The Affordable Care Act’s Employer Mandate: Will the U.S. Supreme Court Kill It?

Under the Affordable Care Act, employers above a certain size are required to offer health insurance coverage to their employee or pay a substantial penalty. This requirement is commonly known as the “employer mandate.” King v. Burwell, a case pending in the United State Supreme Court right now, does not directly involve the employer mandate, but it nonetheless has the capacity to kill it in North Carolina and thirty-three other states. If the Court, in King v. Burwell, finds that the ACA authorizes the federal government to subsidize the purchase of health insurance only on state-run exchanges, and not on federally-run exchanges, the employer mandate will be unenforceable in the 34 states with federally-run exchanges. The Employer Mandate The Affordable Care Act requires employers with 100 or more full-time equivalent employees (50 or more beginning in 2016) to offer health insurance coverage to full-time employees and dependents. Employers who do not offer qualifying coverage will be liable for a financial penalty if (and this is an important ‘if”) they have at least one employee who receives a subsidy from the federal government to purchase an individual health insurance policy on an exchange. If no employees receive a subsidy to purchase an individual policy, the employer faces no penalty. The Health Insurance Exchanges The ACA allows the individual states to set up marketplaces, or “exchanges,” for individuals to use to compare and buy individual health insurance policies. It also directs the federal government to organize and run exchanges in states that decline to set up an exchange themselves. The North Carolina General Assembly declined to set up a state-run exchange, so North Carolina is one of 34 states in which the federal government runs the health insurance exchange. In order to make the goal of universal coverage more attainable, the law provides for tax subsidies for lower-income Americans who buy individual policies on an exchange. King v. Burwell The text of the ACA says that qualifying individuals may receive subsidies when they buy health insurance policies on an exchange run by a state. The Internal Revenue Service issued an interpretation of that language that extended the subsidies to people buying insurance in a state where the exchange run is by the federal government. The plaintiffs in King v. Burwell argue that this language means that the ACA authorizes the federal government to subsidize the purchase of health insurance only on state-run exchanges, and not on federally-run exchanges in states that declined to run the exchanges themselves. If the Supreme Court agrees with the plaintiffs that the ACA does not authorize tax subsidies for health insurance purchased on a federally-run exchange, then no taxpayers in North Carolina, or the 33 other states with federally-run exchanges, will be eligible for subsidies. And if no one in North Carolina is eligible for a subsidy, then no North Carolina employer will ever be liable for the employer mandate penalty. Why is that? Because the employer mandate’s employer penalties are triggered only when an employee receives a subsidy to purchase health insurance on an exchange. Conclusion Would such a decision mean the end of employer-offered health insurance in North Carolina? Of course not. Most employers who offer health insurance coverage to their employees will continue to do so even if the employer mandate can no longer be enforced. But what about other consequences? The rules applicable to health insurers about essential benefits, pre-existing conditions, waiting periods and the like will still be in in force. But what about other provisions -- will employers have to comply with the ACA’s complicated reporting scheme, for example? It is impossible to predict how the agencies charged with implementing the ACA – the Internal Revenue Service, the Department of Labor and the Department of Health and Human Services – will respond to the challenge a decision for the plaintiffs will pose. The Supreme Court heard oral argument in King v. Burwell this past March. Court watchers expect a decision by the end of June.