The US Supreme Court heard oral arguments March 4 in a case that could bring massive change to the Affordable Care Act and remove penalties in some states for staffing firms, staffing buyers and other employers — albeit with caveats.
The case is King v. Burwell. It questions whether workers can get subsidies to buy health insurance in states where the federal government – and not the state – runs the insurance exchange. Challengers to the law, who brought this case against the government, point to ACA language where federal subsidies for health coverage are offered through an “Exchange established by the State under section 1311.”
It’s an important question for employers because a worker’s receipt of a subsidy is what triggers employer penalties under the ACA:
- An “A” penalty is $2,080 per year multiplied by all of a company’s full-time workers (less 30) for firms that don’t offer health insurance to at least 95 percent of their full-time employees (70 percent in 2015 under transition relief) and who have at least one worker who gets a subsidy to buy health insurance from an ACA exchange.
- If a firm does offer insurance, it could still face a “B” penalty. That is $3,120 per year for each full-time employee who receives a subsidy to buy health insurance through an exchange. An employer faces this penalty if its coverage is either unaffordable to workers or below regulation-defined “minimum value.”
The court isn’t expected to render a decision right away. However, attorney George Reardon, a staffing industry veteran, said it’s a good idea to weigh the potential ramifications of the case now. But even if the court rules in favor of the challengers, things might still be complicated.
For example, a staffing firm offering health coverage and with operations in New York (which has a state exchange) and Texas (which uses the federal exchange) would not be subject to the “B” penalty in Texas for its Texas employees who receive subsidies, Reardon said. However, if the firm does not offer coverage and a worker in New York gets a subsidy, the “A” penalty could be calculated based on all the firm’s full-time workers in all the states in which it operates, even those in Texas.
“There probably will be an opportunity for staffing firms to obtain some penalty relief by arranging their payrolls under separate employee identification numbers for penalty and non-penalty states,” Reardon said, adding that could solve some of the problem. But that won’t be known for sure until after the decision.
Penalties could mean higher expenses that could be transferred to the buyers.
Buyers with operations in several states may also be concerned — even if they engage staffing firms with operations in a single state using the federal exchange such as Texas. Some buyers are concerned about the common law employee attribution in the IRS regulations, and some buyer contracts are requiring insurance coverage for all temporary workers, as well as indemnification for all penalties. But Reardon says buyers should be thoughtful about adding that type of language given the remote risk of the common law attribution and the difficulties and costs such demands create for suppliers.
“If a staffing firm promises to offer full coverage to everybody they send to a particular client, that’s beyond ACA compliance, needlessly expensive, and administratively difficult to do,” Reardon says. For example, part-time workers are not protected by the ACA, and even some full-time temporary employees might not have to be offered employer coverage if they are on Medicaid or Medicare, if they are former part-time workers in a stability period that ignores their full-time schedule, or for other reasons.
Another concern: If the challengers do prevail at the Supreme Court level, there will likely be political pressure for states with federal exchanges to put in place state exchanges that would reestablish the subsidies and employer penalties, he says. Staffing firms should prepare to weigh in on such proposals.
Thirty-four states have an exchange run by the government, according to reports. However, indications are staffing buyers have not asked about the potential impact of the case as of yet. Meanwhile, some Supreme Court reports say the justices appear split, while some argue the court will reject the challengers’ argument. Some business groups, including the American Hospital Association and America’s Health Insurance Plans are opposed to removing subsidies in the states using the federal exchange.