The Supreme Court decision (King vs. Burwell) upholding federal subsidies more or less guarantees some level of access to health insurance to all Americans. As we’ve discussed in earlier posts, the availability of subsidized coverage on the public exchange has made it easier for some employers to consider terminating employer-sponsored coverage for early retirees. Will it also be enough to trigger a re-evaluation of eligibility requirements within employer-sponsored health plans for active employees?
Under the ACA, employers are required to make the offer of coverage to all employees working 30 or more hours per week and their dependent children. They are not required to cover spouses, which raises the question of whether they will continue to do so now that other coverage is available. The more people covered by a plan, the greater the cost — including the additional fees that are collected on a per-participant basis for PCORI and transitional reinsurance.
Currently, virtually all employers that offer coverage to employees also offer coverage to their spouses and dependent children, although they typically require employees to contribute a greater share of the cost for spouse and dependent coverage. Among large employers (500 or more employees) with a separate contribution level for coverage for employee plus spouse, the average employee contribution required is 20% of premium for employee-only coverage, but 29% of premium for employee plus spouse. The gap is far wider among small employers — 28% of premium for employee-only coverage and 48% for employee plus spouse. For employers that already require a very high contribution for spousal coverage, it might be a shorter step to discontinuing eligibility for spouses entirely.
Right now, it seems unlikely that many employers would be willing to risk the potential negative impact on employee engagement and attraction and retention that might result from making spouses ineligible for coverage. While we have seen some employers excluding spouses who have other coverage available, large employers are far more likely simply to impose a surcharge, a less draconian move that has still proven effective in reducing spousal enrollment. But as the benefits landscape continues to evolve in response to the ACA, excluding all spouses from coverage — inconceivable before the advent of the public exchanges — may become at least a discussion item on the health benefit strategic planning agenda before long.
In light of the recent US Supreme Court decision in Obergefell v. Hodges legalizing same-sex marriage nationwide, employers should consider the following implications for benefit plans and employment policies:
- Revisit your definition of “spouse.” Make sure the definition covers same-sex spouses in plan documents, insurance policies, trust and service agreements, beneficiary forms, required notices, and employment policies.
- Review your eligibility rules. Fully insured and public sector self-funded health plans must offer coverage to same-sex spouses. Self-funded health plans aren’t prohibited from limiting coverage to opposite-sex spouses, but you may face litigation under federal employment discrimination law.
- Adjust payroll and state tax reporting. Imputed income should no longer be calculated for the value of same-sex spouse health coverage. The timing of this change is unclear. However, we have seen guidance from the states of Ohio and Nebraska.
- Reconsider domestic partner coverage. You should weigh the pros and cons of continuing to make available domestic partner coverage, given that same-sex couples now have the right to marry in all 50 states. While the complexity of tax withholding and reporting for domestic partner coverage may be an argument in favor of dropping domestic partner coverage, would this action be in keeping with your organizational culture? Would it have an impact on recruitment/retention strategies? If you do decide to end domestic partner benefits, consider carefully the end date — after which couples will essentially be required to marry or lose coverage. We recently shared employer data on domestic partner coverage now that same-sex marriage is legal everywhere.
- Determine if you need a plan amendment. You may need a mid-year plan amendment to allow employees to enroll their same-sex spouses prospectively based on the plan’s expanded eligibility. Eliminating domestic partner coverage would also require a plan amendment.
- Don’t forget retirement plans. Make sure retirement plans give same-sex spouses the same rights, obligations, and benefits as opposite-sex spouses.
Many employers believe the Obergefell ruling will boost efforts to recruit top talent, facilitate employees’ interstate transfers, and foster a culture of diversity and inclusion. You may find the timing right to launch an effort to promote greater diversity and inclusion in your organization.
While many are saying "nothing changes" with the Supreme Court decision yesterday, that’s not really true. Now that employers can be confident that subsidized coverage will be available in all states, they can consider how the public exchanges might fit into their strategic planning for their health benefit programs. While very few employers are even considering terminating coverage for all active employees, the public exchanges could offer an alternative to maintaining plans for part-time employees or early retirees.
More than half of all US employers — and 70% of those with at least 500 employees – currently make health coverage available to all or some of their part-time employees, even though, under the ACA, they are not required to offer coverage to employees working fewer than 30 hours per week. Employers generally require part-timers to pay more for coverage than full-time employees (on average, 31% of premium for employee-only coverage, compared to 22% for full-time employees). A part-time employee who is eligible for subsidized coverage through a public exchange might do better, financially, if employer-sponsored coverage was not available. Some employers have already raised the number of hours required for coverage eligibility — the median number of hours required by large employers rose from 21 in 2013 to 24 in 2014 — and more are likely to at least consider this as a result of the King v. Burwell ruling.
