- Posted by Scott Wham
- On June 16, 2015
Ruling Expected Soon in King V. Burwell—Potential Outcomes for Individuals and Employers in PA, NJ, and DE
On November 7, 2014, the U.S. Supreme Court agreed to review King v. Burwell; a lawsuit challenging the ability of the federal government to provide health insurance subsidies under The Affordable Care Act (ACA) to individuals enrolled in coverage in states that did not establish a state-based health insurance Exchange (or “Marketplace”). To read a detailed outline, click here. States that did not establish a state-based Exchange deferred to the federally-facilitated Exchange, or FFE (otherwise known as the “Federal Health Insurance Marketplace” or “Healthcare.gov”). On March 4, 2015, the Court heard oral arguments for this matter. A ruling is expected at the end of the current Term, in late June or early July.
In King v. Burwell, the U.S. Court of Appeals for the 4th Circuit unanimously upheld the availability of the ACA’s subsidies in states with their own Exchanges and in states FFEs. The court held that the text of the ACA is ambiguous and subject to multiple interpretations. As such, the court upheld the IRS’ rule that authorizes subsidies in all states, including those with FFEs, as a permissible exercise of the agency’s discretion. Thus, the court ruled that subsidies are available to individuals who obtain insurance through either state-based Exchanges or FFEs.
What does King v. Burwell mean for individuals residing in PA, NJ, and DE?
If the Court sides with the petitioners, states participating in the FFE will lose access to health insurance subsidies. While it is uncertain whether the loss of access to health insurance subsidies would be immediate, individuals receiving health insurance subsidies in states participating in the FFE would lose their subsidies. It would take a legislative amendment to the ACA to restore subsidies in states participating in the FFE.
Pennsylvania, New Jersey, and Delaware participate in the FFE (Delaware participates in a partnership Exchange with the federal government). As such, if the Court sides with the petitioners, all individuals receiving health insurance subsidies in PA, NJ, and DE would lose access to those subsidies. Since the ruling would only impact states that did not establish a state-based Exchange, states participating in the FFE could establish a state-based Exchange to avoid the loss of subsidy access. Whether a state establishes its own Exchange is the governor’s choice.
What does King v. Burwell mean for employers in PA, NJ, and DE?
If the Court sides with the petitioners, employers that are subject to the ACA’s Employer Shared Responsibility provisions (“Pay-or-Play”) would not face penalty liability for failing to offer compliant health insurance coverage. Generally, under Pay-or-Play, Applicable Large Employers, or “ALEs” (e.g. employers with 50 or more full-time employees including full-time equivalents), must offer full-time employees health insurance that provides minimum value and is affordable, or risk exposure to excise tax penalties. An ALE must pay excise tax penalties if a full-time employee is not offered compliant health insurance coverage, and he or she receives a subsidy to purchase health insurance through an exchange. The trigger for the penalty is the receipt of the subsidy. If the Court strikes down the availability of subsidies in FFEs, there will not be a penalty triggering mechanism. As such, ALEs in PA, NJ, and DE would not face penalties for failing to offer compliant coverage to its full-time employees. It is important to note, however, that while a ruling in favor of the petitioners would incidentally eliminate Pay-or-Play excise tax penalties for failing to offer compliant coverage in states participating in FFEs; such a ruling would not repeal “Pay-or-Play” in its entirety.
ALEs will still be required to comply with the ACA’s 6055 and 6056 reporting requirements. ALEs comply with the 6055 and 6056 requirements by filing IRS Forms 1094-C and 1095-C. Failure to comply with the reporting requirements carries its own potential penalty liability. June 16, 2015 If you have questions regarding the implications of King v. Burwell, please do not hesitate to contact your Kistler Tiffany Benefits Consultant.