Last week, the media was saturated with coverage of the latest Affordable Care Act lawsuit which challenged the legality of offering subsidies on the federal exchange for those states that failed to erect their own. As the plaintiffs in King v. Burwell argued, extending subsidies on the federal exchange appears to conflict with the text of the law. Strong counterarguments were raised that the text must be considered alongside broader congressional intent, implausibility of the literal text given the issues it would raise surrounding coercion of the states, and general administrative discretion in implementing a law.
While the outcome is far from certain, what is clear is that should the SCOTUS side with the plaintiffs, the subsidies of over 80% of those enrolled in the federal exchange, or nearly 8 million people, would be jeopardized.
While employers have been following the latest lawsuit closely, many believe that it’s strictly an academic discussion in its relevance to the employer community. After all, what is being challenged is the legality of one aspect of the ACA – the individual subsidies on federal exchanges – not the employer mandate, and certainly not the entire constitutionality of the law.
This line of thinking however, could not be further from the truth. Here are three reasons why:
1) For those 34 states with a federal exchange (and three with a federally supported exchange), a ruling for the plaintiffs would all but destroy the vaunted employer mandate. All the employer fines – for those who don’t offer, and even for those who do, but the coverage fails to meet minimum value or affordability – are predicated on the employees then getting subsidized coverage on the exchange. If no subsidies can be extended in those states, there is effectively no employer mandate.
2) The revocation of subsidies would unravel the individual insurance markets in those states. Prices would soar and few consumers could afford to purchase coverage on their own. That would increase the roles of employer-sponsored plans and change the economic landscape of the insurers who operate in both the individual and group market segments – with losses recouped in harder pricing to employers.
3) The most consequential outgrowth of a ruling against the government would be the markedly changed political landscape that would empower Republicans to make major material changes in the law. Some of the ones that come to mind are increasing the full-time employee definition to 40 hours, relaxation of minimum value and minimum essential coverage standards and even the potential abolition of the employer mandate.
After multiple lawsuits and unending political discourse, ACA fatigue is beginning to set in. However, employers must pay attention to this case and be prepared for all potential outcomes. It could have a dramatic impact on every organization.