The percentage of large employers sponsoring retiree medical plans has fallen by almost half since 1993. In recent years, however, this trend has flattened. Many of the employers still sponsoring a plan feel committed to providing coverage for their retirees, and are aware that the availability of affordable medical coverage affects the age at which employees choose to retire. Among employers offering a plan, the average age at retirement in 2013 was 62 years, compared to 64 among those not offering a plan. For employers still maintaining retiree plans, the public exchange and even off-exchange coverage are possible options for retirees under age 65. Employers need to think about the talent management implications of this.
As the dust storms surrounding the ACA — like the King V. Burwell case — slowly begin to settle, employers can start to survey the changed landscape to see where new opportunities lie. The viability of the public exchanges provides an option for part-time employees and opens a door to those who want to retire early but may have felt beholden to their jobs to maintain medical coverage.
In a 6-3 vote, the US Supreme Court upheld federal subsidies for health coverage from Affordable Care Act (ACA) health insurance exchanges in all states. While the King v. Burwell ruling, announced today, means that nothing changes, it also means that millions of people will be able to keep their subsidized health insurance on the public exchange.
The good news for employers is that they can continue to rely on the nationwide availability of subsidized health insurance for their active employees working fewer than 30 hours per week. The ruling also supports strategies to transition pre-Medicare-eligible retirees from employer-sponsored plans to the public exchange.
Longer-term employer strategies? The ruling doesn’t specifically point to changes in employer direction in terms of whether they continue to offer benefits directly or through a private benefits exchange. However, it is always a good idea to take advantage of opportunities like this to revisit your overall health care strategy in light of broader market implications.
What does this mean for the future of the ACA? First of all, employers should stay focused on ACA compliance — many still need to take action to meet the reporting requirements for early 2016 — and on planning for the 2018 excise tax. While the ruling maintains the status quo for now, Congress and the President could agree to make targeted changes to the ACA this year, despite the looming 2016 elections. Employer-backed reforms with bipartisan support — including repeal or revision of the 40% excise tax on “high-cost” plans and eased reporting requirements — stand a chance of becoming law as part of a bigger legislative package.
Messaging today was clear — Congress passed the ACA to improve health insurance markets, not to destroy them. There was a moment of levity when Justice Scalia said Obamacare should now be called “SCOTUScare” — causing Justice Roberts to smile and then laugh.
As we reflect back on the first five years under the ACA, there is one consistent theme — change. Change in the form of changes employers have made to their health benefit programs and change and delays in the implementation of the law. Could there be more ahead? There are certainly some possibilities.
The Supreme Court is expected to deliver another ACA-related decision in the King vs. Burwell case in June. While we are all speculating on what the decision will be, the Republicans are preparing a response in the event the Justices decide to disallow subsidies to members of the federally facilitated public exchanges. Some of the changes being proposed include things like:
- Capping tax credits from the current 400% federal poverty limit to 300% FPL and limiting tax exclusions on employer-provided health insurance to $12,000 for individual coverage and $30,000 for family coverage (Hatch and Burr).
- Keeping Healthcare.gov subsidies intact through August 2017, and repeal the individual mandate (Johnson).
- Restoring federal funding to the States, which can choose individual tax credits deposited in patients’ HSAs or per capita block grants (Cassidy).
All of these are just “proposals” at this point in time, but they definitely give us a glimpse into some of the types of changes lawmakers are considering.
The IRS received comments from employer groups on the first installment of Excise Tax guidance last Friday. Mercer, along with other groups representing employers, submitted comments. We reported earlier in the week on the type of changes Mercer proposed — exclude noncore medical benefits (such as workplace wellness programs and on-site medical clinics) from the calculation of coverage costs, provide employers with enough flexibility to calculate coverage costs consistent with reasonable actuarial principles, and postpone implementation of the excise tax or at least provide a “good faith” compliance period. Other groups proposed similar changes with common themes of requests for simplicity and flexibility. The IRS has said it will provide a second round of guidance for comment before issuing draft regulations on the excise tax.
Lots of activity in Washington, DC, as we wait for the Supreme Court decision and to see what regulators and lawmakers will do next. One thing is for sure: Things will change!
Capital Thinkers is an occasional series written by leading thinkers, experts, and policy makers from across the nation's capital. Today's guest blogger is Paul Fronstin from the Employee Benefit Research Institute.
