closer and closer to final implementation of the law."
The next legal steps will take some time to play out. Both circuit court cases will now likely move to en banc review, meaning that all the judges in each court--instead of a select subgroup--will hear the cases. (In both courts, the majority of judges are Democratic appointees.) If the courts again come out with conflicting decisions, the case would likely be taken up the Supreme Court, which tends to intervene when circuit courts disagree about substantive issues of law. Even if the courts come to a unanimous decision, the losing side is bound to appeal, and if four Supreme Court justices consent to take the case, it will be heard.
"It's probably another year before this works through the courts," says Ryan. "If it goes to the Supreme Court, it could be well into 2015. But if you're a company, you need to take ACA compliance very seriously at this point." Companies with 50 to 99 employees will have another year -- until 2016 -- to start the coverage. Companies with 100 or more employees must comply with the employer mandate starting January 2015, with two years to ramp up to covering 95 percent of their workers.
Larger employers won't have to submit their paperwork on healthcare compliance to the IRS until 2016, but they need to start keeping accurate records--of employee hours, benefits provided, and more--throughout 2015. This involves integrating information from HR and payroll, communicating necessary notification to employees, and ensuring IT systems are up to the challenge.
"Going into 2015, there's no evidence that any further transition relief is coming," says Ryan. Employers that take a wait-and-see approach will be seriously behind the ball if the courts ultimately hold that the subsidies stand in both federal and state-run exchanges. "From a historical perspective, the best course of action today is to assume that the laws now in place are the laws that need to be complied with. Rather than trying to comply with laws you hope will pass, you have to work with the here and now. That's been our advice since passage of the ACA in 2010, and it's still the smartest advice."