On March 4, the Supreme Court heard oral arguments in the latest challenge to the Affordable Care Act. The main issue at stake in King v. Burwell is whether premium tax credits for health insurance plans purchased through a marketplace established by the federal government violates the law.
Let’s take a closer look at the case and what it could mean to small businesses.
The Basics of King v. Burwell
The plaintiffs in the case are arguing that the IRS is not allowed to give premium tax credits to people who bought health insurance plans through federally established marketplaces.
Their argument is based on one phrase in the law. In the section describing the formula used to calculate premium tax credit amounts, the Act states “an Exchange established by the State.” Therefore, the plaintiffs contend, people who purchased plans through federal exchanges should not be eligible for the premium tax credits.
In response, the government argues that when the law is viewed in its entirety, it’s clear that premium tax credits are intended to any “applicable taxpayer,” regardless of who operates the marketplace.
As of this writing, only 13 states and the District of Columbia run their own health insurance exchanges — the rest of the states either defer entirely to the federal government to run the exchange in their state, or partner with the federal government at some level to operate their state’s exchange.
The Potential Consequences
The main concern in a ruling for the plaintiffs is that millions of people in those 37 states will lose their premium tax credit and, thus, their ability to pay for health insurance.
In many cases, the expense of health insurance will lead to more people being exempt from the individual mandate based on their income. Insurance companies may be faced with a disproportionately high number of sick people enrolling in coverage. This can lead to skyrocketing premium costs.
A ruling for the plaintiffs could result in significant changes to the health care reform law, and it’s unclear at this point how the government would mitigate the fallout.
What it Means to Small Businesses
With the end of the premium tax credits in most states would come the end of employer-shared responsibility payments in those states, but small businesses may face a few other consequences if the Court rules to end the premium tax credits.
- The employer-shared responsibility penalty for failing to offer adequate and affordable coverage is tied to an employee receiving a premium tax credit. In states where the tax credit is removed, the penalty wouldn’t get triggered.
- With many people losing access to affordable individual coverage, small businesses would most likely face intense pressure to offer insurance to employees.
- Increased premium costs across the board would also make it harder for small businesses (50 to 100 employees) to provide affordable, essential coverage to employees.
No one knows yet how the Court will vote. There’s speculation that four justices will likely uphold the validity of premium tax provided for coverage purchased through the federally facilitated marketplace, while three will likely side with the plaintiffs. As in the Court’s 2012 decision that upheld the individual mandate, the outcome here will hinge on one of the two swing votes on the court — Justice Anthony Kennedy or Chief Justice John Roberts.
Should the Court invalidate the premium tax credits, the current Congress is unlikely to pass a fix that would restore the federal premium tax credit to subscribers in the affected states. Some governors in those states have also indicated that they will not act to establish state-run exchanges. Some Republicans have said they have a plan to offer some relief to those who may lose health insurance if the premium tax credits are removed.
The Supreme Court is expected to make a decision by July.