The future of employment-based health benefits is always of strong interest in the work we do at the Employee Benefit Research Institute (EBRI). During an EBRI forum in 2014, EBRI members heard various viewpoints on its future in the aftermath of the implementation of the Patient Protection and Affordable Care Act (ACA) (see a recap of the discussion here). Since the panel discussion, issues have emerged regarding the King vs. Burwell case before the Supreme Court of the United States (SCOTUS). The outcome of this case has major implications for employment-based health benefits, yet many employers have yet to form an opinion about it.
A recent Mercer survey of nearly 600 US employers asked respondents whether they would favor or oppose disallowing federal premium tax credits for individuals in states that do not operate their own exchange (see more on the survey results) . The survey found that 27% favor disallowing such premium tax credits, 31% oppose them, and 42% had no opinion. Disallowing premium tax credits could mean that enrollment in public marketplaces would fall by 9.6 million, and premiums could increase 47% (learn more). While much of the focus has been around public marketplaces, disallowing premium tax credits would also have implications for employers, workers, and employment-based health benefits.
On March 4, 2015, SCOTUS heard oral arguments in the case of King vs. Burwell. SCOTUS will decide whether the ACA allows individuals receiving coverage through public exchanges to receive premium tax credits in states with federally-facilitated exchanges. A total of 34 states did not set up their own exchanges. Instead the federal government operates the exchanges in these states. In 27 states, federally facilitated marketplaces are offered. In these marketplaces, the US Department of Health and Human Services (HHS) performs all marketplace functions. Consumers in these states apply for and enroll in coverage through healthcare.gov. In seven states, state-partnership marketplaces are offered. These states are considered to have a federally facilitated marketplace. These states may administer in-person consumer assistance functions, but HHS performs the remaining functions, and consumers in these states apply for and enroll in coverage through healthcare.gov.
Employers may not be aware of the implications of the SCOTUS ruling. If SCOTUS concludes that the federal government is prohibited from offering premium tax credits to individuals purchasing coverage in federally facilitated exchanges, employers operating in those states will not be subject to the Employer Shared Responsibility Provision (a.k.a., Employer Mandate Provision) in the ACA. The Employer Shared Responsibility Provision requires that employers with 50 or more full-time employees either provide health coverage to their employers or pay a $2,000 per employee assessment if coverage is not provided. The $2,000 assessment is applied only when at least one employee receives subsidized coverage through the public exchange. A $3,000 assessment is applied for each employee that receives subsidized coverage because they opting out of employer coverage that either did not meet affordability or minimum value standards. In both cases, in states where premium tax credits were not allowed, by definition, workers would not be eligible for premium tax credits, therefore employers could not be penalized for either choosing to not provide coverage, or for providing coverage that did not meet affordability or minimum value standards. The assessment would continue to be applied in states that operate their own exchange.
Employers that have a large presence in states with federally facilitated exchanges will not be penalized for failing to provide affordable, minimum value coverage. However, they may not want to opt-out of providing coverage to employees in these states, as the individual marketplace may not be a viable alternative for their workers.
Last week on Mercer/Signal: US Health Care Reform, Tracy Watts explained the King v. Burwell case that will be heard by the Supreme Court starting next month, including possible fixes. Today, she discusses the consequences — both intended and unintended — of a decision to disallow federal subsidies for federally facilitated exchange (FFE) coverage, including the potential impact on employers.
In what could be a long list of consequences if the Supreme Court disallows federal subsidies for FFE coverage as a result of the King v. Burwell case, the biggest is a huge increase in the number of uninsured from the number today. The estimated 8 million people currently getting subsidized coverage in a FFE only foot 24% of the cost, on average, with the federal government picking up the rest. Without the subsidy they will most likely not be able to afford coverage. Here are a few of the consequences of most concern to employers:
- More people will be exempt from the individual mandate. Lack of access to affordable coverage (coverage costing no more than 8% of household income) excuses an individual from the individual mandate. The Kaiser Family Foundation estimates that without subsidized premiums, 83% of those in FFE states formerly eligible for subsidies would qualify for an affordability exemption from the individual mandate. Currently, an estimated 3% qualify for an exemption. That means the government will be paying out less in subsidies, but will also be collecting less in individual mandate penalties.
- The FFE individual health insurance options are not likely to survive the impact of anti-selection within a much smaller risk pool that would occur if subsidies are eliminated. This will cause insurers to exit the individual market in the FFE states, and there could be a trickle effect on the state-run exchanges as well.
- Repeal of the subsidy for FFE states could have an impact on employer strategies that leverage public options for hourly employees working less than 30 hours and for pre-Medicare-eligible retirees.
- The repeal of the subsidies doesn’t necessarily give employers an “out” in terms of the shared responsibility penalties in states where employees can’t obtain subsidized coverage. If an employer has employees in non-FFE states, the population considered in the offer of coverage to “substantially all employees” is the entire employee population, regardless of type of public exchange option.
