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Supreme Court ruling on subsidies will impact health reform implementation

Supreme Court ruling on subsidies will impact health reform implementation

For a third consecutive year, the U.S. Supreme Court in 2015 finds itself positioned to determine the fate of the federal health care reform law. On March 4, the high court will hear oral arguments in David King et al. v. Sylvia Mathews Burwell et al., one of four lawsuits seeking to block the Obama administration from providing premium subsidies under the Patient Protection and Affordable Care Act for health care coverage purchased through the federal government's public health insurance exchange.

For employers operating in the 37 states that have elected to rely on the federal exchange in lieu of establishing one of their own, legal experts say a ruling against the federal government could substantially undermine enforcement of the Affordable Care Act's employer mandate.

Effective Jan. 1 of this year, employers with 100 or more full-time workers that fail to provide affordable health care coverage to 70% of their workforce this year — increasing to 95% in 2016 — must pay an annual penalty of $2,000 per eligible employee, but only if at least one employee buys subsidized coverage through a public exchange.

Absent the availability of premium subsidies in the federal exchange, experts say the Internal Revenue Service's ability to enforce the coverage mandate would essentially be limited to employers located in states operating their own public insurance exchanges.

“This case is really the whole ballgame for this year, because in some ways it could really eviscerate the coverage aspects of the law,” said H. Guy Collier, a Washington-based partner at McDermott Will & Emery L.L.P.

Judicial panels of two federal appeals courts issued opposite rulings on July 22, 2014, on the legality of the subsidies' use outside of the state-run public exchanges, with the 4th U.S. Circuit Court of Appeals in Richmond, Virginia, finding in favor of the federal government in King and the U.S. Court of Appeals for the District of Columbia Circuit ruling for the individual plaintiffs in Jacqueline Halbig et al. v. Sylvia Mathews Burwell et al.

The Halbig lawsuit, along with two additional lawsuits challenging the legality of the subsidies, have been held in abeyance pending the outcome of the Supreme Court's review of King.

While litigation over premium subsidies is not the only legal front on which the health care reform law is being challenged — most notably, several lawsuits filed by religious nonprofit organizations seeking exemptions from provisions of the law requiring employers to provide cost-free coverage for contraceptives remain open in federal courts — experts said employers' questions and concerns have been focused squarely on the King lawsuit and its potential ramifications.

“These are the cases that I've been spending my time on,” said Frank Fanshawe, an Albany, New York-based partner with law firm Wilson Elser Moskowitz Edelman & Dicker L.L.P. “The uncertainty is really what has clients in a state of unease. You can imagine from a planning and budgeting perspective, these cases continue to add uncertainty into the equation for those employers.”

While the long-term effects on employers' benefits strategies are difficult to predict, experts say it is highly unlikely that a ruling by the Supreme Court freeing many employers from exposure to the coverage-related penalties would precipitate a mass exit from sponsored group health insurance.

“I don't think the impact on the enforcement mechanism is necessarily going to cause them to turn on a dime and make a different decision on offering health care benefits or not, simply for all of the business needs that it would impact,” said Kathryn Wilber, senior counsel of health policy for the American Benefits Council in Washington.

If the high court ultimately elects to overturn the 4th Circuit's decision in favor of the Obama administration and rules for the plaintiffs, experts say employer segments likely to be most immediately affected are larger companies that plan to — or recently did — discontinue group health care benefits for early retirees and part-time employees, opting instead to use the subsidized coverage plans sold through public exchanges to reduce their total health care enrollments.

“Everyone seems to be focused on the idea that without the subsidies, the coverage mandate goes away in the states that don't have their own exchanges, but I don't think that's the big issue,” said Steve Wojcik, vice president of public policy at the National Business Group on Health in Washington. “I think the big issue is what you do with any current employee populations that rely on those subsidies and won't be getting them in the future.”

Also unclear is the extent to which the Obama administration could preserve the availability of subsidized health care coverage in the federally run exchange through additional regulatory rulemaking and guidance in the event of an unfavorable ruling from the Supreme Court.

“I'm not sure that there are a lot of options for the administration to take regulatory action or issue guidance,” said Sarah Bassler Millar, partner and vice chair of the employee benefits and executive compensation practice group at law firm Drinker Biddle & Reath L.L.P. in Chicago. “I think it's an issue that the Congress would have to fix through legislation in order to make the intent of the language clear.”

Although oral arguments before the Supreme Court are scheduled for early March, Mr. Wojcik said employers should not expect a final ruling from the court until the last days of its current term in late June or early July.

“It's really too early to know any of this,” Mr. Wojcik said. “And even after the court's decision, there are still going to be a lot of things to watch for.”

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