Supreme Court affirms Obamacare subsidies

In a 6-to-3 decision that validates federal tax subsidies provided under the Affordable Care Act, the U.S. Supreme Court has ruled the law’s wording allows the federal government to subsidize medical insurance coverage in every state, not just states that set up their own health insurance markets.

The Court’s ruling in favor of broader subsidies in King v. Burwell directly impacts people in low- to middle-income households who can use subsidies to buy medical insurance coverage if they can’t get it through an employer. The decision effectively continues coverage for an estimated 6.4 million people in 34 states, and prevents the health insurance industry from having to revise their market projections in those states.

Striking down the subsidies could have strongly impacted the medical insurance market, because at this point in the calendar year insurers normally are close to finalizing the health plans, and the associated premiums, they plan offer to employers for the next plan year. In the long-term, insurers might have responded by demanding relief from provisions of the law intended to limit premium increases, or they might have dropped out of the insurance exchanges altogether.

With the subsidies having survived a serious court challenge, going back to the drawing board will be unnecessary. “Very surprised [by the ruling],” says John Healy, partner and senior account executive with M3 Insurance in Madison. “This is the second challenge to the law, and we all know now that it’s here to stay.”

Since many believed a rejection of subsidies could have sent the ACA on a “death spiral,” the impact on employers themselves could be mixed. Attorney Andrew DeClercq of Boardman & Clark believes the decision will offer more stability for his business clients. “This is a good thing in the sense that they have been living with this law now for over five years, and they’ve taken significant steps to get it implemented and to become familiar with its requirements,” DeClercq says. “Along that path, there have already been a number of surprises and changes, so to have a decision come down that keeps things stable is definitely going to make things easier going forward.”

While the law is credited by some with wringing some costs out of the health care system, medical insurance premiums remain on the rise in several markets. Critics of the law attribute that to various taxes and fees and the requirement that plans include benefits and levels of coverage determined by federal bureaucrats. ACA opponent Bill Smith, Wisconsin state director of the National Federation of Independent Business, which unsuccessfully challenged the law’s individual mandate, says the NFIB remains “deeply disappointed” in the ACA because it was never designed to make health insurance more affordable for everyone.

“It was designed to subsidize health insurance for some Americans at the expense of others,” Smith states. “The bottom line is local business owners remain among many groups of consumers for whom the law is a complete failure.”

Smith cited a WisBusiness.com report that says 11 Wisconsin companies that sell health insurance under the ACA have notified the Centers for Medicare and Medicaid Services they plan to raise their rates 10% or more starting Jan. 1. “So essentially, state insurance companies have started a process that will more than likely lead to hefty rate increases for many Wisconsin residents and small groups,” he notes.

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State establishment

President Obama signed the ACA, also known as Obamacare, into law in 2010. At issue in King vs. Burwell was the provision that offers subsidies only to people who buy plans through an exchange “established by the state.” Critics contend those who bought a plan through the federal exchange rather than states were therefore not eligible for the subsidy, while proponents argued the term “state” meant either level of government, state or federal. Wisconsin is one of the states that did not set up an exchange.

In the end, the Court ruled with the law’s supporters, and that should save money for health care consumers who qualify for federal tax subsidies. According to a study by the Kaiser Family Foundation, a ruling against the subsidies would have resulted in premiums increases in the 34 states currently receiving federal Obamacare subsidies, ranging from 132% in Alaska to as high as 650% in Mississippi. In Wisconsin, the Foundation anticipated an increase of 252%.

An analysis from the U.S. Department of Health and Human Services estimated that without the subsidies, premiums would have jumped 256% for 2015 and even higher in 2016. ACA supporters contend that would have put the cost of medical insurance out of reach for small-business owners and self-employed people who purchase insurance directly through the individual market.

According to the Obama administration, 10.2 million people signed up and paid for plans through Healthcare.gov, the federal marketplace, as of March 2015. Of that 10.2 million people, 6.4 million are getting an average subsidy of $272 per month to help cover the cost of their premium.

A ruling to strike down the subsidies would have also set the stage for a high-profile showdown between President Obama and Republican leaders in Congress. In the days before the ruling, Republicans indicated they would temporarily extend the subsidies if the nation’s high court ruled against them.

However, U.S. Health and Human Services Secretary Sylvia Burwell said a ruling against the subsidies would shift the matter to the states and that President Obama would not sign a Republican plan, co-sponsored by U.S. Sen. Ron Johnson, R-Wisconsin, to extend subsidies. To give states more time to act, Johnson introduced a bill that would extend the subsidies through September 2017 but only for existing customers on the federal exchange. The proposal would have faced a presidential veto because the Obama administration argued it took away the subsidies over time and repealed a provision guaranteeing insurance for people with pre-existing health conditions.

Obamacare off-ramp?

Republicans have talked about giving Americans a legislative “off-ramp” from Obamacare, an alternative that leads to what in their view is a more patient-centered system. Had the subsidies been struck down, Congressional Republicans could have begun the process of legislative “transacting,” where they demand certain revisions in exchange for making federal subsidies permanent. One possibility was repealing the ACA’s requirement that everyone carry insurance, the so-called “individual mandate.” Another demand could have been to repeal of the medical device tax, which is part of the law’s financing piece. The GOP-controlled House voted in June to repeal the tax.

Yet another provision in the crosshair is the definition of full-time worker. Critics say the law is discouraging hiring because it requires employers with more than 50 full-time employees to give them health insurance, but defines full time as 30 hours or more, giving employers an incentive to keep employees below that threshold to avoid the employer mandate.

Now that the subsidies have been affirmed, there is no opportunity for legislative wrangling. Any attempt by Republicans to pass the aforementioned measures as stand-alone bills would face an almost certain presidential veto.

However, that doesn’t mean there won’t be attempts to tweak the law legislatively. In a statement released shortly after the Supreme Court ruling became public, David French, senior vice president for government relations for the National Retail Federation, called on Congress to “seize the opportunity and address the most egregious errors in this poorly constructed law to ease unreasonable compliance burdens and reduce the cost of coverage for employers and employees alike.”

But DeClercq, whose Boardman & Clark law practice is focused on labor and employment law and employee benefits law, hopes today’s Supreme Court ruling makes the ACA settled law. “I know the law is unpopular in some camps, so there is always the potential for someone to come up with something new,” he notes. “A challenge in the courts? I don’t know if there is anything else that’s going to come down the line in that sense.

“My hope is that it’s pretty much settled law and we’ve reached the point where we’re just tweaking it now because this is something that employers have already put a lot of time and energy into complying with. It would be a good thing for it to be stable moving forward.”

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