Yesterday was a big day for the ACA — two conflicting court decisions on the legality of federal subsidies for people enrolled for coverage in the public exchange offered by the federal government as opposed to a state-based exchange.
What’s at stake? The federal public exchange is offered in 36 states. More than 5 million people enrolled through the federal exchange, and over 85% of them obtained subsidized coverage. These subsidies have now been called into question.
The good news. The government has said it will continue to pay the subsidies to the people covered through the federal exchange while the appeals process proceeds.
What could all this mean for employers? Well, don’t hold your breath waiting for the implications to become clear, because it will take a while for this to get sorted out. But here are a few things to consider in the meantime:
- Impact on public exchanges. Limiting subsidies to state-run exchanges could undermine the viability of federally-run exchanges — and the ACA’s overall effectiveness. It appears such a ruling would apply both to federal and federal-state partnership exchanges. If residents of 36 states can’t obtain subsidies, many are likely to forgo exchange coverage. This could leave federal exchanges with a higher concentration of less-healthy people, leading to unanticipated adverse selection and higher costs. These possibilities raise concerns for employers that view exchanges as a good option for some workers, such as part-time employees or early retirees, or for employers that might be considering a long-term exit strategy of terminating their health plans. On the other hand, if only state-run exchanges can offer subsidies, we might see some states that currently have a federally-run exchange decide to run their own to preserve access to affordable coverage for their residents.
- Impact on employer shared-responsibility assessments. Employers owe play-or-pay assessments if their full-time employees aren’t offered coverage and if one or more obtain exchange subsidies. If the federally-run exchanges can’t offer subsidies, employees living in those states can’t get subsidies. If all of an employer’s workers live in federally-run exchange states, the employer wouldn’t owe any play-or-pay assessments. But if the employer has employees in both federally- and state-run exchanges, employees living in federal exchange states who were not offered minimum essential coverage (MEC) would count against the employer for determining whether “substantially all” employees had been offered coverage. However, employees living in federally-run exchange states couldn’t trigger the secondary $3,000 indexed assessment.
What to do? It will take time to get to the final answer on this one. Your best approach is to continue with compliance plans and cost-management strategies. The strategies employers are working on as part of their response to the ACA — cost management, private exchanges, defined contribution, wellness, transparency, etc. — are all good ideas, with or without the ACA.