Supremes’ ACA Ruling Could Jack Up Health Costs

If the Supreme Court strikes down the law's employer mandate in 34 states, insurers would be forced to raise prices significantly.
David McCannMarch 5, 2015
Supremes’ ACA Ruling Could Jack Up Health Costs

The case before the Supreme Court that may decide the fate of the Affordable Care Act may not have much of an immediate impact on corporate health benefits costs, no matter what the ruling is.

Mid-term and long-term impacts are acutely difficult to forecast. But if the court rules in favor of plaintiffs and in effect quashes the ACA, it’s likely that one result would be significantly greater health-insurance costs starting in 2016, and until the law and some of what it wrought can be wound down. And at that point, employers also could be freed from many of the compliance and administrative burdens associated with the law.

A ruling in the case — the second the court has heard attempting to thwart “Obamacare” — is scheduled to be issued by the end of June, but it’s likely that much of the ACA would remain in place at least until year-end.

The case, like many heard by the Supreme Court, will turn on a narrow matter. The court will determine whether the IRS overstepped its bounds in regulations it wrote to implement the ACA, but the underlying issue is an ambiguity deriving from the wording of two specific provisions.

One of the provisions provides for federal subsidies for low-wage earners who purchase coverage through a state-run health-insurance exchange. The other provision stipulates that the federal government will provide an exchange for residents of states that opt not to offer their own exchanges. That’s what is.

But the law did not specifically state that the subsidies would be available for those purchasing coverage through the federal exchange. The IRS took the position that Congress intended for all citizens to be eligible for the subsidies. The petitioners in the case before the court are challenging that interpretation.

If the court sides with the latter, employers doing business in states that don’t have their own exchanges would not be subject to the ACA’s “employer mandate” with respect to those states.

Under the mandate, employers face monetary penalties if they don’t, by 2016, offer group health insurance that meets affordability and minimum-value standards to at least 95% of their full-time workers. The penalties are triggered when a full-time employee of an employer offering substandard coverage qualifies for a federal subsidy and then purchases insurance through an exchange. Therefore, if the court rules that federal subsidies can’t be offered through a federally facilitated exchange, the employer mandate is moot in states that don’t run their own exchanges.

That would be the case in at least 34 states. Three others created exchanges and stated their intention to run them, but so far have relied on the federal government to do so; whether the employer mandate would apply in those states is unclear.

Gauging the Fallout

The immediate impact from the absence of the employer mandate could be slight. Few employers have indicated that they plan to stop offering employee health benefits or to offer coverage that wouldn’t be ACA-compliant, so the penalties wouldn’t apply to most employers anyway. Longer-term, it’s unknown whether employers’ taste for offering health insurance might eventually erode.

But 2016 could indeed bring bad tidings for employers on the insurance-cost front. “If people can’t afford the exchange coverage because they don’t have subsidies, the ones who stay in the exchanges are probably going to be older and less-healthy ones who truly need the insurance,” says Susan Nash, a partner with law firm McDermott, Will & Emery who focuses on federal laws affecting group health plans. “That will drive up premiums in the exchanges, and probably everywhere else as well.”

Companies that have employees in many states could face special challenges. Even though workers in states where there’s a federally facilitated exchange could not trigger the penalties, they would count toward the calculation as to whether the employer is offering compliant coverage to 95% of its full-time workers, according to James Napoli, a partner in the employee benefits practice at law firm Seyfarth Shaw.

Such companies also would have to remain ACA-compliant in the states that do run exchanges. That could lead some companies, especially those in industries with a lot of low-paid hourly workers, to bifurcate their benefits in the two groups of states. “In some industries, whether the employer has to comply with the employer mandate is a matter of life and death,” says Napoli. “So I could see different plan offerings in states where subsidies are available and those where they’re not.”

Also, notes Nash, some companies were counting on the federal subsidies for the exchanges to provide an “easy landing for certain pre-Medicare-eligible retiree populations” at a low cost to the company. Depending on the court ruling, that strategy could no longer be viable.

From a more macro standpoint, while a ruling in the petitioners’ favor would not literally strike down the ACA, that would be its likely eventual result, as without the employer mandate the economics of the law would no longer work. “There would be a domino effect,” Nash says. “Everything was knitted together. It would be like pulling a thread on a sweater.”

Mind Reading

For her part, Nash doesn’t believe Congress purposely aimed to make subsidies available only in states running their own exchanges. “I would be surprised if they really intended that result,” she says. “I think they were looking at it on a more macro level, even though that’s not what [the law literally] says. Remember, this law was put together very quickly.”

Napoli takes the opposite stance. “I’m comfortable with the idea that the statute says what it says,” he tells CFO. “A strict constructionist would look at it and say, ‘Well, in some places in the law Congress did draw a distinction between a state exchange and a federally facilitated exchange, and that’s what they were doing’ by specifying ‘state exchanges’ in that first provision.”

But to Nash’s point, what if the provision’s wording wasn’t buttoned up because of the rush to pass the ACA? “That’s a good practical question,” says Napoli, “but it’s one that the Supreme Court justices don’t often look at, and in many respects nor should they. They don’t really know what was in Congress’ mind when the statute was drafted.”

The disagreement between the attorneys on this point probably will be paralleled in the justices’ deliberations. “The literalists on the court are looking at the language in the statute from a strict interpretational reading,” Nash says. “Others will look at it more contextually and try to get more of Congress’ intent. It would be tragic if an entire law, a portion of the regulatory scheme, could be struck down due to a Scrivener’s error.”

Meanwhile, there’s a wild card that could come into play. It’s the same one that saved the ACA in 2012, when the Supreme Court turned back a constitutional challenge to the law’s individual mandate. Chief Justice John Roberts surprised almost everyone by pulling out a not-often-used Supreme Court doctrine holding that ambiguities in cases with constitutional issues should be resolved in a way that renders the statute constitutional. He then sided with the more liberal justices, tipping the decision to 5-4 against the challenge.

“There are some constitutional issues in this case,” notes Napoli. “Justice Kennedy and a couple others brought up the idea of coercion. That is, if the statute were read the way the petitioners want it to be read, would that involve unconstitutional coercion by the federal government versus the states? Meaning, the government would be saying, ‘Listen, unless you adopt an exchange directly and take on all that cost, we’re not going to provide billions of dollars [in subsidies] for your citizens.’ “