The Affordable Care Act (ACA) has created enormous administrative, operational, and financial challenges for public and private sector employers large and small. Since its enactment on March 23, 2010, the ACA has generated enormous controversy and questions about its legality. Yet, the ACA has survived and its mandates and regulations – including the Employer Mandate fines and reporting requirements – have required employers to expend time and resources to adapt, adjust, and prepare.
On June 25, 2015, the latest installment of the ACA saga came to a crescendo when the U.S. Supreme Court issued its long-awaited decision in King v. Burwell, Case No. 14-114 (Jun. 25, 2015). The sole issue before the Court was whether individuals who obtain health insurance coverage through a health insurance exchange “established by” the Federal Government and not by a “State” were eligible for ACA tax credits. Through an exercise of legal flexibility that delighted the ACA’s proponents and dazed its detractors, the Court upheld an Internal Revenue Service (IRS) regulation and interpreted the ACA to extend tax credits to individuals who obtain health insurance coverage through State or federally-established health insurance exchanges. If the Court had decided differently, the decision would have released employers in States that had not established Exchanges (35 of the 50 States – including Ohio) from the burdens of the Employer Mandate.
This is how we got here:
Background: Among its many, far reaching, and onerous provisions, the ACA requires that health insurance providers issue coverage to any applicant regardless of existing medical conditions. The ACA also requires insurers to adopt “community rating” for health insurance premiums which significantly restrict an insurer’s ability to set premiums based upon traditional actuarial factors. To guarantee that a sufficient number of relatively healthy individuals obtain coverage (and offset the costs of guaranteed issue and premium rate restrictions), the ACA further requires most individuals to purchase qualifying coverage or pay an annual “tax” (the Individual Mandate). With the goal of fostering a competitive marketplace for compliance with the Individual Mandate, the ACA introduced health insurance Exchanges – in short, online shopping forums for health insurance. The ACA provides that States may “establish” Exchanges for their citizens or, if a State elects not to, the Federal Government will establish “such Exchange” and operate it in the State.
To offset expected increases in health insurance premium costs generated by guaranteed issue, minimum essential coverage standards and rating limitations, the ACA created refundable, advanceble tax credits for individuals who earn between 100 and 400% of the Federal Poverty Line. To be eligible for an ACA tax credit, an individual must fall within the required income range, obtain coverage through an “Exchange established by the State,” and not have been offered group coverage by his employer.
In the years following the ACA’s enactment, 16 States and the District of Columbia established Exchanges at great cost to those States, and, through federal grants, the U.S. Treasury. The remaining 34 States (including Ohio) chose not to and the Federal Government established Exchanges to operate in those States. In 2013, the IRS issued a regulation interpreting the ACA to provide that tax credits were available to an individual who obtained coverage through an Exchange “established by the State” or established by the Federal Government. Accordingly, in 2014, the first year that tax credits were available, the IRS granted tax credits to qualifying individuals regardless of whether they obtained coverage through a “State established” or a federally established Exchange. The regulation was challenged in two separate actions on grounds that the ACA’s language clearly stated that only individuals who obtained coverage through an “exchange established by a State” were eligible for tax credits. In
While the Obama Administration appealed the Halbig decision to the full D.C. Circuit for en banc review, the Plaintiffs in King appealed to the Supreme Court which accepted the case based on the split between the circuit courts. Notwithstanding the ACA’s myriad provisions affecting insurers, health insurance providers and individuals, employers – especially “Applicable Large Employers” (i.e., employers with 50 or more full-time employees or full-time equivalents) – had a dog in the fight.
Under the ACA’s Employer Mandate, Applicable Large Employers face fines of from $2,000 to $3,000 per year per full-time employee if they do not offer group health insurance coverage to full-time employees and their dependents that provides “minimum essential coverage” as established by the ACA, provides “minimum value” (pays for at least 60% of benefits costs), and is affordable (employee premium payments are less than 9.5% of their monthly compensation). Additionally, Applicable Large Employers are required to file multiple forms with the IRS (and provide copies to each employee) annually to verify employee access to coverage, employee premium payments, minimum value, and affordability. However, all of the Employer Mandate requirements were conditioned on a full-time employee’s eligibility for a tax credit for coverage obtained through an Exchange. In short, if an employee obtained coverage through a federally established Exchange and was not eligible for a tax credit, his employer would not be liable for Employer Mandate fines or reporting requirements (e.g., Ohio employers). A decision striking down the IRS tax credit regulation would have essentially nullified the Employer Mandate in Ohio and other States that did not establish Exchanges.
