In responding to the Supreme Court's approval of the Patient Protection and Affordable Care Act, it may be wise for states, insurance companies, employers and other interested parties to consider how the Act impacts each of them and how their respective obligations under the Act should be satisfied.
Ending months of debate and uncertainty, on June 28, 2012, the U.S. Supreme Court upheld the Patient Protection and Affordable Care Act (the "Act") in a decision that surprised many who had expected all or a portion of the Act to be overturned. Most noteworthy is the Court's decision upholding the so-called "individual mandate" provisions of the Act, which require individuals to obtain health insurance or face imposition of penalties. Although the decision is a general stamp of approval for healthcare reform, much uncertainty remains because of continuing efforts on the political and judicial levels to repeal or modify the law, in whole or in part. In responding to the Court's approval of the Act, it may be wise for states, insurance companies, employers and other interested parties to consider how the Act impacts each of them and how their respective obligations under the Act should be satisfied. This Alert, which is part of a comprehensive series prepared by Duane Morris regarding the Court's decision, relates to the impact of the decision on employers.
The enactment of the Act on March 23, 2010, and enactment of the Health Care and Education Reconciliation Act of 2010 on March 30, 2010, implemented historic reforms of the American healthcare system. In the intervening two years, thousands of pages of regulations, notices and guidance have been published by a number of governmental agencies implementing the Act's 900 pages. These arrangements affect every constituency in the health insurance market: insurance companies, payors, individuals who receive coverage and employers.
Analysis of the Supreme Court Decision
The Act's most controversial provision, the individual mandate, is not scheduled to take effect until January 1, 2014. This provision requires virtually all Americans to purchase a health insurance policy providing a minimum level of coverage by 2014 or to make a "shared responsibility payment" to the Internal Revenue Service with their income taxes. It was this provision of the Act that raised the most significant constitutional questions and ultimately found its way to the Court.
While ruling that the individual mandate is not a valid exercise of Congress's power under the Commerce Clause and the Necessary and Proper Clause of the U.S. Constitution, the Court upheld the individual mandate as within Congress's enumerated power to lay and collect taxes. In assessing this issue, the Court concluded that "it is reasonable to construe what Congress has done as increasing taxes on those who have a certain amount of income, but choose to go without health insurance. Such legislation is within Congress's power to tax."
Employers' Implementation Efforts
The individual mandate concept was entwined throughout the remainder of the Act's complex provisions, so much so that many observers believed that the Act might be struck in its entirety if the individual mandate was stricken. With the Court's decision to uphold the individual mandate, the other provisions of the Act conditioned upon the continued presence of the individual mandate remain in effect, including the provisions prohibiting insurance companies from denying coverage to those with preexisting conditions or charging unhealthy individuals higher premiums than healthy individuals. In addition, the other provisions of the Act related to an employer's group health plan remain operative. Therefore, it is vital for employers to continue their efforts to implement the Act's various provisions while bearing in mind that the legislative and judicial processes may ultimately require additional changes. Employers should consider having a healthcare reform checklist to ensure they have taken the necessary steps to implement the Act. A number of significant reforms that are already in effect include:
- The extension of coverage to adult children to age 26;
- Restrictions on coverage rescissions;
- Prohibitions on lifetime dollar limits on essential health benefits;
- Restrictions on annual limits;
- A cap on health flexible-spending accounts and elimination of over-the-counter drug reimbursements;
- The elimination of preexisting condition limitations; and
- Establishment of an external appeals process.
What This Means for Employers
Employers should continue their implementation of the reforms scheduled to become effective in 2012 and beyond. Employers should particularly be focused on the following requirements of the Act:
- The provision of a uniform Summary of Benefits and Coverage (effective plan years beginning on or after September 23, 2012) for all applicants and enrollees that applies to all individual and group health plans;
- The reporting of the value of health coverage on employees' Forms W-2 (beginning in January 2013);
- The limitation of the amount of contributions to healthcare reimbursement flexible-spending accounts to $2,500 per year (beginning in January 2013); and
- The establishment of health insurance exchanges at the state level (beginning in 2014).
As a result of the Court's decision, employers should continue their efforts to determine their status under the Act with respect to various issues, such as whether they constitute an "employer" for purposes of the Act's employer penalty provisions. The Act provides that certain employers with at least 50 full-time equivalent employees will face penalties, beginning in 2014, if one or more of their full-time employees (generally those working over 30 hours per week or more) obtain coverage through an exchange and receive a premium tax credit. This may require employers to conduct a "controlled group analysis" to determine which affiliated entities are included in the group for purposes of determining whether they reach the 50 full-time equivalent employee threshold. In addition, employers may want to assess how the Act affects their provision of health insurance. For example, employers should have an understanding of the interplay between the state exchanges, providers of health insurance and government subsidies and the rules that govern those actors.
While the Court has answered the question on the constitutionality of the individual mandate, the decision is clearly not the end of the road with respect to healthcare reform or the litigation over the Act. With the U.S. presidential election now just four months away, the issue of healthcare reform will remain front and center through the remainder of 2012 and beyond. Competing bills will most likely be introduced in Congress over the coming days and weeks in order to respond to the Court's decision. Duane Morris will continue to assess the Court's decision and will publish updates as developments arise.
As this is a brief overview, employers and health plan administrators may want to seek guidance from their legal and tax advisors on the impact of the Supreme Court's decision to their specific businesses.
This Alert is one in a series of Alerts Duane Morris lawyers are writing on the Act. For more information on how the Court decision impacts healthcare providers, see our Alert titled "Affordable Care Act Declared Constitutional . . . For the Most Part." For more information on how this decision impacts health insurance issuers, see our Alert titled "U.S. Supreme Court Decision on Patient Protection and Affordable Care Act: Implications for Health Insurance Issuers."
About Duane Morris
The attorneys in the Employment, Labor, Benefits and Immigration Practice Group have carefully followed health reform for the past two years and have the experience to provide guidance and answers to all questions relating to the Act.
About Duane Morris Institute
We also invite you to join Duane Morris Institute on Monday, July 9, 2012, for a webinar titled "The U.S. Supreme Court Ruling on PPACA: What's Next?" for a detailed discussion of the Court's decision and its impact on employers.
For Further Information
If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.
Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.