For employers, Supreme Court ruling means compliance work continues

In a surprising and much-anticipated decision, the United States Supreme Court has upheld the individual mandate, and thereby the rest of the Affordable Care Act, as constitutional under the federal government’s taxing power. For months, health care policy wonks and constitutional scholars have debated and predicted the outcome of this momentous decision. The surveys conducted in the final weeks leading up to the decision concluded that a majority of Supreme Court watchers believed the high court would strike down at least parts, if not all, of the law.

The focus of the law has been on the question of whether Congress has the power to make Americans purchase health insurance under the Commerce Clause. Only as a backup argument did the Obama administration argue that the individual mandate was constitutional under the taxing power. Yet it was this backup argument that won the day for the proponents of the Affordable Care Act, with Chief Justice Roberts writing for a 5-4 majority that included Justices Ginsburg, Breyer, Sotomayor, and Kagan. 

Roberts' rules

According to the chief justice, under the taxing power, labels do not matter (but they do matter for the Anti-Injunction Act, the provision that would have prevented the court from hearing the case until 2014 when the tax takes effect). Hence, just because Congress called the tax a “penalty” in the legislation, the amount a person would owe the government should they choose not to buy health insurance beginning in 2014 really functions as a “tax.” That is, there is no punishment associated with a person’s decision to not buy health insurance, as long as they are willing to pay the tax to the IRS. According to the majority opinion, because Congress has broad powers to tax the people to incentivize them to take action, such as to stop smoking, or not use sawed-off shotguns, it can impose a tax to encourage them to buy health insurance.

However, the court pointed out that because the tax does not function as a penalty by labeling people who choose not to buy health insurance as “criminals,” people have a choice in whether they buy health insurance. Indeed, the court reiterates the estimate that about 4 million people are expected each year to pay the IRS rather than buy insurance.

The fact that Americans will still have a choice in whether they participate in the health insurance marketplace likely makes the court’s decision more palatable for those concerned about the government infringing upon their individual rights. But the decision also supports the goal of helping more people gain access to health care coverage. 

What does the decision mean for employer-based coverage? 

A key question on the minds of many businesses is how does the decision impact employer-based coverage? With the Affordable Care Act now upheld, the penalties to be imposed on large employers that do not offer adequate coverage are still intact, as are the health insurance exchanges that are to be created by the states or federal government by late next year. 

Congress structured the Affordable Care Act to maintain the employer-based system by including financial incentives and penalties for providing health insurance. It will be imperative for large employers (defined as having over 50 full-time employees) to calculate the financial impact of deciding to continue offering coverage. Part of the calculus needs to be employee demographics (i.e., how many of your employees will qualify for subsidies to get insurance through the Health Insurance Exchange or Medicaid). Only employers whose employees receive a government subsidy to buy health insurance coverage outside the employer plan are subject to the penalty.

Other considerations for employers should be employee and community expectations with regard to the employer role in offering health coverage, tax breaks for offering benefits as opposed to extra wages, and the cost of the penalty (which excludes the first 30 full-time employees but thereafter will be $2,000 or $3,000 per full-time employee depending upon whether the employer offers coverage at all or offers only “inadequate” coverage).

Employers should also pay attention to what their state will do with regard to expanding Medicaid, as the court’s decision removed the financial penalty against states that decide against expanding Medicaid. If the state does not expand Medicaid, employees may be more likely to qualify for subsidies to buy coverage through the exchange.

Stay tuned in

It will be important from this point forward to understand fully the meaning of this decision and the powers of government as all health care stakeholders move toward making our health care system more affordable, efficient, and beneficial for everyone.

Barbara Zabawa is an attorney and Healthcare Practice Team Leader with Whyte Hirschboeck Dudek in Madison.

Sign up for the free In Business Wisconsin Report – your weekly resource for local business news, analysis, voices, and the names you need to know. Click hereIf you are not already a subscriber to In Business magazine, be sure to sign up for our monthly print edition here.