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Before its current term ends in June, the U.S. Supreme Court will hand down a ruling that will affect millions of U.S. residents: the legality of a portion of 2012 IRS rules that authorize federal health insurance premium subsidies to eligible lower-income individuals receiving coverage through the federal insurance exchange. James Klein, president of the American Benefits Council in Washington, which represents employers on a wide range of benefit issues, discussed the potential ramifications of the high court's upcoming ruling with Business Insurance Editor-at-Large Jerry Geisel. Edited excerpts follow.
Q: If the court were to strike down the IRS rules, millions of people receiving subsidies would lose them. Would there be an impact on employers as well?
A: The impact would be mixed. On the one hand, some employers who do not offer coverage or offer unaffordable coverage would avoid most or all (Affordable Care Act) penalties, since the penalties only apply when an employee goes into an exchange, is eligible for a subsidy and uses the subsidy to purchase coverage. Since the employees would not be eligible for a subsidy in certain exchanges, no penalty on the employer would accrue.
On the other hand, for employers who may be looking long term to transition out of employer sponsorship, the viability of exchanges, or lack thereof, is a very important factor in that decision.
Q: If the justices strike down the rules, is it likely the decision would be effective immediately?
A: There were some clues during oral arguments that they would delay the effective date, recognizing the chaos that would ensue.
If that decision is made by the court, they will find a way to defer the effective date, at least to next year.
Q: If the rules were struck down, how would Congress respond?
A: Republicans and Democrats have reasons to find a patch to enable the more than 7.5 million people who would lose subsidies to enable them to continue coverage.
Ironically, a calamitous decision like that could lay the groundwork for a deal between Republicans and Democrats on making various changes to the ACA, including the continuation of some subsidies.
Q: Alternatively, would you predict a rush by states to set up their own exchanges to ensure their eligible residents can continue to receive premium subsidies?
A: Some of them would want to do that. It would be more difficult, though, to do that in some states, like Texas and Missouri, which have passed laws that explicitly prohibit their governors to work with the federal government to set up exchanges. I think, though, that some states and the Obama administration would try to be as flexible as possible, having states contract with the federal government to operate the exchange and deeming that to be a state-established exchange. We would see a variety of different responses from the different states.
Q: If the court upholds the rule, could that decision lead to congressional agreements in other areas?
A: The result would not be chaotic if the court upholds the subsidies. Neither, though, would we see the status quo. I think the Obama administration would react and say, “Look, twice there have been moves to invalidate the law, and they have failed.”
Republicans will say, “We are very disappointed with this outcome. We need to use every procedural tool at our disposal to repeal or make changes to the law.” Either result will result in some significant legislative activity.
Q: And what is your prediction as to how the court will rule?
A: I predict a 5-4 ruling upholding the subsidies, with Justice Anthony Kennedy writing the decision.
Sharon Cunninghis is the leader of Mercer L.L.C.’s private health insurance exchange, known as the Mercer Marketplace, which offers coverage to about 500,000 employees and retirees. In an interview with Editor-at-Large