In the next couple of weeks, the Supreme Court will issue one of its most important rulings of the year: whether key subsidies that underpin the Affordable Care Act will survive.
Business owners take note: if the ruling goes against the ACA, as it very well could, it’s going to create a lot of confusion about your health care obligations, especially if you operate in one of the 34 states that will be most directly affected.
The case at issue, called King vs. Burwell, centers on poor wording in the original health care bill, which draws a distinction between states that have created their own health care exchanges and those that use the federal government-run exchanges. Opponents of the health care law want to use the unclear language to disable the subsidies upon which millions of people now rely for their current health care plans.
Briefly, the argument goes like this: according to a strict interpretation of the ACA, the federal government can offer subsidies in states that run their own health care exchanges. The Internal Revenue Service, in its interpretation of the act, extended the subsidies to states where the federal government operates an exchange, although the bill does not specifically say the federal government may do that. Hence the IRS overstepped its executive authority, the opponents’ reasoning goes. As a result, they contend that the subsidies should not be available in the 34 states where the federal government operates the exchanges.
Legal observers say a ruling against the ACA will throw the five-year-old health care law into chaos. Between six million and seven million consumers rely on subsidies in the states the ruling will affect, and without them they will be unable to pay their health care premiums. In turn, that could create something of a "death spiral" for the exchanges in those states, as the healthiest participants abandon their health plans, health care experts say.
Stay of Execution
Here’s how things could play out, should the high court rule against the health care law. It could grant a temporary stay, of up to six months, to give Congress a chance to clarify the language of the bill. During that time, subsidies would likely stay in place.
However, given the highly partisan reactions to the law, Republicans are unlikely to give the White House an easy out. They’re likely to demand tough concessions, such as an end to the individual mandate, the employer mandate, or both, legal experts say. The individual mandate requires U.S. citizens to purchase health care or pay a tax penalty. The employer mandate requires businesses with 50 or more full-time employees to offer health care coverage, or similarly pay a fee.
Of course, the president isn’t likely to approve such enormous changes to his signature legislation, and he's likely to exercise his veto. And he will have the leverage of the upcoming 2016 presidential election, which could work in his favor. Not too many politicians will want to be seen as voting to take away health care for their constituents.
“Someone is going to have to blink,” says Chris Condeluci, an attorney who leads the private practice CC Law & Policy, in Washington, D.C. Condeluci was a tax advisor to the Senate Committee on Finance when it wrote its version of the law.
Imbalance in the States
If no one blinks, however, and the subsidies disappear in two thirds of the states, businesses would be on unequal footing with one another. In states where the ACA is no longer operable, businesses with 50 employees or more would no longer be required to offer health care coverage or pay penalties. But businesses in the states that operate their own exchanges, where residents would still be eligible for subsidies, would have to continue playing by the prevailing set of rules.
“There would be a division between the 34 states using the federal exchange, and the 16 states and the District of Columbia that don’t,” says Bill Toman, a partner in the insurance regulatory practice of law firm Quarles & Brady. “The players would be required to provide a certain level of coverage, and the others would not.”
Toman adds that yet another scenario might be that states without their own exchanges, rather than relinquish access to health care through the ACA, could work to create their own exchanges, and hence be eligible for subsidies going forward. Pennsylvania, for example, is in the process of creating its own health care exchange as a contingency to the high court decision.
For now, however, health care benefits experts like Steven Friedman, a partner specializing in employee benefits law at Littler Mendelson, are telling businesses to stay the course.
“We are advising businesses to look at the ACA today the same way they have been looking at it since its enactment,” Friedman says. “It is something they should be complying with until we hear otherwise.”