In recent weeks, the Affordable Care Act (popularly known as Obamacare) has suffered several setbacks and conflicting interpretations in the courts. These decisions and the impact of the law on employers show the increasingly urgent need for changes in the ACA. Unfortunately, our political mood is unlikely to result in the kinds of changes businesses need for clarity.
Recent Legal Decisions:
The Supreme Court ruled in Burwell v. Hobby Lobby Stores, Inc., June 30, 2014, that privately held corporations need not comply with the HHS mandate to cover birth control methods and services that violate the owners’ religious beliefs in their employee healthcare plans.
A few days later, the Supreme Court ruled in Wheaton College v. Burwell, July 3, 2014, that Wheaton College need not comply with the HHS work-around for employers who disagree with the birth control mandate. Wheaton College was allowed to avoid sending the notification HHS required until after its case is decided sometime next spring.
And then on July 22, two Circuit Courts ruled opposite ways on the question of whether Obamacare subsidies are available to individuals who purchased their insurance through the federal Healthcare.gov exchange instead of through state exchanges. In Halbig v. Burwell, a panel of the D.C. Circuit Court ruled that the Obamacare subsidies were not available through the federal exchange, while in King v. Burwell the Fourth Circuit ruled that the subsidies were available.
The D.C. Circuit panel held that the plain language of the ACA states that subsidies are available only on marketplaces “established by the state.” This ruling eliminates—or at least places on hold—subsidies to around 4.5 million people, which may make health insurance unaffordable for many, and yet will subject them to penalties if they drop their coverage.
In contrast, the Fourth Circuit held that the Internal Revenue Service interpretation permitting federal subsidies for purchases through Healthcare.gov was “a permissible exercise of the agency’s discretion.”
These cases set up a clear split in the lower courts that the Supreme Court will likely have to decide.
Impact of the ACA on Employers:
Increasing numbers of employers are finding themselves squeezed between the mandated coverages (more generous and more detailed than most employers offered before passage of the ACA) and the required level of premiums (where at least one plan that an employer offers must have premiums for individual coverage that are no more than 9.5% of any employee’s wages).
When the Cadillac coverage provisions go into effect after 2017, employers will face yet another constraint. If they pay too much for their employees’ coverage, they will face huge surtaxes. Beginning in 2018, a 40 percent excise tax will be imposed on high-value healthcare plans
Thus, the sweet spot of permissible healthcare plans under the ACA is being compressed in three directions—by the coverages required, by the amounts that employees can be charged, and by the subsidies that employers can provide.
And now, depending on how the Supreme Court rules on the subsidy issue, the federal government may not be able to subsidize healthcare coverage either.
Moreover, if the federal subsidy is ruled to be unlawful, then the employer penalties for employees who get the federal subsidies will fall apart as well.
At that point, the ACA scheme is likely to collapse.
I have talked with benefit plan managers in recent weeks about the increasing problems and uncertainties they face in complying with the ACA. Some are considering eliminating their employee health insurance altogether, and taking the chance that the employer penalties will survive.
Others are considering moving to fully insured plans to eliminate the complexities of complying with the uncertain ACA requirements. These employers believe they have so little flexibility in designing plans to suit their employee populations that they see no benefit to maintaining any in-house expertise in managing healthcare. Instead of continuing the tailored benefit plans they have sponsored for decades, they will turn their employees over to private exchanges, and let the employees find their own plans.
None of these benefit managers believes that employee healthcare coverage will last many more years. As crafted under the ACA and as interpreted by current HHS regulations, employee healthcare coverage has outlived its usefulness.
The Need for Change:
Most complicated statutes need “technical corrections” after the language that Congress passed is examined more carefully by regulatory agencies and by those impacted by the new law. It was to be expected that the ACA would need modification.
I have written before that the ACA needs to be amended. Not repealed, as Republicans would have it, but amended substantially. Unfortunately, changing the statutory language will require compromise between sharply divided political parties.
Because of the way that the ACA was passed—with only Democrat votes in support, and all Republicans in Congress opposed—the law has no bipartisan underpinning to foster compromise. The Democrats are now reaping the effect of their actions in cramming the legislation down an unready nation’s throat.
In the meantime, we must muddle along with imperfect legislation.
Unfortunately, President Obama’s unilateral actions in delaying and re-interpreting the ACA the way he wants is not the way to fix the law.
So the healthcare industry holds its breath, hoping that the myriad issues associated with the poorly written ACA get fixed before the industry collapses due to the uncertainty.
And all of us who need healthcare hold our breaths as well.
What do you foresee happening with the ACA?