The Decision: In an opinion written by Chief Justice Roberts, the six-member Court majority first concluded that the phrase “established by a State” was ambiguous. It then determined that, because the issue of whether tax credits were available to individuals enrolled through federally-established exchanges was “key” to the operation of the ACA, Congress could not have intended to delegate authority to make that decision to the IRS. Then, based on analysis of the context of the ACA’s tax credit provisions, the Court held that the ACA’s overall purpose meant that tax credits had to be available under exchanges established by the Federal Government and not only those “established by the State.” The Court summarized its decision:
Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. [The ACA] can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.
The majority also recognized that the procedure by which the ACA’s 900 pages were enacted resulted in “inartful drafting” because the Obama Administration and then Democrat Congressional majority “wrote key parts of the Act behind closed doors,” used a complicated budgetary process “which limited opportunities for debate and amendment,” and “bypassed the normal 60-vote filibuster requirement.” This process, the majority concluded, “does not reflect the type of care and deliberation that one might expect of such significant legislation.”
The Dissent: The dissenting opinion, written by Justice Scalia, rejected the majority’s conclusion that the phrase “exchange established by the State” was ambiguous. In short, the dissent contended that congressional intent is most clearly expressed through the plain language of the statute, and the plain language states that tax credits are not authorized for coverage through exchanges established by the Federal Government: “Words no longer have meaning if an Exchange that is not established by the State is ‘established by the State.’” Characterizing the majority’s interpretation as “jiggery-pokery,” the dissent accuses the majority of concocting ambiguity to “rewriting” the ACA based on its determination to correct the ACA’s structural flaws based on an understanding of its purpose that is contrary to its terms.
The dissent further objected to the majority’s reliance on the importance of tax credits to the overall structure of the ACA stating that, if denying tax credits to coverage through federally-established exchanges it would “only show that the statutory scheme contains a flaw, [and] would not show that the statute means the opposite of what it says.” Rejecting the majority’s “inartful drafting” rationale, the dissent asserted that “This Court . . . has no free-floating power ‘to rescue Congress from its drafting errors.” To this point, the dissent further stated:
This Court holds only the judicial power – the power to pronounce the law as Congress has enacted it. We lack the prerogative to repair laws that do not work out in practice, just as the people lack the ability to throw us out of office if they dislike the solutions we concoct. We must always remember, therefore, that “our task is to apply the text, not to improve upon it.”
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Rather than rewriting the law under the pretense of interpreting it, the Court should have left it to Congress to decide what to do about the Act’s limitations of tax credits to state Exchanges.
What Do Employers Do Now: The King decision ends the most serious challenge to the ACA’s continued existence. Had the majority’s decision prohibited tax credits for coverage through federally-established exchanges, the ACA could not have survived without congressional action (unlikely) or the establishment of State exchanges by most of the 34 States that opted out. There are other, ongoing legal challenges to the ACA’s more limited provisions, and other potential challenges looming once the Employer Mandate takes full effect in January 2016. However, for now, employers must continue to identify their risks and obligations under the ACA by evaluating each employee’s “full-time” status under the ACA, determining whether to offer group coverage to “full-time” employees, confirm the “affordability” and “minimum value” of coverage offered, and comply with the bevy of reporting requirements arising under the ACA.
The Court has ruled and, while the political process may bring changes to the ACA in the next two years, the ACA is the law of the land.
Patrick J. Hoban, an OSBA Certified Specialist in Labor and Employment Law, practices in all areas of private and public sector labor relations. Pat regularly counsels employers on compliance with the ACA and has done so since 2010. Pat also frequently speaks on ACA issues. For more information about the ACA, labor & employment law, or any other workplace related issues, please contact Pat | pjh@zrlaw.com | 216.696.4441.