A federal appeals court ruling yesterday could lead to the collapse of the Affordable Care Act (ACA), some reports are saying. Less dramatically, the decision may be encouraging news for companies that were considering whether to stop offering employee health-care coverage, now that the public insurance exchanges created under the ACA are in place.
The U.S. Court of Appeals for the District of Columbia Circuit ruled (in Halbig v. Burwell) that lower-income individuals and families living in the 36 states where the federal government operates the public exchanges are not eligible for subsidies to help pay premium costs on policies purchased through HealthCare.gov. Only those who live in the other 14 states, which created and operate their own exchanges, are eligible for such subsidies, the court ruled.
For companies that employ lots of low-wage employees, as is typical in industries like food and beverage and hospitality, the existence of the public exchanges offers a potentially appealing prospect.
Many such companies have historically offered workers health plans that provided little more than catastrophic coverage and would not be “qualified” plans under the ACA’s employer mandate provision. That mandate, under which employers that don’t offer qualified plans will be subject to a tax penalty, is currently scheduled to take effect in 2016 for companies with 50 to 99 full-time-equivalent (FTE) employees. Those with 100 or more FTEs will need to start providing health benefits to at least 70% of such workers by 2015 and 95% by 2016.
While the annual tax penalty for employers that don’t offer health-care coverage at all would be $2,000 per FTE (provided that at least one employee gets a subsidy or tax credit to purchase health care through a public exchange), that would be far less costly for the low-wage companies than upgrading their health plans to qualified status. Annual per-employee costs for plans that would be deemed as qualified are typically several times greater than $2,000.
With the public exchanges in place, the employees of such companies would have a path to coverage that likely would be both affordable and of better quality than the limited employer-provided plans they’ve had access to until now.
But if the appeals court ruling ultimately stands, those companies not only would save money by eliminating their health plans, they would not even have to pay the tax penalty.
“The employer mandate says that if an employer doesn’t provide the Obamacare level of insurance and at least one employee gets a subsidy, then the tax is on,” says Robert Christenson, a labor attorney and partner at law firm Fisher & Phillips. “But under the appellate court ruling in D.C., the federal government can’t issue subsidies in 36 states, so the tax is never triggered there.”
It’s far from certain, though, that the ruling will indeed stand. Also on Tuesday, in a different case (King v. Burwell) that also centered on the matter of subsidies for people in the states where the federal government operates exchanges, the Fourth Circuit appeals court in Richmond, Va., reached the opposite conclusion: that people in those states are eligible for the subsidies. Most observers think the Supreme Court will eventually resolve the opposing decisions.
Also, the D.C. ruling was handed down by a randomly selected panel of three appeals court judges. But the entire court could opt to rehear the case, in what’s known as an en banc proceeding. If it does, the ruling is in jeopardy, says Christenson. Both cases, he notes, were decided along party lines. In Halbig v. Burwell, the judicial panel consisted of two Republican appointees and one Democratic appointee. King v. Burwell was decided unanimously by three Democratic appointees. The kicker: in the full D.C. circuit, there are more Democratic than Republican appointees. If the court en banc overturns the panel’s ruling, the Supreme Court might not bother taking the case.
“The takeaway for employers from all of this should be: Don’t do anything yet,” says Christenson. “Wait and let this play out. Certainly don’t decide yet not to offer health insurance anymore.”
The legal arguments in the cases focused on language in the ACA that specifically says the subsidies are for lower-income people who buy insurance through a state-operated exchange. The D.C. court followed a “strict constructionist” path in making its decision. “That court said it wasn’t going to rewrite the law, that the statute was clear,” says Chris Condeluci, a partner with the law firm Venable who was a Republican tax counsel to the Senate Finance Committee at the time the ACA was being drafted.
Based on that thinking, the D.C. court invalidated an IRS regulation that allowed the subsidies for lower-income people in all states. But the Richmond appeals court proceeded according to the canons of statutory interpretation. That is, if it considers a statute to be at all unclear, it looks at additional evidence to determine, in this case, Congress’s intention when enacting the law. The court found that the government’s stated intention to run an exchange itself, to be used by people in states that didn’t have exchanges available, made those purchasing insurance through the federal exchange eligible for subsidies.
But the D.C. court engaged in some interpretation itself. In its decision, notes Christenson, it said Congress deliberately extended the subsidies only for purchases made through state-run exchanges in order to give states an incentive to create the exchanges.
That’s hogwash, according to Condeluci. While as a Republican he’s not a big fan of the Affordable Care Act and might be expected to support the D.C. court’s ruling, he says the court made a mistake.
“I was in the room when that provision was being drafted,” Condeluci says. “The subsidies were not created so the states would set up exchanges. All the members around the table wanted every state to have an exchange, but we all naively thought the states would want to as well. The main reason we came up with the federal fallback is because we recognized that some states might not get their act together in time to have an exchange up and running by Jan. 1, 2014. It was a bridge. We never anticipated all those states saying no.”