In a much-anticipated June 25 ruling, the U.S. Supreme Court handed President Barack Obama a victory on his administration’s signature piece of legislation—the Affordable Care Act (ACA). Although the ruling was crucial to the future of the healthcare law, it basically means business as usual for employers.
The Court ruled 6-3 in King v. Burwell that federal tax credits to subsidize healthcare coverage are authorized under the ACA. Opponents of the law argued that it doesn’t authorize subsidies to individuals in states that don’t offer a state-run healthcare exchange. Thirty-four states have not set up exchanges, so individuals in those states turn to a federal government exchange.
“The Court’s ruling essentially means business as usual for the ACA and everyone touched by it—employers, employees and their families, insurers, and state and federal governments,” Douglas Chamberlain, an attorney with Sulloway & Hollis, P.L.L.C. in Concord, New Hampshire, said after the ruling. “The tax credit subsidies will continue to be available to eligible insureds obtaining individual coverage through the exchanges/marketplaces—regardless of whether they were established by the state or federal government. Group coverage through employers, unions, etc., is not affected at all.”
Neither the employer mandate nor the individual mandate was directly at issue in the case, Chamberlain said, although a decision adverse to the ACA would have undermined the individual mandate since the loss of premium subsidies in states using the federal exchange would have caused coverage to become too expensive for many.
“For now, all employers need to know is that nothing relative to their ACA obligations has changed—or will change—in the absence of litigation on other fronts or future legislative or regulatory developments,” Chamberlain said.
Although in many ways the ruling is a nonevent for employers, Katherine DeForest, another Sulloway & Hollis attorney, said insurance companies that had been holding off from developing plans for the federal exchanges will start investing resources to develop those plans and enter the exchanges.
“Employers who seek plans through the exchanges will likely see more choices in the next year or so,” DeForest said.
Jason P. Lacey, an attorney with Foulston Siefkin LLP in Wichita, Kansas, also said the ruling means business as usual for employers since the ACA survived the court challenge, but the case was closely watched because of its potential impact on the law.
If the decision had gone the other way, it could have dealt a blow to the law because its provisions are so interconnected and the subsidies come into play in many of the ACA’s mandates, including the individual mandate and the employer mandate.
Lacey said a ruling against the administration potentially could have provided large employers with relief from the employer mandate. Under the law, employers with 50 or more employees face penalties if they don’t offer health insurance coverage or if the coverage they offer is insufficient. The penalties are triggered only if employees receive subsidies when they purchase health insurance through an exchange. Thus, if the number of individuals eligible for subsidies had been reduced, the number of employers subject to penalties because of such subsidies also would have been reduced.
“Without access to tax credits in many states, large employers might have seen reduced exposure to penalties for failure to offer affordable insurance coverage to full-time employees,” Lacey said. “But the Court’s decision maintains the status quo. Tax credits will continue to be available without interruption. For large employers, this means they continue to face penalty exposure if full-time employees are able to obtain exchange-based coverage subsidized by tax credits.”
Judith E. Kramer, an attorney with Fortney & Scott LLC in Washington, D.C., also said the ruling means tax credits remain available to individuals in states using a federal exchange and not solely to individuals in states that have established a state exchange. “Had the Court ruled the other way, over six million people would have lost their coverage under the [ACA],” Kramer said.
Chief Justice John G. Roberts wrote the majority opinion, joined by Justices Anthony M. Kennedy, Ruth Bader Ginsburg, Stephen G. Breyer, Sonia Sotomayor, and Elena Kagan. Justice Antonin Scalia wrote the dissenting opinion, joined by Justices Clarence Thomas and Samuel A. Alito, Jr.
Roberts wrote that “Section 36B of the ACA allows tax credits for insurance purchased on any Exchange created under the Act.” He went on to say that the tax credits “are necessary for the Federal Exchanges to function like their State Exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid.”
“Congress passed the [ACA] to improve health insurance markets, not to destroy them,” Roberts wrote. “If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.”
Scalia opened his dissenting opinion by pointing out his disagreement with the majority’s decision that the ACA allows subsidies for individuals covered by a federal exchange. “The Court holds that when the [ACA] says ‘Exchange established by the State’ it means ‘Exchange established by the State or the Federal Government,’” he wrote. “That is of course quite absurd, and the Court’s 21 pages of explanation make it no less so.”