Risk & Compliance

The End of the Affordable Care Act as We Know It?

Probably so, if the Supreme Court rules in favor of challengers to the law next week.
David McCannJune 18, 2015
The End of the Affordable Care Act as We Know It?

While rumors flew around social media and the Internet on Wednesday that the Supreme Court would today reveal its ruling on the latest challenge to the Affordable Care Act, the much-anticipated announcement didn’t happen.

So this proved not to be, after all, the day many CFOs have been waiting for since the law’s 2010 passage. A decision in King v. Burwell is now expected to come next week. A ruling against the ACA wouldn’t topple the law but likely would render much of it moot, because the economic underpinnings on which it rests would be undermined.

ScotusWhile most of the consumer media coverage of the case has highlighted the potential effects for the roughly 9 million individual Americans who have purchased health insurance through a federal or state-run exchange as defined in the ACA, companies too have considerable skin in the game.

On the one hand, companies with employees in the 34 states that elected not to establish exchanges would no longer be subject to monetary penalties for failure to offer “minimum essential coverage” to most of their full-time workers in those states. The penalty would be about $2,000 annually for each benefits-eligible employee (minus 80 employees this year and 30 starting next year).

Nor would such companies be required to provide “affordable” or “minimum value” coverage in the 34 states or face an approximate $3,000 annual penalty for each employee who uses a federal subsidy to buy health insurance through a public exchange.

In both cases, the penalties are triggered when at least one employee purchases coverage through a public exchange with the help of a federal subsidy. But if the court decides in the favor of plaintiffs — who contend that the wording of the ACA does not permit the federal government to provide subsidies to residents of the 34 states — then there would be no subsidies for people in those states. Therefore, no employer penalties.

On the other hand, any corporate joy over being freed from the specter of penalties could be short-lived if, as could happen, companies’ health insurance costs were to rise significantly as a result.

On average, the subsidies pay 72% of premium costs for the millions of people who qualify for them, according to the Henry J. Kaiser Family Foundation. Without the subsidies, coverage would be unaffordable for most of them, says Robert Projansky, a partner and leader of the health care reform task force at the law firm Proskauer. People for whom coverage is not “affordable,” as defined in the ACA, won’t be subject to the individual mandate.

“If that happens, think about what will happen to the marketplace,” Projansky says. “Only people who are sick will buy the coverage — and remember, [under the ACA] insurance companies have to offer coverage to everyone,” including those with pre-existing medical conditions.

Unfortunately for those individuals, though, with insurers stuck with a pool of unhealthy insureds, premiums would surely skyrocket. Most estimates are that they’d rise by 35% to 45%, says Susan Feigin Harris, a partner at BakerHostetler whose clients are primarily health-care providers.

Do companies care whether folks in the individual insurance markets have access to affordable health insurance? One would hope so, but even if you don’t give them the benefit of that doubt, they do care about their own costs, which could be a casualty of the altered individual insurance marketplace. If insurers are not able to raise individual policy premiums enough to turn an acceptable profit there, they will either exit the individual market or “try to make it up in the group marketplace, to the extent they can,” says Projansky.

“I think what most people still don’t realize,” says Harris, “is that one way or another, everyone ends up paying for the uninsured, whether that’s through taxes, the high cost of individual insurance, or commercial insurance pricing. So it’s in everyone’s best interest that individuals have insurance.”

At least, she says, there will be more certainty about the future direction of group health care, no matter what the court decides. “Uncertainty is the biggest problem here,” Harris says. “Most people just want to know what the rules are so they can play by them. Any business needs to know that if you follow the rules you won’t be caught up in some big problem. Look at the insurance companies. They created products, put them on the exchanges, enrolled people, and now all of a sudden the rug may be pulled out.”

Parsing Words

The case before the Supreme Court rests on language in the statute that says federal subsidies are available to qualified individuals living in states where an exchange was “established by the state.” According to a strict constructionist point of view, that clearly means the challenge to the law should be upheld.

But strict constructionism won’t necessarily win the day. Other philosophies of judicial interpretation hold that statutory language should be viewed in the context of the entire statute. For instance, Title 1 of the ACA is called, “Quality, Affordable Health Care for All Americans.”

Also, a section of the law that’s separate from the one that defined state-operated exchanges says that in a state that doesn’t set up its own exchange, the federal government “shall establish and operate such exchange.” The Obama Administration holds that “such” implies it would be acting on behalf of the state in setting up the exchange.

An analysis of the case on Vox.com points out that “since affordable coverage is a core tenet of the law, to say that people in state and federal exchanges aren’t equally entitled to tax credits would set the law at war with itself.”

Also, Vox notes that in oral arguments before the Supreme Court the government pointed to a line stipulating that only people who “reside in the State that established the exchange” can buy insurance. Read literally, the government argued, that would mean no one could buy insurance on federally established exchanges; the marketplaces would exist but would have no legal customers, an absurd proposition.

If the Supreme Court throws out the subsidies in 34 states, the Affordable Care Act as we know it would cease to exist, in many respects. In theory (if not yet in practice), the subsidies make possible the individual mandate (requiring almost all Americans to buy health insurance or else owe a tax penalty). In turn, revenue for insurers owing to the individual mandate makes possible the wide range of insurance reforms (relating to dependent coverage to age 26; prohibitions against coverage caps and denying insurance to those with pre-existing conditions; etc.) that are central to the Affordable Care Act.

It’s an unsettling thought that major legislation could be undone by what amounts to a drafting error. “Due to the political climate at the time the law was passed, it was pushed through quickly without necessarily having been vetted with the necessary care,” notes Projansky. “Assuming the court rules for the plaintiffs, it would be unfortunate in the sense that if the availability of subsidies in all states was what Congress intended, the law is victim to the process by which it was adopted as opposed to the merits of the law.”