The only thing that seems constant in ACA is change and controversy. King vs. Burwell is an ongoing legal battle now under review by the Supreme Court. It hinges on the simple question people are asking: Am I eligible for a government subsidy if I use a federally- facilitated exchange? In a case of linguistic gymnastics, two sides are hanging onto literal translations of ACA. Petitioners argue that the language in the statue says subsidies are only available to someone who uses a state exchange. The crux of government’s argument is that the ACA also states that subsidies are available on a state exchange or “such an exchange,” meaning the Department of Health and Human Services could establish an exchange on behalf of a state that opted not to establish its own.
Although there is an exchange operating in every state, only a small number of states actually run their own exchanges. The majority of state exchanges are operated wholly or partially by the federal government. The question then is will the 7.7 million people in these 37 states currently receiving subsidies be able to keep them?
Potential Individual Market Impact
- 80% of Exchange enrollees will lose the subsidies that enable them to afford coverage
- Without subsidies, health coverage will be considered unaffordable for many people exempting them from the individual mandate and increasing the numbers of uninsured individuals
- The reduction of individuals in the health insurance market pool will result in an increase of costs to all
- Lack of subsidies and penalties, will result in an “enroll-as-you-need-it” environment
- Health costs could continue to escalate but at a faster rate
Potential Group Market Impact
- Lack of subsidies removes the trigger for employer mandate penalty in Federal Marketplace states (unless they have employees who reside in State Marketplace states) removing the financial incentive for business to offer affordable coverage to employees
- Employers could:
- Eliminate coverage completely
- Employers could increase employee contributions
- More employees will seek coverage from their employer
Should the Supreme Court decide to rule against the subsidies, the next question is when would they make that change effective? The following are possibilities for timing of enactment:
- Delayed until certified (approximately 28 days)
- Delayed until end of the tax year
- Effective with grace period through 2016
Though we have no crystal ball, we anticipate one of two most probable outcomes:
- Given enough time, Congress could agree to change the law allowing subsidies to be paid from federal and partnership exchanges
- The Department of Health and Human Services could grant waivers to allow more time for states to create their own exchanges
Most likely, the Supreme Court will provide their ruling at the end of June. Many industry professionals including carriers, brokers, etc. are working on contingency plans should the subsidies be removed. OneDigital, as always, is working to provide the best information and solutions for our current and potential customers.