Much publicized court cases in the last several weeks make us wonder whether the federal Health Care Reform law will survive. We leave the answer to that question to the U.S. Supreme Court. For now, employers should adopt the “business as usual” approach and continue to prepare for implementation of the “pay or play” provisions of the law.
In the widely-noted Hobby Lobby case decided on June 30th, the Supreme Court determined that the Religious Freedom Restoration Act of 1993 prevented federal regulators from demanding that closely held companies provide health insurance coverage for methods of contraception that violate the sincerely held religious beliefs of the companies’ owners. Although Hobby Lobby garnered huge headlines, as a practical matter it may affect only a small number of employers.
On July 22nd, two federal appeals courts issued conflicting opinions regarding subsidies (in the form of tax credits) given to individuals who purchase health coverage using an insurance exchange. The law gives the subsidy for insurance bought through “exchanges established by the State.” Only 14 states have established exchanges; the federal government runs the exchanges in the other states. The IRS ruled that people who buy insurance through a federally-run exchange are entitled to the subsidies just like those who buy insurance on a state-run exchange.
The D.C. Circuit Court in Halbig ruled that the federal government could not give subsidies to individuals who buy insurance through a federal exchange but the Fourth Circuit Court of Appeals in Richmond VA (in the King case) ruled the opposite. The Halbig case potentially decimates the core of the employer “pay or play” mandate. An employer is subject to the “pay” excise tax only if a full-time employee who is not offered affordable coverage buys subsidized coverage through the exchange. No subsidy to the employee means no excise tax to the employer in a state with a federally run exchange.
On July 31st, the challengers in the King case went right to the Supreme Court with a plea to resolve the case as soon as possible. The next day the federal government asked the D.C. Circuit to reconsider the Halbig decision. The decision is critical: the federal government estimates that a whopping 87% of the 5.4 million people who bought coverage on the federally-run exchanges did so with subsidies.
Through one case or another, the Supreme Court will decide this issue. But the earliest that will happen is many months away. The lawyers will file their papers and make oral arguments to the Court. Meanwhile, employers with 100+ employees have no choice but to assume the law is in effect and be ready for compliance in 2015. Companies with fewer than 100 employees this year get a slight reprieve (until 2016) but they also have to prepare. Everyone should stay tuned for future developments.