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Subsidy ruling cuts chances of ACA reforms

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While last month's U.S. Supreme Court decision ended years of litigation over IRS rules that extend health care reform law premium subsidies to millions of lower-income uninsured individuals with coverage in the federal exchange, the ruling is unlikely to bring lawmakers closer together to resolve other health care reform issues.

The IRS rules became the target of numerous lawsuits soon after their release in 2012, with plaintiffs charging that the Patient Protection and Affordable Care Act limits the subsidies to those living in states that set up exchanges, and not in the federal exchange, which provides coverage in the 34 states that declined to establish the exchanges.

The high court decision upholding the IRS rules continues premium subsidies to nearly 6.4 million people in those 34 states where the federal exchange provides coverage.

While the ruling assures the continuation of more than $20 billion a year in federal health plan premium subsidies, it is unlikely to lead to a congressional agreement on other long-running health care reform controversies, observers say.

The decision, by assuring the availability of the federal premium subsidies, may have eroded the need of congressional Democrats and the Obama administration to agree on Republican-sought changes in return for amending the law to allow — at least temporarily — premium subsidies in the federal exchange.

Those changes, supported by many business groups, include bumping up the definition of full-time employees to those working an average of 40 hours per week from the current 30-hour-a-week definition, and eliminating the upcoming 40% excise tax on health insurance premiums exceeding $10,200 for individual coverage and $27,500 for family coverage.

Republicans “lost a huge bargaining chip” they would have had if the high court had struck down the IRS rules, said Geoff Manville, a principal with Mercer L.L.C. in Washington.

While there could still be moves by legislators to amend the act, “It is questionable those efforts will become law,” added Amy Bergner, a managing director with PricewaterhouseCoopers L.L.P. in Washington.

Observers note that proposed changes, such as the elimination of the Affordable Care Act excise tax on costly plans, would mean the loss of billions of dollars in revenue for the federal government, will continue to face rough sledding in Congress, as well as drawing a veto threat from the Obama administration.

“Congress would need to find another revenue source,” Ms. Bergner said, referring to the elimination of the excise tax. A recent Congressional Budget Office report estimated that repeal of the tax would cost the government $87 billion in revenue from 2018 through 2025.

Others, though, say it may be too soon to assess the impact of the Supreme Court's decision on congressional moves to amend the health care reform law.

“Lawmakers on both sides of the aisle are still trying to figure out their game plans,” said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington.

On the other hand, lawmakers might have more time to increase their focus on less highly charged changes to the law, such as reducing how much health care plan enrollment information employers have to provide to the government.

“There is serious congressional interest in easing reporting requirements, which are very complicated,” said Gretchen Young, senior vice president for health policy with the ERISA Industry Committee in Washington.

While the likelihood of ACA changes sought by employers may have decreased, or at least not changed, because of the high court ruling, the decision will be beneficial to some corporations that have been revamping their health care plan eligibility requirements, such as bumping up the minimum number of hours employees must work to be eligible for group coverage from 20 or 25 hours a week to at least 30 hours a week.

That design change hasn't met much employee resistance because of the availability of federal premium subsidies in the public exchanges, which will continue because of the Supreme Court ruling.

“That strategy would have been disrupted had the court” struck down subsidies in the federal exchange, Ms. Bergner said.

The high court ruling also ensures that health care reform law regulators can focus full time on developing remaining health care rules without having to develop new guidance on any changes Congress might have made to the Affordable Care Act in response to the ruling.

While regulators have issued thousands of pages of rules since the Patient Protection and Affordable Care Act was passed in March 2010, there are several areas of the law where rules have yet to be issued, including the type of health care plans and services covered by the 40% excise tax, as well as automatically enrolling those employees who don't respond to employer offers of health coverage.

How quickly some of the health care reform law rules will come out isn't known, though some observers believe it won't be anytime soon.

On rules for automatic enrollment, for example, “I wouldn't hold my breath. (Regulators) have bigger fish to fry,” said Tami Simon, a managing director with Buck Consultants at Xerox in Washington.