BY AMELIA F. KLEIN
It may not be true that the Patient Protection
and Affordable Care Act (ACA) was created
by Senate Majority Leader Harry Reid
over a three-day weekend by cutting and pasting
pieces from the various bills circulating in
Congress that had sufficient support.
However, as someone who advises clients
every day about how to comply with the ACA,
I believe this legend. The law is long – 906
pages – and many of its provisions just don’t
hang together in a coherent way. As evidence
of this, the ACA was amended only one week
after it was signed into law, by the Health Care
and Education Reconciliation Act of 2012.
Still, it took 1½ years to discover the flaw that
forms the basis of the Supreme Court case in
King v. Burwell:
Internal Revenue Code section 36B, added
by the ACA, authorizes federal tax-credit subsidies
for health insurance coverage that is
purchased through an “Exchange established
by the State.”
Section 1321 of the ACA requires the federal
government to operate an Exchange for any
“state [that] is not electing to operate an Exchange
or that… will not have the Exchange
operational by Jan. 1, 2014.”
The problem? Only 16 states have established
their own Exchanges (now referred to
as “marketplaces”). The question in King v.
Burwell? “[W]hether the Internal Revenue
Service (“IRS”) may … extend tax-credit
subsidies to coverage purchased through
Exchanges established by the federal government.”
In other words, should the federal subsidies
be available when coverage is purchased in one
of the 34 states that where the health insurance
marketplaces are run by the Federal government?
The challengers to the law say “no”.
The availability of subsidies for people who
purchase health coverage in a marketplace is
a linchpin that holds many pieces of the ACA
together. For one thing, the assessment of the
“employer shared responsibility payments”
only occurs when an employee goes to the
marketplace, buys coverage, and is eligible
for a federal subsidy.
No subsidy means no IRS invoice for the assessment.
These assessments support the bulk
of the costs of the ACA; according to the Brief
for the Petitioner/challenger (King), “billions
of dollars [are] spent each month.” What will
happen to employer coverage if the linchpin
of federal subsidies is removed?
In New York, nothing will change; at least
not right away. New York, and its neighbors,
Vermont, Massachusetts and Connecticut,
have established State marketplaces, so subsidies
will continue to be available to eligible
individuals that purchase coverage there.
Employers will be assessed penalties if
eligible employees are not offered coverage,
or whose coverage is unaffordable by ACA
standards or doesn’t provide a minimum
value, if those employees receive the federal
subsidy. (Annual assessments equal $2,000 per
employee, excluding the first 30 employees, for
failure to offer coverage. For employers that
offer unaffordable or inadequate coverage,
the assessment is $3,000 per employee that
becomes eligible for a tax credit).
In those states that have federally-run
health insurance marketplaces, the effect
on health insurance costs will be immediate.
Without the federal subsidy, coverage
purchased in the marketplaces will become
unaffordable. Healthy individuals will drop
coverage, leaving insurers with only unhealthy
subscribers.
The costs to the insurers will go up, and premium
costs will increase – causing the “death
spiral” described by Supreme Court Justice
Sotomayor. The loss of the employer penalties
in those 36 states will have a devastating
effect on the revenues generated by the ACA
– revenues that have supported such things
as the Child Health Insurance Program and
Medicaid expansion (adopted by 29 states),
tax credits for small employers purchasing
health coverage, changes in Medicare provider
rates, the Medicare beneficiary drug rebate,
and the reinsurance plan for retiree coverage.
Without the employer shared responsibility
penalties, employers may offer coverage to
fewer employees, or increase the premium cost
sharing to employees. However, the changes to
the structure of employer-sponsored health
coverage will not change markedly. Employer health plans will still have to:
Provide young adult coverage to age 26;
offer preventive care without employee cost
sharing; cover pre-existing conditions; not
impose annual or lifetime cost limits; limit
coverage waiting periods to 90 days; provide
an expanded appeals process; and limit the
ability to rescind coverage.
The penalty for failing these requirements
is $100 per day per person affected. Is there
any desire, by Congress or employers, to repeal
these popular provisions?
The Obama administration said they have
no “plan B” if the Supreme Court rules in favor
of the challengers. During oral argument,
Justice Scalia asked the government’s lawyer
if the Court were to rule for the challengers,
did the government actually expect Congress
to “just sit there while disaster ensues?” The
lawyer’s response: “This Congress?”
The Supreme Court’s decision is expected
in late June.
Klein is a Member in the Albany office of
Bond, Schoeneck & King, PLLC, where she
advises employers in all types of benefit
compliance issues.
Photo Courtesy Bond, Schoeneck & King PLLC