While it has been a rather quiet July, many in the health care industry knew that this was just the calm before the storm. These suspicions were verified on Tuesday, July 22, when breaking news came from the judiciary system: The courts have ruled on the Affordable Care Act (ACA) again. The U.S. Court of Appeals for the D.C. Circuit ruled 2-1 that the health insurance subsidies, also known as premium tax credits, could only flow through state-based marketplaces. Within the same day, the U.S. Court of Appeals for the Fourth Circuit in Richmond ruled the opposite way.
The question of both cases is whether the ACA allows subsidies to be available through both the federally-facilitated and state-based marketplaces. Both cases were brought to the courts by individuals in states that did not establish a state-based marketplace. The plaintiffs did not wish to purchase insurance, but due to the availability of subsidies for their insurance, they do not qualify for exemptions from the insurance mandate.
At the time the ACA was drafted, many people working on the legislation expected the states to start their own marketplaces. In fact, before it was passed, there was a lively debate around the question of whether health care reform should be nationally or state-driven. The Senate, whose members were mostly proponents of a state-based approach at the time, won the debate. However, between political considerations, technical complexity, and cost, most states decided to let the federal government run their marketplaces.
Unlike the 2012 U.S. Supreme Court decision on the ACA, the legal issue of these cases does not center around whether the law is constitutional. Instead, the issue is whether the law was implemented correctly through regulation. It is a question of Congressional intent and reading of the statutory language for meaning.
If subsidies were not available through the federally-facilitated marketplaces (FFM), the implementation of the ACA could be seriously damaged. Affordability of coverage could be significantly reduced for many individuals in the 36 states covered by the FFM. In addition, a ruling against the availability of subsidies for the FFM could mean that a far greater number of individuals would likely be exempt from the individual mandate, possibly leading to much lower participation and a destabilized risk pool.
Moreover, because the employer mandate for insurance only applies penalties when an employee receives premium tax credits, no employers could be penalized for declining to offer coverage in FFM states. This would mean employers with greater than 50 employees in these states could drop coverage and not pay a fee. Health plans participating in marketplaces could end up with a much smaller and sicker group of enrollees, and hospitals and life sciences companies could see fewer gains in newly insured individuals.
The Deloitte Center for Health Solutions 2014 Survey of Young Adults and Health Insurance points to how important affordability is for the young adult population; a significant number of respondents to the survey said that they couldn’t afford the offerings on marketplaces.
For now, the subsidies are safe. Even before the second court decision in support of the subsidies was released, the first judge stated that ACA implementation could continue as planned, expecting that the Administration would likely appeal the D.C. Circuit’s decision.
Two other courts have pending cases to look at the same issue. Next steps are for the additional cases to be heard. The Administration has already said it will appeal, as a spokesperson for the Department of Justice was quoted as saying they believe the decision was incorrect and not consistent with the intent of Congress.
Depending on the outcome of the outstanding cases and the appeal, we could see another provision of the ACA arrive at the front door of the U.S. Supreme Court. For now, however, it is probably best to weather the storm and remain on course toward the next open enrollment season—which is only a few months away.