Rumors of Death Are Exaggerated
Some headlines proclaim the death of the ACA (“Obamacare”). Other headlines call it a political stunt intended to gut the ACA that will soon be overcome by subsequent court action. We are talking about the July 22 decision by the Court of Appeals for the Washington DC Circuit in Halbig v Burwell, (No. 14-5018). The effects of the Halbig decision became more confused with a decision in King v Burwell (4th Cir., No. 14-1158, July 22, 2014), which came to the opposite conclusion later on the same day. If the King decision prevails, then the Affordable Care Act (ACA) lives. The results are not as clear if Halbig prevails.
In a nutshell, the ACA provides income-based subsidies to pay for individual health insurance purchased on exchanges “established by a state.” Many state legislatures (such as Michigan) declined to get involved. In these states, the Federal government stepped in and established exchanges. The Halbig court concluded that the subsidies must be limited to residents of states whose legislatures established the exchanges and denied to residents of states (such as Michigan) that did not affirmatively establish an exchange.
If the Halbig decision prevails, then the subsidies (in the form of tax credits) will cease for residents of the 34 states (including Michigan) that have left the Exchange construction up to the Federal government. Individuals in those 34 nonestablishing states who wish to purchase nongroup health care coverage could be big losers. For they will no longer be able to get the subsidy. They will be able to buy the coverage, but will have to pay 100% of the cost out of pocket. So enrollments will likely decline in those states.
However, the rest of the ACA continues, including the provisions requiring coverage of children to age 26, preventative care with no deductible, guaranteed renewability, elimination of pre-existing conditions, the requirement to purchase coverage (and penalties for failure), Medicaid expansion, the availability of coverage on the exchanges, various new taxes on insurance coverage and many other ACA features. Halbig will eliminate only one feature of the ACA – subsidized exchange coverage in 34 states.
What about the employer mandate? Employers of less than 50 fulltime employees are unaffected. As written, employers of 50 or more employees (100 or more for 2015) must provide coverage for their employee or face penalties (the “shared responsibility tax”). But here is a catch. These penalties are triggered only by employees of that employer enrolling in subsidized exchange coverage. So it would appear that employers will not be liable for penalties for employees living in the 34 states with exchanges established by the federal government. A thoughtful employer will also want to consider the employee cost of exchange coverage when considering its ACA compliance strategy after the dust has settled.
Some large employers with employees only in the 34 nonestablishing states might consider reducing or eliminating coverage if the threat of the penalty is eliminated. However, a resolution of Halbig on appeal is unlikely to occur before open enrollment for the 2015 plan year. For the short term, we recommend that all employers structure their health plans so as to satisfy the 90-day waiting period requirement and other ACA requirements that could trigger the $100/person/day penalty. Prudent large employers in the 34 nonestablishing states and all large employers in the 16 establishing states will structure their plans so that they provide a comprehensive offer of at least a minimalist (minimum essential coverage) plan that assures avoidance of the penalty of $166.67/month/fulltime employee multiplied by all of the employer’s fulltime employees. (A “comprehensive offer” means that the plan is offered to 95% or more of its fulltime employees, reduced to 70% for 2015.) Employers should consider offering coverage that meets the affordable and minimum value standard, so as to minimize exposure to the penalty of $250/month/fulltime employee who elects subsidized exchange coverage.
It is too early to make plans based on Halbig. The White House staff has announced that the IRS will continue the tax credit subsidies while it appeals this decision. It will take many months and even years for the courts to resolve this. So individuals who have purchased subsidized coverage will be able to continue their coverage for the time being and employers should not make big changes to their health plans for 2015 coverage.
So the rumor of death is incorrect. But if Halbig survives, the ACA may continue in a somewhat disabled status.
If you have questions about Halbig v Burwell, other ACA questions or other employee benefit questions, contact or another member of the Mika Meyers Labor and Benefits practice group.
