Alert
Alert
By Mark Jones,
08.04.14
In conflicting opinions released on July 22nd, two federal circuits split on whether Affordable Care Act subsidies are available under a federally operated health insurance exchange. “Pay or play” penalties apply only if employees obtain subsidized coverage from an exchange, and the majority of exchanges are wholly or partly operated by the federal government. Therefore, the resolution of this split will be significant for most large employers.
Why Were These Cases Brought
The Affordable Care Act (ACA) gave states the primary responsibility for establishing exchanges. The deadline for doing so was January 1, 2014. If a state failed to establish an exchange by the deadline, the ACA provided for the U.S. Department of Health and Human Services (HHS) to operate the exchange for or with the state.
Currently, only 14 states and the District of Columbia wholly operate their exchanges. HHS maintains or facilitates the operation of the exchanges in the remaining 36 states, which include approximately 2/3 of the nation’s population.
Subsidies for health insurance purchased on an exchange are available to individuals with a household income of up to four times the federal poverty level ($45,960 for a one-person household, $94,200 for a family of four). The ACA calculates the subsidy available in a state by reference to the premium charged for health insurance purchased on the “Exchange established by the State.” The meaning of this phrase was the subject of the lawsuits.
The IRS makes subsidies available for insurance purchased on any exchange, regardless of whether the exchange is operated by a state or the federal government, and has issued regulations reflecting this position. The plaintiffs in these cases challenged the IRS regulations on the grounds that they conflict with the language in the ACA that appears to limit subsidies to insurance purchased a state-operated exchange.
What Is at Stake for Employers
Employers subject to the “pay or play” rules care about these decisions because the availability of subsidies helps determine whether they could become subject to a penalty for failing to offer health insurance to their employees. Two penalties may apply:
Therefore, if an employer operates only in states where no subsidies are available, the employer could effectively be exempt from both “pay or play” penalties.
Download: Circuit Court Split on ACA Could Impact Employer Penalties