Need ACA Help? Go Ask ‘Grandma’

What does a child do when Dad says no and Mom says yes? Talk to Grandma, of course.

That’s exactly the situation being played out with regard to the legality of premium tax subsidies for individuals enrolling in one of the 36 states where federally facilitated health care exchanges operate. In July, the U.S. Court of Appeals for the D.C. Circuit (aka “Dad”) ruled 2-1 in Halbig v. Burwell that premium tax subsidies were not available to health care purchasers in the 36 states that chose not to adopt a state-run health care exchange under the Affordable Care Act. According to the ruling, premium tax subsidies were not available to health care purchasers in states that had federally facilitated exchanges.

To make matters more interesting, two hours later the U.S. Court of Appeals for the 4th Circuit (aka “Mom”) in Virginia issued the exact opposite ruling on the same issue. 

The ACA had required that all states adopt a health care exchange. However, in another section of the act, it provided that if a state did not establish an exchange, the federal government would do it for them on their behalf (a federally facilitated exchange). The key provision under dispute in Halbig v. Burwell was that premium tax subsidies were only available to purchasers in exchanges established by a state. This seeming conflict in the language of the act itself was resolved in May 2013 by the U.S. Internal Revenue Service in its notice that subsidies would be available on both state-established and federally facilitated exchanges.

Halbig challenged the IRS interpretation of the two conflicting provisions (“a state shall be required to establish” and “the federal government shall establish an [e]xchange if a state does not do so”) and lost initially at the U.S. District Court of D.C. The appeals court overturned the lower court’s decision.

If Halbig were upheld, this would have a tremendous impact on employers. The 4980H (e.g. employer responsibility/mandate) penalties (both [a] and [b]) would disappear, virtually gutting the employer responsibility provisions of the ACA, at least in those 36 states. Setting aside the employer responsibility/mandate, it may also affect an employer’s decision on whether to offer health coverage to its employees.

Employers with low-wage, full-time employees have been examining whether it is more beneficial for both the employer and employees to not offer coverage because of the available premium tax subsidies. However, if the subsidies are not available, the coverage becomes significantly more expensive for employees on the exchange vs. through a traditional employer plan. The final decision on this issue may be a long time coming, but employers exploring this option should be aware of the potential future impact.

While some initial media reports called the appeals court’s ruling “a death blow to the ACA” and worse, it is far more likely that the Obama administration will appeal the decision first to the entire D.C. Court of Appeals en banc, and then likely the U.S. Supreme Court (aka “Grandma”) will have its say. By court rules, the decision of the D.C. Court of Appeals is stayed pending the administration asking for a rehearing en banc, which it most certainly will do. There are also two more circuit courts considering the same issue.

So here’s the thing: If the court chooses to rehear the case en banc and overturns the July ruling, and the other two circuits concur with the 4th Circuit, then the Supreme Court never gets the case since all the circuits would be in agreement (unless of course it just chooses to take it on its own). And while it’s possible the Supreme Court may get the case in the 2014-15 term, it’s more likely to be in 2015-16, if at all.

What should employers do? Continue to plan as if the D.C. Circuit ruling wasn’t made. In other words, the subsidies remain legal. By the rules mentioned above, it technically isn’t. It could be many months before we know anything more definitive. Continue to evaluate the role of benefits as part of your total rewards and HR strategies to recruit and retain employees, and stay tuned for more developments.

Gary B. Kushner, right, is the president and CEO of Kushner & Co., a benefits consulting firm. Ben Cohen is the practice leader, health and welfare benefits, for Kushner & Co., a benefits consulting firm. Comment below or email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.