Source: United Benefit Advisors (UBA)
On July 22, 2014, two Courts of Appeals issued decisions that address whether only people who live in states that have state-run Marketplaces (which are also called exchanges) are eligible to receive premium tax credits or subsidies under the Patient Protection and Affordable Care Act (PPACA). One court held that the subsidy should only be available to people covered by state-run Marketplaces, and the other ruled that people should be eligible for subsidies regardless what type of Marketplace their state has.
PPACA is long and complicated, and the Internal Revenue Service (IRS) is responsible for implementing and interpreting the premium subsidies part of the law. The IRS has ruled that all eligible individuals are entitled to a subsidy regardless whether they live in a state that has a state-run Marketplace or a federally-run Marketplace. The basic issue in these cases is whether the IRS is bound by one sentence in PPACA, which says that a taxpayer “enrolled through an exchange established by a State” is subsidy-eligible, so that only a person enrolled in a state-run Marketplace is eligible for a premium subsidy, or whether the IRS had the authority to look at PPACA as a whole and conclude that it would not make sense to limit subsidies to people in state-run Marketplaces, and therefore interpret the law to mean a person enrolled in any Marketplace is subsidy-eligible.
The Obama Administration has already said that it will appeal the decision of the Court of Appeals for the District of Columbia (which ruled that the IRS overstepped its authority, and the subsidy should only be available to people living in states that have state-run Marketplaces). It is likely that the decision of the Court of Appeals for the Fourth Circuit (which ruled that the IRS has the authority to provide subsidies to individuals in all states) also will be appealed. In both of these cases a three-judge panel decided the case, so the initial appeal probably will be to the full Court of Appeals for that circuit. In all likelihood these cases will ultimately be appealed to the U.S. Supreme Court, which means there probably will not be a clear answer on this question before June 2015, at the earliest.
While these cases work their way through the courts, the decisions made by these courts will not be enforced.Employees who are currently receiving premium subsidies will continue to receive them. Employers in states with federally-run Marketplaces should not assume that they will not have to comply with the employer-shared responsibility (play or pay) requirements.
Certainly, a final decision that the premium subsidies are only legally available in states that have state-run Marketplaces would have a huge impact. (Currently, about one-third of the states have state-run Marketplaces and the other two-thirds have federally-run Marketplaces.) It would mean that all the people enrolled in federally-run Marketplaces who are currently receiving subsidies would no longer be eligible to receive them (it seems unlikely that subsidies that have already been received would have to be repaid). It would also mean that fewer people would be subject to the individual mandate since there is an exception to that requirement if coverage is not affordable. For employers in states with federally-run Marketplaces, penalties would not apply, because penalties are only triggered if an employee receives a subsidy. There would be broader implications as well. Would so many people in the Marketplaces drop coverage because of the loss of subsidies that the Marketplaces would fail? Would states be faced with lobbying from individuals and insurers to set up a state Marketplace so that subsidies would be available, and from employers advocating for federally-run Marketplaces so that penalties would not apply?
We are closely watching these cases and will keep you informed, but for now these decisions have no practical impact.
Additional Rules on Contraceptive Coverage
Following up on the Supreme Court’s decision in the Hobby Lobby case, the Departments of Labor, Health and Human Services, and Treasury have issued an FAQ that reminds employers that ERISA requires that plan participants be advised of a material reduction in benefits within 60 days after the reduction becomes effective. The FAQ says that if an employer limits or excludes coverage for some or all types of contraception because of the recent Supreme Court decision, it will need to issue a summary of material modifications (SMM) to participants describing the change.
Important: This is the first directive the regulatory agencies have issued since the Supreme Court decision. Despite this FAQ it is not yet clear how an employer that claims it should be free from the requirement to provide first dollar coverage for contraceptives because it is a closely-held corporation whose owners have strong religious objections to covering contraception will apply for, or show that it is entitled to, the exemption. The Supreme Court has not exempted all employers from the requirement to provide coverage for contraception — the exemption is limited to closely-held for-profit corporations whose owners have a sincere religious objection to providing coverage for some or all contraceptives.
In addition, the Equal Employment Opportunity Commission (EEOC) has recently updated its guidance and issued a Q & A on how to comply with the Pregnancy Discrimination Act. Among these requirements is a requirement that contraceptives be covered the same as any other prescription drug. In the notice, the EEOC acknowledges the Supreme Court decision in the Hobby Lobby case, but does not concede that this decision would necessarily exempt a closely-held corporation whose owners have strong religious objections to covering contraceptives from the requirement to provide that coverage under the Pregnancy Discrimination Act. The decision in the Hobby Lobby case was careful to limit the religion-based exemption to the PPACA requirement, and government interpretations under Title VII and the Pregnancy Discrimination Act tend to carry particular weight. This means that an employer that chooses to not cover contraception on religious grounds may have to defend itself against an EEOC charge or investigation.