Amid this summer’s flurry of U.S. Supreme Court rulings, the nation’s highest Court has essentially decided the fate of Obamacare. In King v. Burwell, the Court saved the health care reform law by rejecting a challenge that would have essentially dismantled the Affordable Care Act as we know it. After this ruling, the fate of the law is no longer uncertain, meaning compliance may have significant implications for you and/or your business.
King v. Burwell hinged entirely on an interpretation of four seemingly unimportant words in the otherwise lengthy health care reform law; the words “established by the State.” Since the enactment of the Affordable Care Act in 2010, 34 of the 50 U.S states have legally elected to not establish a state funded health care exchange site to provide individuals a place to purchase a now mandated health insurance policy. Wisconsin’s Governor Scott Walker has been outspoken in his decision not to establish a state-run health insurance exchange, and in response to his and other 33 states’ decisions, the Obama administration, through the Department of Health and Human Services, has filled the void by creating federally funded exchange sites in those 34 states. Additionally, to make the cost of health care purchased through an exchange more affordable, the Affordable Care Act allows individuals to receive a tax subsidy if they purchase health insurance through a health care exchange “established by the State,” and if they have a certain income level that qualifies. However, it was unclear whether the ACA’s language allowed a tax subsidy to only those qualified individuals who purchased insurance from one of the 16 exchanges that were established by a “state”, or whether those qualified individuals who purchase insurance from the federally funded exchange can receive this subsidy as well.
The IRS attempted to answer this question through a regulation which ruled that a purchase from either type of exchange—one of the 16 state exchanges, or the federally funded exchange—makes an individual eligible for the tax subsidy. However, this put some individuals between a rock and a hard place. Some individuals have incomes low enough to exempt from Obamacare’s individual mandate to purchase health insurance, but at the same time their income level qualifies them for the tax subsidy. Since they qualify for the tax subsidy, even though they might otherwise be exempted from buying insurance under the individual mandate, the cost reduction for buying insurance from the subsidy, makes them ineligible for the exemption to the individual mandate. They are then required to either buy health insurance or face the tax penalty for not having insurance.
The challengers in King v. Burwell were in this exact position, and argued that they should not be eligible for the subsidy because they lived in Virginia, a state that elected not to establish a state exchange. Their argument was that, since there was not an exchange established by the “State” of Virginia, that they were not eligible for the tax subsidy, making them qualified for the exemption from the individual mandate.
The US Supreme Court in Burwell however, upheld the IRS’s regulation, interpreting the statute to mean that an individual’s purchase of health care insurance from “an Exchange established by the State” includes both purchases from one of the 34 federally funded exchange sites and the 16 states that elected to establish local exchanges. For the challengers, this means that because a purchase from a federally funded exchange in Virginia qualified them for a tax subsidy, they are required to purchase insurance under the individual mandate.
What this means for individuals in Wisconsin: If your income qualifies you for the tax subsidy–that is your yearly household income is within 1 to 4 times the federal poverty level—and if the cost to you to buy insurance after the subsidy is less than 8% of your individual yearly income, you are required to buy health insurance or face the tax penalty for not buying insurance (otherwise known as the individual mandate).
What this means for Wisconsin Businesses: There are three categories of businesses that are affected by the ACA: small, mid-sized, and large businesses.
First, small businesses—which are those businesses that employ 49 employees or less—are not subject to the “employer mandate,” and are not subject to any penalty for failing to provide coverage to employees. However, those businesses with 25 or less employees with average annual wages of $50,000 are eligible to receive a tax credit if the business provides insurance to their employees. This ruling only affects small businesses to the extent that the individuals involved in the business must comply with the individual mandate.
For mid-size businesses—businesses that employ 50 to 99 employees—starting January 1, 2016, the ACA’s “employer mandate,” requires the business to do one of two things or face a penalty. 1) ensure that a certain percentage of your employees have minimum health care coverage, or 2) pay a certain percentage of your employees enough so they are ineligible to receive the tax credit. While this delay on the “employer mandate” for mid-sized businesses is old news, the Burwell ruling makes the looming employer mandate more certain for Wisconsin businesses. If the ruling had gone the way of the challengers, no employees in Wisconsin who could buy their insurance through the federal exchange site would be eligible for subsidies. Therefore, no Wisconsin employers would be subject to a penalty under the “employer mandate” for failing to provide minimum coverage or the threshold income to their employees.
As for “large” businesses—those who employ 100 or more employees—the employer mandate has been in effect since 2012, so this ruling shouldn’t change what those types of businesses are doing in regard to health care benefits. However, this ruling similarly removes any doubt that all Wisconsin employers must furnish either minimum health insurance coverage or at least provide incomes to their employees to make them ineligible for a tax credit.
Despite the Supreme Court’s clarification of the particular issue in this case, the Affordable Care Act is still an extremely complex law. If you are unsure of where you fit into this complex scheme, contact Schober Schober & Mitchell, S.C. to ensure you can comply with with the Affordable Care Act in the way that best suits the needs of you and/or your business.
This post was written by our law clerk, Jeremy Klang.