On Tuesday, July 22, two federal appeals courts issued conflicting decisions affecting the Affordable Care Acts individual mandate.
The first decision, issued by the D.C. Circuit Court of Appeals, said that ACA does not permit the IRS to distribute premium subsidies in the federal exchange. The law refers only to state exchanges. This means that in 36 states, individuals who purchased coverage through the federal exchange would have to bear the full cost of their insurance.
Then came the next ruling . . .
Hours later, the Fourth Circuit Court of Appeals in Richmond, Virginia, ruled exactly opposite, stating that the IRS has the discretion to issue subsidies in the federal exchange given the ambiguous language of the law. They argued that the intent of the law is to provide subsidies to individuals who purchase insurance through either the state or federal exchanges.
In both cases, the judges anticipated the decisions to be appealed (the Obama administration has already said it will appeal the D.C. Circuit Court decision), so the application of the rulings will not be immediate. However, the contradictory rulings could be fast-tracked to the Supreme Court and have major implications to the health care law.
Should the D.C. Circuit Courts decision be upheld, it has the potential to impact employers’ ACA requirements, especially for employers that were relying on the public exchanges to cover their employees. Without the subsidies, those on the federal exchange can expect a premium increase of up to 76%.
There is some speculation that this could be a huge game changer for some employers. A Forbes column issued later on Tuesday speculated that the conflicting decisions would cause “chaos” for companies in low-wage industries as they plan their 2015 health care benefit coverage. The Forbes piece suggested companies were counting on the subsidies to soften the blow to employees being pushed into the exchanges. Also, the lack of subsidies could interfere with the enforcement of employer mandate penalties. The employer penalties are initiated when any employee signs up for health coverage at an exchange and receives a subsidy. If there are no subsidies in the states with federally run exchanges, the penalty would never be triggered.
To put this in perspective, note that the International Foundations 2014 ACA Survey showed that a large majority of employers are planning to continue providing health care coverage to employees in 2015. Less than 1% (0.3%) of plan sponsors were definitely dropping coverage. Another 1.1% were “very likely” to drop coverage and an additional 1.1% were “likely” to drop coverage.
Bottom line: The story is not over. Analysts continue to debate both sides of the argument—the intent of the law versus how the law was written.