In a historical ruling, the U.S. Supreme Court has upheld the significant healthcare reform provisions in the Patient Protection and Affordable Care Act (PPACA), enacted by Congress in 2010 in a sharply divided vote along partisan political lines and subsequently challenged on constitutional grounds by 26 states and employer representatives. On June 28, the Court issued an extensive decision, which included — to the surprise of many Court watchers — a majority opinion authored by Chief Justice John Roberts and the four liberal justices, along with concurring opinions and dissents by other justices.
Although the opinion addresses a number of issues, one of the key rulings was a 5-4 vote that the so-called “individual mandate” — a requirement that individuals must be covered by health insurance or pay a penalty — is constitutional, based not on the Commerce Clause of the U.S. Constitution as the Obama administration had argued but instead based on Congress’ general taxing power. According to the majority, the payment of the penalty is, in effect, a tax, and the mandate provision could therefore be sustained under Congress’ taxing power.
The Supreme Court’s decision will result in numerous changes on many fronts, including the continuation and acceleration of plans to implement significant adjustments in how healthcare services are delivered as well as the allocation of the related costs. The critical role of employers in the current delivery of healthcare coverage to employees through the workplace will expand and become one of the key avenues through which Americans secure health insurance. The Supreme Court’s decision confirms that employers will face significantly expanded obligations and costs as the changes required by the PPACA are implemented.
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What employers should do now
The PPACA has several staggered effective dates, with different provisions taking effect in 2013, 2014, and 2016. Although the details of how many provisions in the Act will be implemented will be developed in the near future, there are a number of critical steps employers should undertake now to prepare for the future:
- Be aware that the law affects both small and large employers. Employers with 50 or more full-time employees will be required to provide insurance coverage for their employees or face tax consequences. Small business owners — companies with 25 employees or fewer and average annual wages below $50,000 — who traditionally are the least likely to afford coverage for their employees, will be eligible for the small business tax credit. That tax credit, currently 35 percent, will offset the cost of insurance premiums. Starting in 2014, when the law goes fully into effect, the tax offset will become 50 percent.
- Ensure policies meet the minimum coverage requirements. Employers with 50 or more employees will be subject to the new minimum coverage requirements. There are specific provisions and formulas for determining the number of employees and the required coverage. For example, employees who work only 30 hours per week must be treated as full-time employees, which may be different from how employers define full-time employees for other purposes. Affected employers must commence planning to ensure they can meet the new minimum requirements.
- Assess whether to meet the new mandates or pay the penalties. Covered employers that do not comply with the benefit mandates will be required to pay penalties. However, an important consideration is the effect that choosing to drop insurance coverage will have on workforce morale and how the employer will meet its recruitment and retention goals. Simply stated, if competing employers in the relevant labor market provide the required healthcare coverage, employers that don’t will find it more difficult to attract and retain employees. At the outset, employers should recognize that the determination of whether to participate and comply with the new provisions or pay a penalty is more than simply a monetary decision, and any decision to forgo coverage likely will affect the company’s talent acquisition and retention abilities.
- Review the new requirements, assess whether and how current benefit plans must be changed to comply, and understand and plan for the associated costs. Keep in mind that there are limits on the costs that can be shifted to employees, so employers will have to decide whether the costs will be treated as additional overhead or whether other benefits will be reduced to offset higher healthcare costs.
- Understand the law’s provisions. The law has lots of detailed provisions. For example, under the “Summary of Benefit Coverage” requirements, employers must summarize available benefits in a limited number of pages and use specific templates provided by the government. The law also limits insurance companies’ ability to raise premiums for individuals who are already covered. In addition, young adults up to age 26 will be able to remain on their parents’ insurance plans. Significantly, individuals with preexisting health conditions will now be able to obtain insurance because the law makes it unlawful for insurance companies to exclude, limit, or charge unrealistic rates for coverage. Uninsured individuals will have to obtain insurance or else pay a tax.
- Monitor and stay on top of new developments. There will be new detailed regulations, including rules addressing automatic enrollment, that must be followed.
- Keep abreast of the coming rapid changes in the insurance markets. Insurance carriers will respond to the new developments with revised services, products, and costs.
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Although the Supreme Court has upheld the PPACA, the controversy surrounding the law will continue. There will be attempts to rescind or modify the Act, and the outcome of those efforts will be decided in Congress. Of course, the November presidential election will, at least in part, be a vote on whether America wants to continue moving forward to implement the PPACA. The presumptive Republican nominee, former Massachusetts Governor Mitt Romney, has already pledged to work to rescind the PPACA if he is elected president. Until the outcome of the November election is determined and the future of the Act becomes more clear, employers are well advised to continue their preparations for meeting the PPACA’s requirements and staying on top of the related developments.
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