The Affordable Care Act at the five-year mark
By Patrick C. O’Connor, Kent & O’Connor, Washington, DC
The Affordable Care Act (ACA, or Obamacare, as it is referred to by both friend and foe alike) just celebrated its fifth anniversary. It survived an embattled beginning, an embarrassingly inept launch and so many House votes to repeal that we have lost count. Still, it survives. Nearly 10 million people have signed up for insurance on a state or federal exchange. And some analysts even say the ACA has created the possibility of real competition in the individual insurance market for the first time.
Yet, while Obamacare seems to have found its footing, the health law remains in peril. The latest threat is a second Supreme Court decision – with the ruling due in June. King v. Burwell presents a deceptively simple case of statutory construction, centering on language in the ACA that allows subsidies for those enrolled in an exchange established by the State. Challengers say that, under the clear words of the statute, the subsidies only apply in states that have established their own exchange. Therefore, the plaintiffs contend, the law does not authorize subsidies for individuals who live in states that did not set up an exchange (and who, as a result, participate in a federally facilitated exchange). Since there are 36 states without their own exchange, the outcome of this case has potentially huge consequences.
A ruling against the government would not repeal Obamacare, but the law would quickly unravel. The ACA has sometimes been compared to a three-legged stool:
1) Individual mandates/penalties to encourage broad participation, particularly among younger, healthier people, in the marketplace;
2) Subsidies on a sliding scale for low- and lower-middle income individuals who purchase policies on the exchange so health insurance is affordable, with penalties on companies who don’t offer affordable coverage and who have one or more employees receiving a subsidy;
3) Insurance companies must provide health coverage to everyone, regardless of pre-existing conditions or poor health, and cannot charge higher premiums based on health status.
All three legs are necessary or the stool begins to tip over. If the government loses in King v. Burwell, one leg of the Obamacare stool is removed and the others are weakened.
Be careful what you wish for
Many employers in the 36 states without an exchange are rooting for the challengers. Who could blame them? It is, after all, the subsidies that trigger employer penalties – if no employee can receive a subsidy in the 36 states, there can be no penalty on the employer for not providing coverage.
Beyond this clear advantage, however, there are other consequences to consider:
The insurance markets in those 36 states will be in turmoil. The health insurance companies will still be required to offer coverage to everyone, no matter the state of their health, and will continue to be limited in how much more they can charge an unhealthy person. Yet, with the healthiest participants likely to drop their coverage when it is unaffordable (absent the subsidy), a classic “death spiral” is likely to occur: with the deteriorating health status of their customer base, premiums increase across the board, more healthy people leave, premiums increase and so on until the market is unsustainable.
It is estimated that 8 million people will lose health insurance because they can no longer afford the policy without a subsidy. Others are likely to see steep increases in the cost of their health insurance as the pool of exchange participants in these 36 states shrinks, when the healthiest drop their coverage.
The health insurance systems in these states – the hospitals and doctors – will experience similar disruptions as the number of insured patients abruptly declines.
Politically, even Republicans in Congress who detest the law may be chagrined at the prospect of an estimated 8 million people becoming uninsured virtually overnight (in mostly Red states) while chaos roils the health insurance and provider markets – not the kind of headlines you want in an election year.
(Editor note: It’s also been widely reported that Health and Human Services Secretary Sylvia Burwell announced that in 2014 hospitals saved $7.4 billion in uncompensated care costs due to patient enrollment through ACA health insurance exchanges and Medicaid. In 2013, before ACA, hospitals provided more than $50 billion in uncompensated care.)
Of course, Congress could always take action to fix the problem or devise an alternative approach – but either would involve some degree of bipartisan cooperation and compromise, both of which are in short supply on Capitol Hill these days.
And so, we watch and wait for the Supreme Court to rule.
What’s next for employers?
Even if the Supreme Court sides with the challengers in King v. Burwell, important new reporting requirements will soon apply to all employers (with 50 or more employees), whether or not the company is located in one of the 36 states impacted by the court decision.
The reporting is meant to provide the IRS with information on who is providing coverage, what kind, to whom and at what cost. Fines and penalties apply for non-reporting. The reports must be filed whether or not the company offers health insurance coverage.
The statement of coverage for 2015 must be provided to each employee by January 31, 2016 on a Form 1095-C and sent to the IRS by February 28, 2016. The information includes:
Certification as to whether the company offered full-time employees (and dependents) the opportunity to enroll in Minimum Essential Coverage by calendar month;
The months during which coverage was available;
Each employee’s share of the lowest cost monthly premium for an individual policy (regardless of whether the employee opted for a higher cost plan or declined coverage), by calendar month;
Number of full-time employees for each month during the calendar year;
Name, address, SSN of each full-time employee during the calendar year and the months, if any, during which the employee was covered.
The take-away for employers: even if the Supreme strikes a blow to the health law in June, that’s not the end of Obamacare.
States without a state-based Health Exchange:
Pat O’Connor is a principal in Kent & O’Connor, Incorporated, a Washington, D.C.-based government affairs firm. A veteran of Capitol Hill with particular expertise in health, transportation and the environment, O’Connor works with trade associations and companies to find workable solutions to the most pressing regulatory and legislative issues. For more information, visit www.kentoconnor.com or call 202-223-6222.