- One of rationales for expanding coverage to more Americans was that a reduction in uncompensated care for the uninsured would help keep health insurance premiums lower for all. It is estimated that uncompensated care increases family premiums by as much as $1,000 a year.
What does the public think?
Surveys indicate that this case is not on most American’s radar screens. In a poll taken by the Kaiser Family Foundation, more than half surveyed (56%) say they have heard nothing about the case. Since the law was passed in 2010, more people view it unfavorably than favorably. Still, only 32% of those surveyed by Kaiser would like Congress to repeal the law entirely, although another 14% want the law scaled back. On the other hand, 23% say they want to see Congress expand the law and 19% want it to move forward as is. Not surprisingly, opinion is sharply divided by political party.
Additionally, when asked what will happen with the law in this Republican-led Congress, 31% believe the law will undergo a major change and 32% believe it will see only minor change. Just 12% believe it will be repealed entirely. Most see lawmakers' proposals to change the ACA as an attempt to gain political advantage (63%) rather than to improve the law itself (29%). Large majorities of Democrats and independents feel this way, while Republicans are divided.
What should employers do?
Employers have planned for ACA compliance since the law was passed in 2010. All along the way we have been challenged by the complexity of the law, zig-zagged to accommodate changes and delays, and digested regulatory guidance that has not always been timely or easy to understand. There have been political battles and attempts to derail the law. Some held out hope that a prior Supreme Court decision or the mid-term elections would bring about major changes, even repeal. So here we are — again. Even if the Supreme Court strikes down FFE subsidies, all other ACA provisions remain in place. Our best advice? Assume the law will remain essentially intact until we know otherwise, and keep doing what you’re doing.
Oral arguments to the Supreme Court for King v. Burwell are scheduled to begin March 4, and a decision is expected sometime in June. The ACA case focuses on four words in the law: “established by the state.” A literal reading of the law would seem to exclude subsidies for anyone enrolled in a public marketplace not “established by the state” — meaning the exchanges operated by the federal government in 34 states. Without subsidies, many currently enrolled in these states will not be able to afford health insurance.
Is this just a red-state issue?
Some of the 34 states using the federally facilitated exchange (FFE) have made progress in setting up their own exchanges and so would not be affected by a decision to roll back the government subsidy. While the enrollment period for the public exchange is still open and enrollment results are not yet final, two studies have estimated that the impact would be felt by about eight million people. The FFE states most likely to feel the biggest impact are Florida, Texas, North Carolina, Georgia, Michigan, and New Jersey.
The fact that the case is before the Supreme Court means that a minimum of four justices — the number that must vote to hear the case — are already giving serious consideration to restricting the subsidies to the FFE. Of the nine justices, four were appointed by a Democrat and five are Republican-appointed. In 2012, Chief Justice John Roberts sided with the four Democrats to uphold the constitutionality of the ACA. He is considered the most likely of the Republican-appointed justices to side with the Democrats, along with Associate Justice Anthony Kennedy. While some don’t believe that the high court will uphold the subsidy, keep in mind that three of the five lower federal courts ruling on the subsidy have upheld the IRS interpretation.
What are the possible fixes?
Neither the White House nor Health and Human Services Secretary Sylvia Mathews Burwell is speaking publically about contingent plans if the decision does not go their way. Here are some thoughts on what might happen.
- The Administration could help states using the FFE set up their own exchange. This won’t be fast or easy. Time will be an issue if the decision is delivered in June with only a few months until open enrollment begins. In addition, that would involve convincing Republican governors and Republican-controlled state legislatures, all of whom have already refused to set up their own exchanges once, to cooperate.
- Several health policy experts have said HHS could probably figure out a way to keep running most of the exchanges' technical systems, most likely as a contractor. The ACA sets certain rules for what an exchange has to do — such as certifying that insurance plans meet the law's standards, operating a program to help people navigate their coverage options, and covering its own administrative costs. But it doesn't specifically define what constitutes an exchange "established by the state." Most of the details were left to HHS. So, if HHS does end up needing to transfer federally run exchanges to the states, it could probably hang on to some of the work. But it would be difficult to argue that an exchange is state-run unless the state has taken some action to authorize the marketplace.
- The White House could propose asking Congress to pass legislation to fix the problem with the wording in the law. This could get interesting, since the Republicans could then be blamed for not taking action to keep subsidies available to those enrolled. Will the Republicans do that? Their own constituents will be the most impacted if they do not act to save the subsidies.
Next week on Mercer/Signal: US Health Care Reform, Tracy Watts will discuss the consequences — both intended and unintended — of a decision to disallow federal subsidies for FFE coverage, including the potential impact on employers.