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Employers are Watching the Supreme Court ACA Review

By Dr. David C. Pate, News and Community
January 27, 2015

Editor's note: The article that follows originally appeared as a column under a different title in the Idaho Statesman’s Business Insider.

The Supreme Court has agreed to hear a challenge to the Patient Protection and Affordable Care Act regarding whether subsidies and tax credits should be available through the federal insurance exchanges. It's an important development for employers and business owners to watch.

The ACA can be thought of as having three major components:

• Insurance reforms (guaranteed issuance of a policy, insurers rating your community but not you individually, and allowing adult children to remain on parents' policies until age 26).

• An individual mandate (to avoid adverse selection, where high-risk people buy insurance but young and healthy people don't).

• Subsidies and tax credits (to allow for more people to be covered through the exchanges).

The vehicles through which Congress sought to effectuate its reforms are the exchanges, where consumers can compare plans and their costs and determine eligibility for subsidies. Where states decided against establishing their own exchanges, the federal government provided its own exchange.

The question is whether Congress intended the availability of subsidies and tax credits to everyone. The text in the law states that premium-assistance credit is available to a taxpayer enrolled in a health plan "through an Exchange established by the State." Those challenging the law say tax credits and subsidies are available then only to those who buy an insurance policy through an exchange established by a state, not the feds.

The IRS rule implementing this part of the law interprets the law as authorizing tax credits for individuals who purchased health insurance on either state or federal exchanges.

Supporters of the IRS rule say the federal government is merely stepping into the shoes of a state when it establishes an exchange. They say Congress could not have intended for the subsidies and tax credits to be limited only to those who purchase insurance from a state-based exchange.

If the Supreme Court invalidates the IRS rule, tax credits will no longer be available in the 36 states that have federal exchanges (or had, in the case of Idaho, which this year moved to a fully state-run exchange).

In turn, it would be expected that many of those currently covered would drop coverage, undermining the objectives of the law.

For Idaho-only businesses and employers, the court's decision to overturn the IRS rule would have no effect, since Idaho has developed a state-based exchange. But for Idaho employers with workers and business operations outside of Idaho, such a decision could result in greater cost-shifting to the business as thousands drop their insurance coverage unless and until those states implement their own exchanges.

Employers can also expect higher insurance rates from insurers with the loss of many of these lower-cost insureds and additional costs subsequently passed through to employer-based plans, unless the insurers drop out of the exchanges altogether.

Two federal appeals courts used sound legal reasoning and analysis and came to different conclusions. Ultimately, the Supreme Court will decide whether to take a literal view of the statutory language or try to find a way to more broadly interpret "established by the State" to include the federal government standing in the shoes of the state.

About The Author

David C. Pate, M.D., J.D., previously served as president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009 and retired in 2020. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.