SCOTUS Decision Looms Over 2015 Benefit Strategies

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On November 7, the U.S. Supreme Court agreed to hear another challenge to the Affordable Care Act. In 2012, the Court upheld the constitutionality of the law’s requirement that individuals obtain health insurance or pay a penalty and limited the Federal government’s ability to withhold funding for states that did not expand eligibility for Medicaid. This new case is perhaps not as significant as the 2012 case, but employers should still be aware of how its outcome could affect their 2015 benefit strategies.

In the new case, King v. Burwell, business owners backed by a Libertarian think tank are hoping to limit the availability of premium assistance subsidies to individuals on federally-run insurance exchanges. The plaintiffs argue that because the text of the law authorizes the payment of premium subsidies for policies purchased on an “exchange established by the state” that subsidies should be available only to individuals in states with state-run public insurance exchanges, and not residents of states that chose to have the federal government operate the exchange for their citizens.

King v. Burwell is expected to come before the Court in March, with a decision issued before July. Observers are split on which way the Court is likely to rule, but note that a ruling in favor of the plaintiffs could have wide-ranging impact. Nearly 5.5 million people in 36 states enrolled through a federally administered exchange last year, and over 85% received a subsidy. In Wisconsin, over 90% of the nearly 140,000 individuals who enrolled through the state’s federally-run exchange received a subsidy.

If the Court finds that these individuals are not eligible for a subsidy, those who cannot afford unsubsidized coverage may be exempt from the individual mandate to purchase health insurance. This would make it harder for exchange plans to meet enrollment goals and spread risk, increasing the cost of coverage. It would also increase the amount of uncompensated care delivered by healthcare providers to the uninsured, driving up the cost of care.

Such a ruling would also throw a wrench in the plans of some employers who want to steer early retirees on to the public exchange. Following IRS rules that prohibit the use of HRA funds to purchase individual coverage on the exchange, some employers are giving lower-income retirees the option of declining the HRA and taking the federal subsidy instead. Employers in states with state-run exchanges, such as Minnesota, could still pursue this strategy, but if the Court sides with the plaintiffs, this option will be off the table in states with federally-run exchanges like Wisconsin.

To read more about the case and its effect on employer health benefit strategy from Business Insurance magazine, click here.