Now is the time for employers to focus on next steps.
Yesterday, the US Supreme Court, in a 6–3 decision, held that the Internal Revenue Service (IRS) regulations issued in 2012 under the Affordable Care Act (ACA) properly permit all qualified participants in an Exchange to receive premium assistance for their health insurance coverage—regardless of whether the Exchange was established by a state or is instead a federally facilitated Exchange. Thus, the decision permits the ACA’s current structure to continue.
The majority opinion, authored by Chief Justice John Roberts, Jr., reasoned that although the petitioners’ plain-meaning arguments were strong, the ACA’s context and structure compelled the conclusion that the ACA allows tax credits for insurance purchased on any Exchange created under the ACA because those credits are necessary for the federal Exchanges to function like their state Exchange counterparts, thus avoiding the type of calamitous result that Congress plainly meant to avoid (i.e., the absence of subsidies for those who purchase coverage on a federal Exchange).
The ACA was signed into law by US President Barack Obama in 2010. In part because of the partisan atmosphere surrounding the ACA, legislative efforts and court challenges have been under way since its inception to change or repeal it.
Additionally, 34 states refused to take steps to establish Exchanges where their citizens could shop for ACA-compliant health insurance. Given this refusal, the Department of Health and Human Services (HHS) established federally facilitated Exchanges so citizens of these 34 states could purchase ACA-compliant health insurance.
Under regulations issued by the IRS in 2012, all otherwise qualified participants in all Exchanges are eligible to receive premium assistance for their health insurance coverage—regardless of whether the Exchange was established by a state or is instead a federally facilitated Exchange established and run by HHS. The premium assistance for qualified participants is also a key component of the ACA, with more than 80% of all Exchange participants receiving premium assistance to reduce the cost of their health insurance.
King v. Burwell
The latest court challenge to the ACA, King v. Burwell, hinged on four words in the ACA that arguably limited premium assistance to qualified Exchange participants who purchased their health insurance coverage on an Exchange “established by the state.” If this plain-meaning argument prevailed, roughly 6.4 million participants in the 34 states with a federally facilitated Exchange would not be eligible for premium assistance, a result that some predicted would lead to unaffordable health insurance for the vast majority of the federally facilitated Exchange participants.
The underlying decision in the US Court of Appeals for the Fourth Circuit rejected the plain-meaning argument.
Although superficially applicable directly to such participants, a successful plain-meaning argument would also have relieved employers of the “no coverage” ACA Shared Responsibility penalty if all of their employees resided in the 34 states or, at a minimum, relieved employers of the “inadequate coverage” ACA Shared Responsibility penalty for any employee who resided in one of the 34 states.
The Supreme Court held oral arguments in King v. Burwell on March 4. Although recognizing the difficulty of making predictions based on oral argument, many commentators expected, based on the questioning during oral argument, that the Court would reject the ACA challenge.
Ultimately, a super-majority of the Court voted to uphold the 2012 IRS regulations in an opinion authored by Chief Justice Roberts and joined by Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Elena Kagan. Chief Justice Roberts wrote that “Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter.”
Justice Antonin Scalia, joined by Justices Clarence Thomas and Samuel Alito, dissented. Justice Scalia observed in dissent that “this Court’s two decisions on the Act will surely be remembered through the years. The somersaults of statutory interpretation they have performed . . . . will be cited by litigants endlessly, to the confusion of honest jurisprudence. And the cases will publish forever the discouraging truth that the Supreme Court of the United States favors some laws over others, and is prepared to do whatever it takes to uphold and assist its favorites.”
The ACA, as we know it today, will remain in place for the foreseeable future. Employers should be certain that they are continuing to plan for and react to the numerous and detailed ACA requirements. These include the following:
- Determining their ACA full-time employee population—including whether contingent workers or independent contractors may be deemed to be common-law employees for ACA purposes.
- Analyzing whether all ACA full-time employees and their dependents are being offered affordable ACA-compliant coverage at the right time.
- Preparing for the exceedingly complicated 2015 ACA employer Shared Responsibility and individual mandate reporting due in early 2016 on Forms 1095-B and 1095-C and the associated transmittal forms.
- Capturing ACA health plan design changes in plan documents, summary plan descriptions, open enrollment material, and required notices to respond to participant needs, lawsuits, and growing federal agency audits.
- Paying the Patient-Centered Outcomes Research Institute fee in July.
- Conducting the necessary plan design analysis and preparing for any changes necessary to avoid the Cadillac Tax in 2018.