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Ruling upholding federal exchange subsidies brings employer certainty

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Employers welcomed Thursday's Supreme Court ruling upholding 2012 IRS rules that have enabled millions of uninsured people to obtain federal premium subsidies to buy health insurance in the federal exchange.

Four Virginia residents had alleged that the Patient Protection and Affordable Care Act permitted the subsidies only in states that set up their own health insurance exchanges — not in the federal exchange that the U.S. Department of Health and Human Services established to provide coverage in 34 states that did not establish their own exchanges.

• PHOTO GALLERY: THE SUPREME COURT RULES ON ACA SUBSIDIES

• VIDEO: HEALTH CARE REFORM COMPLIANCE

APPEALS COURT RULING ON ACA CONTRACEPTIVE COVERAGE

READ THE RULING HERE

Allowing the premium subsidies for health insurance purchased through the federal exchange is necessary for it to “function like their state exchange counterparts, and to avoid the type of calamitous result that Congress plainly meant to avoid,” Chief Justice John Roberts wrote for the 6-3 majority that upheld the IRS rules.

Among provisions Congress wrote into the law, “it thus stands to reason that Congress meant for those provisions to apply in every state as well,” Justice Roberts wrote.

But Justice Antonin Scalia, who wrote the dissent, disagreed.

“Normal rules of interpretation seem always to yield to the overriding principle of the present court: The Affordable Care Act must be saved,” he wrote.

The decision ends more than three years of litigation on the issue, during which lower courts issued conflicting rulings that set the stage for Thursday's decision.

For employers, the end of that uncertainty was paramount.

“Major employers want certainty. A decision striking down the subsidies would have created great uncertainty for a long time as the political and legislative battle continued,” said James Klein, president of the American Benefits Council in Washington.

The ruling keeps the “status quo for most employers, and puts to rest this particular issue of uncertainty,” said Tami Simon, a managing director with Buck Consultants at Xerox in Washington.

Before the ruling, Republican senators introduced legislation that would have continued the subsidies — now used by 6.4 million uninsured U.S. residents to get health insurance through the federal exchange — for two years in exchange for dropping key health care reform law provisions, such as the requirement that employers offer coverage or pay a financial penalty.

That proposal, which failed to attract Democrat support, now is dead, as are others that would repeal the law, as they would be certain to be vetoed by President Barack Obama.

With the ruling Thursday, “employers will be able to plan for their workforce,” said Susan Feigin Harris, a partner at law firm Baker & Hostetler L.L.P. in Houston.

For example, many employers have been mapping out strategies in which they would jettison the expensive coverage they now provide to their pre-Medicare-eligible retirees. Instead, employers would make contributions to health reimbursement arrangements, which the retirees could use to purchase coverage in the exchanges.

But lower-income retirees could turn down the HRA and instead opt for richer federal premium subsidies to buy coverage in the public exchanges, an option that would have ended for those living in states where the federal exchange provides coverage if the Supreme Court had overturned the IRS rules.

The decision upholding the premium subsidies “is definitely good news for employers who relied on exchanges in affected states for coverage for retirees,” said Steve Wojcik, vice president of public policy for the National Business Group on Health in Washington.

Employer focus now can turn to, among other things, “strategies that look to leverage the exchanges for pre-65 retirees,” said J.D. Piro, a senior vice president at Aon Hewitt in Norwalk, Connecticut.

The ruling is the second time in three years that the high court has ruled on an ACA provision. In 2012, the justices upheld the law's requirement that individuals obtain coverage or pay financial penalties.

While legal challenges to the law are expected to continue, “I would think the Supreme Court would be reluctant, however, to take up another ACA case,” said Gretchen Young, senior vice president for health policy at the ERISA Industry Committee in Washington.