Legal Hurdle Cleared – The Affordable Care Act will Survive

Legal Hurdle Cleared – The Affordable Care Act will Survive

On June 25, 2015 the Supreme Court of the United States cleared the Affordable Care Act (ACA) of the last viable legal challenge to undermine the entire law. The issue decided by the Court was the availability of premium tax credits in States who relied on the Federal government to create their Exchanges. The Court ruled the availability of premium tax credits is not dependent on whether a State set up its own Exchange or the Federal government set up the State’s Exchange. This article is intended to briefly discuss some of the Court’s analysis and reasoning. However, and more importantly, the article also discusses what the decision means for businesses.

The Court’s reasoning revolved around three key dependent pillars of the ACA: (1) the guaranteed issue and community rating requirements; (2) the individual mandate; and (3) the premium tax credits available to individuals. The Court was very cognizant of all three pillars needing to be maintained in both Federal and State Exchanges to preserve the ACA. In a bit of a surprise, the Court did not rely on the Chevron legal analysis because it viewed this as an “extraordinary case” with “deep ‘economic and political significance…’” Instead, the Court stated it would decide the case after assessing the ACA’s words “in their context and with a view to their place in the overall statutory scheme.”

Using this standard the court concluded the ACA would inevitably fail if the premium tax credits were limited to the 16 States (plus the District of Columbia) who established their own Exchange. The Court pointed to the failed attempts of several States attempting to solve the health care participation crisis in the 1990s because of the absence of all three pillars of the ACA. The Court also pointed to the Massachusetts health reform, which has the same three pillars as the ACA, and the success Massachusetts has had in reducing the number of uninsured individuals.

The Court divided the ACA’s words at issue “…an Exchange established by the State under §1311” into three requirements and analyzed each separately: (1) “an Exchange”; (2) “established by the State”; and (3) “under §1311”. The Court uses judicial interpretation gymnastics to explain how each of these three parts and the whole phrase “…an Exchange established by the State under §1311” is properly viewed as ambiguous.

As a result of the phrase being deemed ambiguous the Court viewed “…an Exchange established by the State under §1311” in the context of the entire ACA. The Court reasoned without all three pillars working together healthy individuals would leave the market place creating an adverse selection problem. For those reasons the Court decided individuals in States where the Exchange is established by the Federal government are still entitled to premium tax credits.

From an employer’s perspective the most important aspect of the case is simple. The Affordable Care Act is going to survive. Therefore, proper planning must begin immediately if it has not already begun to take place. Every employer needs to realize the billions of dollars of subsidies the Court upheld are being funded through the penalties assessed against employers. There will be no corrections procedures for the unwary.

Moving into 2016 there are several large issues that employers need to grasp. First, any employer with 50 or more full-time employees (including equivalent employees) will need to comply with the law in 2016. The transition relief that largely limited the Play or Pay Mandate to employers with 100 or more full-time employees (including equivalent employees) concludes at the end of 2015. Second, at the beginning of 2016 employers will have Form 1094 and 1095 reporting obligations. These forms and accompanying instructions have been released in draft forms several times and appear to be nearing their finalized versions. Employers need to be aware of the data that is required for the reporting on these forms. Finally, in 2016 no employer will be able to rely solely on the MV Calculator to demonstrate that a non-hospital/non-physician services plan provides minimum value. Consequently, some employers will have to reassess the plan(s) they are offering their workforce.

With the last legitimate legal threat decided, employers need to begin taking ACA compliance more seriously. The law has been so politicized since its inception and the media has only thrown gasoline on this toxic fire. For employers the only thing that matters is it’s the law and it could cause huge financial hardship to an employer’s financial well-being if not properly handled.

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