The Supreme Court [recently] announced that it had ruled in favor of the Obama administration in the case called King v. Burwell. The Supreme Court’s decision (by a 6-3 vote, with Chief Justice Roberts writing the opinion) confirms that tax credits used to subsidize the cost of health insurance coverage for low-income individuals who purchase coverage will be available through all individual American Health Benefit Exchanges established under the Affordable Care Act (ACA). This decision may be the final blow to ACA opponents’ attempts to undermine the statute through legal challenges.
Some of the specific implications of the Supreme Court’s decision are as follows:
- All individuals who purchase individual insurance on an exchange and that meet certain eligibility requirements will still have access to federal tax subsidies.
- Insurers who offer products on exchanges will be able to maintain premiums as currently priced without having to take into account the possible elimination of certain tax subsidies.
- The risk pools in the individual market will also remain unaffected. If tax subsidies had been unavailable in certain states, that would have increased the number of people who could have qualified for a hardship exemption under the ACA’s individual mandate, which would have allowed them to opt-out of buying insurance, and potentially adversely affected the risk pools.
- The ACA’s employer shared responsibility provisions, also known as the “employer mandate,” will continue to apply in all states.
- Unless Congress or the Department of Health and Human Services (HHS) acts, the definition of “small employer” will expand in 2016 from employers with up to 50 employees to employers with up to 100 employees. This will subject insured groups covering 51-100 employees to the rules and regulations governing the small group market beginning in 2016.
The primary takeaway is that it appears that the status quo under the ACA will remain in effect. Group health insurance contracts should not be impacted, and PEOs that are working with their clients to help comply with the employer mandate (and related tax reporting) should continue to do so.
However, we expect an increase in federal regulatory activity now that King has been resolved in favor of the Obama administration. Additional guidance will certainly be forthcoming on the Code Section 4980I excise tax on high-value coverage (the so-called “Cadillac tax”). In addition, HHS, the Internal Revenue Service (IRS), and the Department of Labor (DOL) will likely be releasing additional final regulations relating to the ACA’s market reform rules.
Finally, given that it appears that the final judicial challenge to the ACA has been unsuccessful, we may now see increased bipartisan legislative activity in Congress to modify certain ACA provisions. Different bills under consideration would do as follows: revise the Cadillac tax rules, including a possible exemption for employers who offer plans above a certain actuarial value, and modifications to how the dollar amount thresholds that trigger the tax are determined; simplification of ACA tax reporting requirements; and relaxation of current ACA rules to allow employers to provide pre-tax dollars to their employees so they could use those amounts to purchase individual health insurance.
All contents © 2015 National Association of Professional Employer Organizations, republished with permission