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Supreme Court reviewing pivotal health insurance exchange premium subsidy case

Supreme Court reviewing pivotal health insurance exchange premium subsidy case

The ability of employers to slash their early retiree health care costs will depend on the outcome of an upcoming U.S. Supreme Court decision on whether federal premium subsidies authorized by the health care reform law can be used by retirees to purchase coverage in federal health insurance exchanges.

Under that cost-saving approach, employers would end the health care coverage they now provide to pre-Medicare-eligible retirees and, with some employer financial support, direct the retirees to the public exchanges for coverage.

The ability of employers to utilize that approach would be sharply curtailed if the high court rules — as plaintiffs are seeking — that the Patient Protection and Affordable Care Act limits those subsidies to exchanges set up by the states.

Just 14 states and the District of Columbia have set up exchanges, while the federal government operates the exchanges in 36 states after those states declined to do so.

“The appeal of that approach would decrease,” said Ed Fensholt, senior vice president and director of compliance services at Lockton Cos. L.L.C.'s benefit group in Kansas City, Missouri, referring to the decline in the number of exchanges in which retirees would be eligible to use health care reform premium subsidies if the high court limits the subsidies' use to state exchanges only.

More broadly, employers' efforts to hold down health care costs also could be at risk depending on how the court rules. If millions of people lose federal premium subsidies and again become uninsured, hospitals, for example, would see a surge in uncompensated care costs — costs they previously passed on, when possible, to insured patients in the form of higher charges, some say.

“One of the benefits of the ACA to providers is that their uncompensated care costs would decrease,” said Michael Thompson, a principal with PricewaterhouseCoopers L.L.P. in New York.

An increase in uncompensated care could hurt employers' efforts to reduce their costs, Mr. Thompson said.

At issue are 2012 IRS rules that said the premium subsidies would be available to the low-income uninsured — those earning up to 400% of the federal poverty level, which is $46,800 for an individual — seeking coverage in the federal and state exchanges.

Certain state regulators and others challenged the rules, arguing that ACA clearly limits the subsidies to those obtaining coverage in state exchanges.

Lower courts have split on the issue, with the Supreme Court agreeing earlier this month to review those rulings. The high court will hand down its decision by the end of June.

How the court will rule, of course, is not known. What is known is how many people could be affected.

At the end of the first open enrollment season earlier this year, nearly 5.5 million people secured coverage in the federal exchanges, with just over 85% receiving a federal premium subsidy.

Those subsidies are why employers are considering tapping the exchanges as a way to make health coverage available to their pre-Medicare eligible retirees, said John Barkett, director of health policy affairs at Towers Watson Exchange Solutions in Arlington, Virginia.

Under the approach, employers would jettison their expensive early retiree health plans and set up and contribute to health reimbursement arrangements, which retirees could use to buy unsubsidized exchange coverage.

However, nothing would prevent lower-income retirees from turning down the HRA and opting instead for federal premium subsidies, which could be much bigger than the HRA contribution, to buy coverage — an option that would end in the federal exchanges if the Supreme Court rejects the IRS rules.

“A viable alternative to employer coverage would be taken away,” Mr. Barkett said.

If the Supreme Court were to overturn the IRS rules, Congress could rewrite the law to make it clear that the premium subsidies are available in all exchanges.

But the likelihood of lawmakers doing that is “about zero,” said Gretchen Young, senior vice president of health policy at the ERISA Industry Committee in Washington.

Still, such a rewriting of the law could be a bargaining chip, Ms. Young said.

Under one scenario laid out by Washington observers, Democrats would accept certain Republican-sought changes in the law, such as increasing the number of hours an employee would have to work to be considered full-time. Currently, employers are liable for a stiff financial penalty if they do not offer coverage to full-time employees, which the ACA defines as those working an average of at least 30 hours per week. In return for bumping up, perhaps to an average of 40 hours per week, the definition of a full-time employee, GOP lawmakers would accept a change in the reform law to make clear that federal subsidies are permitted in federal and state exchanges.

In addition, some states might set up their own exchanges to make sure their lower-income residents can continue to get the premium subsidies, said Brian Marcotte, president and CEO of the National Business Group on Health in Washington.