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New ACA Legal Battle Could Affect Individual and Employer Health Coverage

Health Insurance infographic with insurance forms, calculator, clipboards, etc.The Affordable Care Act (ACA) has been controversial since it was enacted in 2010. The latest legal attack calls into question whether insurance carriers will still be required to issue coverage to individuals without regard to pre-existing medical conditions, and the degree of pricing flexibility that carriers will have based on the demographics of a covered group.

The current legal battle could take months to resolve. In the meantime, it's smart to monitor the situation, because the outcome could impact employer health plans, as well as people buying coverage on an individual basis. Here's the lowdown on what we know so far.

Issue at Hand

The current issue is the constitutionality of key ACA provisions in the wake of the Tax Cuts and Jobs Act (TCJA). For tax years starting in 2019, the TCJA repeals the ACA penalty for individuals who fail to obtain minimum essential health coverage. In February 2018, a federal case was filed by Texas and 19 other state governments that centered on an earlier challenge to the ACA's basic constitutionality. That challenge was rejected by a majority of the U.S. Supreme Court in 2012. (NFIB v. Sebelius, 648 F. 3d 1235)

The Supreme Court's ruling in NFIB largely rested on the federal government's use of the tax system to penalize individuals who fail to comply with the individual health care coverage mandate. Texas and other ACA opponents argue that the TCJA's elimination of the penalty behind the individual mandate invalidates the basic remaining provisions of the ACA.

Two Sides to the Debate

The Trump administration primarily sided with Texas and the other 19 states. "Because the TCJA eliminated the basis for the Court's saving construction in NFIB, the individual mandate is untethered to any source of constitutional authority," the Justice Department argued in a brief filed in early June. In turn, the brief claims that untethering undermines the remaining key ACA provisions.

However, the Justice Department in its brief didn't accept the entire position laid out by Texas and the other states. Rather than eliminate the ACA in its entirety, as Texas would do, the Justice Department maintains that other ACA features — such as health exchanges and tax subsidies for low-income individuals buying coverage through the exchanges — should be left intact.

Now, California and 15 other states have joined the case, showing full support for all of the surviving ACA provisions. Their key argument comes from an interpretation of congressional intent when it adopted the TCJA. This argument is based on statements made by leading Republican senators when explaining their support for the measure. For example, Senator Orrin Hatch (R-UT) previously stated that the TCJA "does nothing to alter Title 1 of [the ACA], which includes all of the insurance mandates and requirements related to pre-existing conditions and essential health benefits."

Others who agree with Sen. Hatch include the health insurance industry trade group America's Health Insurance Plans (AHIP). "Zeroing out the individual mandate penalty should not result in striking important consumer protections such as guaranteed issue and community rating rules that help those people with pre-existing conditions," said an AHIP statement. "Removing those provisions will result in a patchwork of requirements in the states, cause rates to go up even higher for older Americans and sicker patients, and make it challenging to introduce products and rates in 2019."

Key Implications

The case is currently at the trial court level, but the parties are likely to appeal the decision to higher courts — possibly even the U.S. Supreme Court. If the courts ultimately rule in favor of Texas, thereby eliminating the pre-existing condition exclusion provision, self-insured employers could still design their health plans to accommodate everyone. Sponsors of fully insured health plans could find themselves in a tougher spot, however.

Employers with fewer than 50 employees have never been subject to the employer mandate under the Affordable Care Act (ACA). But such employers could face some challenges ahead regardless of whether they choose to offer (or continue to offer) a health plan. That's because, in the absence of the individual mandate, employees might decide not to seek health coverage, even if they can receive it through their employer.

Why? If their co-insurance obligations under their employer's plan are significant, some employees might believe they can save money by not enrolling in the plan. That could come back to haunt them — and their employers — when they get sick, however. Uninsured employees might forgo treatment and come to work sick if they exhaust any paid sick leave they're entitled to. They could spread any contagious diseases to co-workers. And, if left untreated, the sick uninsured employees could become seriously ill and seek care in the emergency room.

If you've been offering health benefits, even without being subject to the employer mandate, you might decide to continue doing so. The courts' ruling in this case won't affect your decision to provide coverage. If today's surviving ACA provisions remain, your original rationale for offering a health plan will probably remain valid.

If the courts side with Texas and you decide to drop your health plan, employees would be forced to purchase coverage from an individual insurance market. But that market could deny employees coverage on the grounds of a pre-existing condition.

Stay Tuned

While the legal battle plays out at the federal level, New Jersey and Massachusetts have enacted their own individual mandate laws. With new ACA-related legal and legislative action occurring at a rapid clip, employers will need to stay tuned and be prepared to adapt their health benefit strategies as developments warrant. Contact your tax and legal advisors for the latest developments on the ACA.

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