November 23rd, 2016
Will United States Supreme Court Eviscerate Affordable Care Act?
On March 4th, the United States Supreme Court heard oral arguments on the following question presented in the case of King v. Burwell: “Whether the IRS may permissibly promulgate regulations to extend tax credit subsidies to coverage purchased through exchanges established by the federal government under Section 1321 of the PPACA?”
At the heart of this dispute is Section 1401 (b)(2)(A) of the Patient Protection and Affordable Care Act (“ACA”), which describes taxpayers who are eligible for subsidies under the Act as those enrolled in health care plans acquired “through an Exchange established by a State” under Section 1311 (1) of the Act. Only sixteen states and the District of Columbia set up their own exchanges. No one disputes that consumers who shop in those states are eligible for subsidies. Rather, the dispute surrounds regulations the IRS promulgated that extended the tax credits to qualifying citizens who obtained insurance through a federally run exchange, in addition to those who signed up for insurance on a state run exchange.
The challengers (those attacking the Act) argued yesterday that the ACA language providing that subsidies are only available to those who enroll in a health care plan “through an exchange established by a State” is clear, and thus subsidies are not available for the residents of those states that decided against establishing their own exchanges. The challengers further contend that Congress was intent on giving the states the primary choice of whether to set up an exchange, using the subsidy system as an incentive to get them to go along, and thus must accept the consequence of some states declining to do so.
Counsel for the Government countered that this is a complex law, with the purpose of setting up a nationwide system, and many parts of the law’s content point to a universal system of exchanges operating within the subsidy system. The government further argued that Congress intended for each state to have an exchange, with the same basic characteristics-including subsidies-irrespective of whether the state itself or the federal government set up that exchange. The Court’s more liberal members, Justices Stephen G. Breyer, Ruth Bader Ginsburg, Elena Kagan, and Sonia Sotomayor are expected to agree with this argument and left little to no doubt that they would vote to uphold the nationwide subsidy system – in the thirty-four states where the insurance marketplace is run by the federal government, as well as in the sixteen where states set up their own.
Questions from Justice Anthony Kennedy, whose vote is often seen as a tiebreaker between liberals and conservatives on the Court, suggested that an argument for striking down the government subsidies raises a ‘serious’ constitutional problem – that Congress should ordinarily not be allowed to coerce the states into doing something that Congress wants. However, Justice Kennedy also showed concern that striking down the subsidies in states that did not set up their own exchange would cause a ‘death spiral’ for the ACA. The two Justices who appeared to be most openly sympathetic to the challengers – Justices Samuel A. Alito, Jr., and Antonin Scalia – also appeared to concede that a ruling in favor of the challengers could result in harsh consequences, but they offered suggestions to alleviate them. Justice Alito said the Court could delay its ruling to allow time to adjust and that “[i]t would not be too late,” he said, for those states to create exchanges to qualify their citizens for subsidies, and “going forward there could be no harm.” Justice Scalia stated that “[i]t may not be the statute Congress intended, but it may be the statute Congress wrote,” and suggested that Congress should be the one to fix the issue. Although Justice Clarence Thomas did not ask questions or say anything at all during the arguments, most assume that he will vote for the challengers, which likely leaves Chief Justice John G. Roberts, Jr., and Justice Kennedy with the deciding votes.
The Obama administration has also talked about the possibility of a “death spiral” type collapse of the entire ACA if the subsidy challenge succeeds, but recently acknowledged that it did not have a contingency plan in mind. However, alternative plans have been offered recently by Senate and House Republicans who have announced proposals for health care reform that would include insurance protections, tax credits and state flexibility provisions which appear to overlap with current protections set forth in the ACA.
How does this affect employers? Employer penalties are only triggered when an employee signs up for coverage in an exchange and receives a premium tax credit (or subsidy).If the U.S. Supreme Court rules that the IRS regulations extending tax credits to individuals who purchase insurance through the federal marketplace are impermissible, the employer mandate may be rendered meaningless in those states that have not set up their own exchanges. If no premium tax subsidies are available in those states that do not establish their own exchanges, the employer mandate penalties will not be triggered in those states. A decision in this case is expected in June 2015. For now, the employer mandate remains intact and employers must continue to follow their ACA compliance strategies.