Supreme Court Upholds ACA - What It Means for Employers

"The Supreme Court upheld the pivotal piece of the Affordable Care Act (ACA) that allows this legislation to claim to fulfill universal health insurance coverage for all Americans:  the tax credits."

"The Supreme Court upheld the pivotal piece of the Affordable Care Act (ACA) that allows this legislation to claim to fulfill universal health insurance coverage for all Americans:  the tax credits. 

In King vs Burwell, Chief Justice Roberts, writing for a 6–3 majority, held that middle- and low-income individuals are entitled to the same tax credits whether the health care exchange is run by the state or the federal government.

So what does that mean for employers? 

Forge ahead in complying with current and upcoming ACA requirements.

To review, the ACA introduced three key health care reforms intended to achieve universal health insurance coverage for over 40 million uninsured Americans:

1) guaranteed issue and community rating requirements bar insurers from either charging a higher premium or denying coverage based on a person's health.

2) individuals must maintain health insurance coverage or pay a penalty to the Internal Revenue Service (IRS), with an exemption if available insurance premiums exceed 8 percent of their income.

3) Federal and state health insurance marketplace exchanges were established where individuals can shop for insurance, qualifying for tax credits if their household income is between 100 percent and 400 percent of the federal poverty line.

King vs Burwell was an effort by those wanting to repeal the ACA, or at least remove the tax credits, and hinged on wording in the law that stated tax credits are available through an "exchange established by the state."  The federal exchange is a default if a state chose not to set up an exchange.  The Supreme Court ruled that in the spirit and intention of the law, tax credits are available through both state and federal exchanges, even though the word "federal" was not present in the challenged sentence in the law.

The IRS had issued a regulation with this interpretation back in 2012, stating that the tax credits are available to individuals regardless of whether it is a state or federal exchange.

Large employers were watching King vs Burwell with interest.  If the plaintiffs had prevailed in whole or part, it would have meant that the ACA would either be repealed or the tax credits provided through the federal exchange could have been removed.  Tied into the availability of tax credits is the employer mandate—which became
effective in 2015 for employers with 100 or more employers (the upcoming deadline for employers with 50 to 99 employees is January 2016). 

The ACA's employer mandate requires employers with 50 or more full-time employees to provide adequate coverage to their full-time employees or pay a significant penalty. If a full-time employee either is not offered coverage by their employer or is offered coverage that is not affordable and/or does not meet minimum ACA value requirements causing that employee to purchase coverage and qualify for a tax credit through an exchange, the employer is subject to the penalty. 

If the plaintiffs had won and, at a minimum, the federal tax credits had been removed, that would have left only 16 states, plus the District of Columbia, with state-run exchanges where the employer mandate could be enforced and employers penalized for not providing ACA-approved health coverage to their employees.  Employers in the remaining 34 states which chose not to set up a state exchange would have been off the hook.  

It's all about context and intent.  The Supreme Court's majority noted that the challenged phrase's meaning may seem plain "when viewed in isolation," but concluded this interpretation is "untenable in light of the [ACA] as a whole."  The Court acknowledged that repealing the tax credits would destroy rather than improve health insurance coverage in America, voiding Congress' intent in passing the ACA.

"Keep your eye on your company's reason for being, and the employees, including yourself, who make that happen -- and it will all be fine."

With the ACA remaining intact, employers need to review their obligations:

• Employer Mandate: Under Code Section 4980H, if even one full-time employee, which the IRS defines as employed on average at least 30 hours per week, receives either a cost-sharing reduction or a premium tax credit to purchase health insurance coverage through a state or federal exchange due to the fact that their large employer (with 50 or more employees) has not offered affordable coverage that meets minimum ACA value requirements, then the employer is subject to penalty. The IRS will utilize both employer and individual reporting to calculate any penalty due on an annual basis and will notify the employer of any assessed tax penalty.
  

• Information Reporting: Annual reports about employer-provided health insurance must be submitted to covered individuals and to the IRS by large employers, plan sponsors of group health plans providing minimum essential coverage, and health insurance carriers. The first reports for the 2015 calendar year are due in early 2016. The IRS will use information reported by employers and insurance carriers to determine compliance with the employer shared responsibility provision, and any penalty that an employer may owe under the employer mandate, so employers should track and collect employee, dependent and plan coverage data necessary for this reporting. 
  

• Cost-Sharing Limits: The annual employee out-of-pocket maximum under a group health plan is capped under the ACA ($6,600 for 2015 and $6,850 for 2016 for self-only coverage). Starting in 2016, regardless of whether the individual has self-only or family coverage, the self-only annual maximum must apply to all individuals covered under a group health plan.
  

• Cadillac Tax: Designed to move away from expensive, first-dollar coverage to more affordable, consumer-driven, high-deductible plans, the 40 percent non-deductible Cadillac Tax penalizes high-cost employer health plans. In order to avoid triggering the tax, you should evaluate:

1.  plan design decisions such as adoption of high deductible health plans (which will likely not trigger the high-cost dollar threshold for the tax),
   
2. elimination or modification of health flexible savings accounts, pre-tax and employer contributions to health savings accounts, and onsite clinics (all of which appear to count towards calculating the tax),
   
3. as well as transitioning to the adoption of more employee-accountable wellness and prevention programs to address the overall cost of claims.

• Plan Design Decisions: Now that the ACA is here to stay, the design of your company's health care plan will likely continue to evolve:
  

1. Should you continue to offer coverage to spouses, which is not required under the ACA, but which adds additional costs to the employers' bottom line (e.g., reinsurance and PCORI fees)? 
   
2. How will you manage your employees' work force hours (i.e., ensuring employees who are not offered health care work less than 30 hours per week)? 
   
3. Will you offer medical coverage to pre-65 retirees or send those retirees to the exchanges, where they may qualify for premium subsidies without triggering penalties for your company?

These are just some of the tough decisions you face in morphing your plan design, and your challenge is to not lose sight of your unique reasons why, other than the ACA requirements, offering your employees health benefits ever made sense for your company in the first place.

Then there's the record-keeping.  Compliance is one thing, demonstrating compliance in an audit is quite another.  Document all of your plan design decisions to prove:

-your benefit plans comply with the market reforms already in effect under the ACA, such as the elimination of pre-existing condition exclusions, elimination of lifetime and annual caps on essential health benefits, and
coverage of children up to the age of 26.

-your plan's eligibility language is consistent with the employer's reporting of coverage to the IRS and its compliance with the employer shared responsibility provision requirements.  For more information, click here.

We have faith that if you keep your eye on your company's reason for being, and the employees, including yourself, who make that happen -- it will all be fine.


Source: "Supreme Court Rejects Latest Challenge to Affordable Care Act: What Are Employers' Obligations Going Forward?" Mondaq Report, 6/29/15, by Amy M. Gordon, Michael T. Graham, Jacob Mattinson, Susan M. Nash and Jamie A. Weyeneth McDermott Will & Emery;
http://www.mwe.com/Supreme-Court-Rejects-Latest-Challenge-to-Affordable-Care-Act-06-26-2015/?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original