While much of the Sunday morning talk show fodder has been focused on how a Republican-controlled Senate could change the Patient Protection and Affordable Care Act — which I prefer to call the ACA — the most pressing danger to the future of the legislation lies with the Supreme Court’s decision to hear the King vs. Burwell appeal. Depending on the court’s ruling, we could see a substantial reduction in enrollment through certain public exchanges and a weakening of the employer mandate.
At its core, the King vs. Burwell lawsuit challenges the Internal Revenue Service interpretation of the phrase “through an exchange established by the state under Section 1311.” These words have become so important because, of the 51 exchanges that are currently operating (all states and the District of Columbia), only 17 of them were “established by the state.” The remaining 34 exchanges are operating with various levels of federal assistance to create an enrollment platform.
The court’s decision will have broad ramifications on the ACA. Let’s look at a few different scenarios that could play out.
1. The Supreme Court determines that subsidies are allowed on both state-run and federally-run exchanges.
The Court could determine that the IRS’ decision to allow subsidies on both federally-run and state-run exchanges is within the meaning of the legislation. This would maintain the status quo, and would not affect individuals currently receiving subsidies, nor would it affect the applicability of the employer mandate.
2. The Supreme Court determines that subsidies are available only on state-run exchanges.
The court could decide that the language written in the law does not allow the IRS to use a broad interpretation. Therefore, if only states with state-run exchanges are eligible to provide subsidies, over four million Americans currently receiving subsidies on federally run exchanges could see those disappear.
It seems unlikely that many of these Americans would be able to continue to afford to purchase health insurance. This would create challenges for the federally run exchanges, which would most likely see a drop in enrollment, and would make enforcement of the employer mandate difficult. Since an employer can trigger the mandate’s penalties only when an employee purchases coverage on an exchange and receives a subsidy, fewer employers would be subject to these penalties.
If we’re faced with the second scenario, there are some potential actions that could take place, but all would face political headwinds.
For a discussion of the headwinds, read on.
1. Congress could amend the law.
Congress could pass an amendment to the current law, modifying the language in question to allow subsidies on both federally run and state-run exchanges. With the Republicans now controlling both the House and Senate, it seems unlikely that this legislation would pass. Alternatively, the Republicans could use this scenario as a bargaining chip. The Republicans could agree to amend the subsidy language in exchange for repeal of the medical device tax or for a modification of the definition of a full-time employee.
2. States could move from having a federally run exchange to having a state-run exchange.
If Congress does not amend the law, the 34 state governments that are currently using federally-run exchanges would be faced with a decision: Create a state-run exchange and enable their citizens to be eligible for subsidies or continue using a federally-run exchange and see their citizens lose their access to subsidies.
Again, politics could play a role in this decision. Of the 34 states with a federally-run exchange, 27 of them have Republican governors. Will Republican governors be willing to set up a state-run exchange?
The Supreme Court’s decision could re-ignite more debate and legislative action around the ACA. As advisors talk to their clients, it is important that they remind their clients to continue to make employee benefits decisions as the law is currently interpreted. During this period of uncertainty, advisors should explain the different potential outcomes to their clients and prepare to help their clients navigate whatever decision the Supreme Court makes.
During these discussions, advisors should remind their clients of the reasons they offer employee benefits, including attracting and retaining talented employees. Regardless of the Supreme Court ruling or other changes to the ACA, the value of offering a comprehensive benefits package does not change.