Supreme Court: Argument on ACA Subsidies

November 20th, 2014 by Thomas Harte

Background
July 22nd, 2014 was among one of the most complicated days following the Federal Government’s overhaul of the health insurance industry, widely known as ACA. On this date and within moments of each other, two Federal courts with separate legal actions (King v. Burwell AND Halbig v. Burwell) on the same issue made rulings that were inconsistent (opposing views).

The issue presented to both courts was whether it is legal for the Federal Government to provide subsidies for health insurance to individuals in States that do NOT have a “State Based Exchange”. It has been argued that the original legislation passed by Congress specifically prohibited subsidies to individuals that reside in States that do not establish a State Based Exchange.

Within the United States the following statistics apply to Exchange Decisions:

• 14 State Based Exchanges (including District of Columbia)
• 3 Federally Supported Marketplaces
• 7 State / Federal Partnerships
• 27 Federally Facilitated Marketplaces (FFM)

Within New England, the following represents the State Decisions:

• Connecticut: State Based Exchange
• Maine: Federally Facilitated Marketplace (FFM)
• Massachusetts: State Based Exchange
• New Hampshire: State / Federal Partnership
• Rhode Island: State Based Marketplace
• Vermont: State Based Marketplace

Supreme Court
The Supreme Court announced on Friday (November 7th, 2014) that the court will take up the King v. Burwell case, which the DC Circuit Court ruled that subsidies are only allowed in State Based Exchange.

The announcement indicates that the Supreme Court will be hearing the challenge during the 2015 docket (not that an indication of a decision in the case). The Court has not yet set a date for oral arguments, but we expect the timing for this case to follow a similar pattern to the NFIB v. Sebelius case heard by the Court in 2012, with oral arguments sometime in the spring and a decision in late June.

The Court’s decision to hear the case came as a surprise to many Supreme Court watchers who expected the court to wait until a decision was made in the Halbig v. Burwell case, which will be heard by the full D.C. Court of Appeals on December 17th, 2014. So far, only the three judge panel on the D.C. Court has sided against the Administration, when they ruled 2-1 in July that subsidies should not flow to FFM states. There are two other cases also making their way through lower courts in Oklahoma and Tennessee.

Why is this important to Employers? If the Supreme Court upholds the verdict of the DC District Court in the case of Halbig v. Burwell – those 37 States with a Federal Exchange will be prohibited from distributing subsidies for health insurance premiums. Please remember that the primary trigger for an employer to be subject to the “Employer Penalty” of $3,000 per FTE is when an employee receives a subside from the exchange.

The lack of availability in those States of subsidies will also result in the inability of consumers to purchase affordable coverage, which will result in a catastrophic failure of the individual mandate.