The US Supreme Court is expected to rule in June in the case of King vs. Burwell. This is the second case to be heard by the high court regarding the constitutionality of the Affordable Care Act (ACA). Once again, this decision impacts key provisions of the law and will determine whether we continue the current course of implementation or literally go back to the drawing board to start over. The consequences could be staggering.
The ACA gave states the option of developing their own state based health insurance exchange or participating in the federal exchange, now called the Health Insurance Marketplace. The website is www.HealthCare.Gov. There was an expectation that most states would opt to build their own exchange. However, that wasn’t the case. Thirteen states plus the District of Columbia have their own exchange; ten states have a shared platform with the federal exchange; and 27 states use the federal one. In the central part of the US, only Minnesota and Colorado have state based exchanges.
King vs. Burwell challenges the legal standing of subsidies in states that use HealthCare.gov. The subsidies in question are known as the Premium Tax Credit. The Premium Tax Credit is based on your income and family size. The credit can be used on a monthly basis to reduce the cost of your health insurance premium or taken as a credit on your tax return. A family of 4 consisting of two parents age 40 plus two children, living in Lincoln, NE with an income of $50,000 would be eligible for a Premium Tax Credit of approximately $6000 in 2015. Since Nebraska participates in the federal exchange, this $6000 credit is in jeopardy under King vs Burwell.
Sections 1311, 1321, and 1401 of the Affordable Care Act refer to exchanges established by a State and imply that subsidies are available to those who enrolled through an Exchange established by the State. If this is accurate, then subsidies are NOT available to those who enroll through the Federal Exchange. This is the question before the Court.
The Kaiser Family Foundation (kff.org) reports that, as of February 22, 2015, 11.7 million individuals enrolled in a 2015 health insurance plan through an exchange; 2.9 million are through state exchanges. This means that the eligibility for a Premium Tax Credit for 8.8 million individuals will be determined by the Supreme Court decision.
If the constitutionality of Premium Tax Credits is negated for those enrolling through the federal exchange, it could mean that those policyholders would lose the credit and become responsible for the full cost of their health insurance premium. Many would not be able to afford it and would come to the conclusion that there is no option other than to drop their coverage.
Another outcome of a ruling in favor of King impacts the employer mandate under the ACA. The Employer Mandate requires large employers to provide affordable health insurance to its employees. If an employee enrolls through an exchange and receives a Premium Tax Credit, the employer is subject to a fine. If there is no Premium Tax Credit, as could be the situation after the Supreme Court decision, then there can be no penalty assessed to the employer.
The health insurance industry is waiting for the decision. Stay tuned for an update.
by Chris McPike, Vice President
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