Insights and Articles

Despite Ruling That ACA Is Invalid, the Law Stands for Employers

A ruling by a U.S. District Court judge in December 2018 that the Affordable Care Act is unconstitutional is not expected to stand but, if it does, the moves that have been made in the health insurance space to reduce costs, deliver better care outcomes and make the system more efficient would be expected to stay.

For those employers that were offering health coverage to their employees before the ACA and have continued since, the marketplace dynamics would likely not change much if the ruling were not overturned on appeal.

Additionally, since there has been some success in the employer-sponsored health care space in keeping cost inflation relatively tame, there would likely be no incentive for health insurers and providers to abandon those efforts.

The more likely outcome is that a higher court (and eventually likely the U.S. Supreme Court) overturns U.S. District Judge Reed O’Connor’s ruling that because Congress eliminated the individual mandate portion of the ACA, the rest of the law is also invalid and cannot stand. That means all aspects of the law, including health care exchanges, the employer mandate, and the requirement that policies cover 10 essential benefits, and much more. The individual mandate was repealed at the end of 2017.

Several states such as Massachusetts, New York and California have since intervened to defend the law. They argue that, if Congress wanted to repeal it, it would have done so. The Congressional record makes it clear Congress was voting only to eliminate the individual mandate penalty in 2019; it indicates that they did not intend to strike down the entire ACA.

The original lawsuit against the ACA was brought by 20 attorneys general from Republican states, and now 17 attorneys general led by California’s Xavier Becerra have filed a notice of appeal with the 5th U.S. Circuit Court of Appeals in New Orleans.

Interestingly, the Trump administration filed a brief early in 2018 encouraging the court to uphold the ACA but strike down the provisions relating to guaranteed issue and community rating.

There have been more than 70 attempts to invalidate the ACA in courts across the country, and two of those cases made it to the Supreme Court. The last time the ACA was upheld was in 2012 and all five justices who voted at that time to uphold the law are still on the bench today.

Additionally, the ACA is an extremely expansive piece of legislation, which has been on the books since 2010. Legal pundits say it’s unlikely the Supreme Court would want to strike down a law that affects millions of people in the country. In fact, because of this the court may decide not even to take up the case if the 5th Circuit has overturned O’Connor’s ruling.

Employer effects

While this case is under appeal the law will stand, meaning that all parts of it, except the individual mandate, will remain. That means all employers who are considered “applicable large employers” under the ACA, will be required to continue offering health insurance to their workers.

If you are one of them, you need to continue complying with the law of the land as it stands. And remember, while Congress eliminated the penalties associated with not complying with the individual mandate, the penalties for not complying with the employer mandate are still very much in place. Fines can be severe for non-compliance.

This ruling is not expected to affect those penalties, reporting requirements, or any other applicable ACA requirement at this time.

Proposed Rule Would Allow Employers to Reimburse Staff for Health Premiums

The Trump administration is moving ahead with new regulations that would make it easier for employers to enter into health reimbursement arrangements (HRAs) with their employees, a practice that can be severely penalized under the Affordable Care Act.

Under the proposed regulations – issued by the departments of Labor, Treasury and Health and Human Services – employees would be allowed to shop and pay for their own coverage using tax-free HRAs that are set up by their employers.

Under the proposed rule, employers that offer traditional health insurance would be allowed to fund an HRA with up to $1,800 per year. The money in the HRA could be used to reimburse employees for certain medical expenses, as well as for premiums for health insurance policies or stand-alone dental benefits.

And offering HRAs used to help employees pay for individual health insurance premiums would count as an offer of coverage to satisfy the employer mandate under the ACA.

More options, lower costs

Administration officials said expanding HRAs would give employees more options in terms of health coverage, and it also would reduce costs and administrative burdens on employers.

If enacted, the new regulations would undo Obama administration guidance (as it was not actually written into the regulations) barring employers from paying into HRAs to help workers pay for health insurance premiums from policies they buy on the open market or on government-run exchanges.

Companies that were caught in such arrangements faced a hefty fine of up to $36,000 a year.

The employer mandate would stay intact but the proposed rule would allow an employer to satisfy the mandate by funding HRAs for its workers. Under the employer mandate, organizations with 50 or more full-time or full-time-equivalent employees are required to purchase “affordable” health coverage that covers at a minimum 10 essential benefits as outlined under the law.

HRAs must be affordable

The key is that the HRA must also be affordable under the proposed rules. That would depend in part on the amount the employer contributes to the HRA.

The agencies proposing the new regulations said in an announcement that they would provide further guidance on the HRA-specific affordability test.

Funds going into HRAs would be exempt from federal income and payroll taxes. Additionally, employers would be able to deduct the amount they put into HRAs from their taxes.

The proposed rule would also require employers that offer HRAs to allow a worker to opt out and instead claim a federal premium tax credit to purchase coverage on the individual exchanges.

This is the early part of the rule-making. The proposed regulations will have to go out for public comment before final rules are written and implemented.

Employers Say Pharmacy Benefit Manager Contracts too Complex, Opaque

Three in five employers think their contracts with pharmacy benefit managers are overly complex and not transparent, according to a new study.

The study, which found that employers would prefer that PBMs are more transparent with their pricing and would like them to focus less on rebates and value-based designs, comes as PBMs are under increased scrutiny for their opaque pricing practices.

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Proposed Rules Include New Ways to Satisfy Employer Mandates

The IRS has proposed new regulations that could let employers avoid Affordable Care Act employer mandate-related penalties by allowing them to reimburse employees for insurance they purchase on health insurance exchanges or the open market.

The regulations are not yet finalized, but the IRS has issued a notice explaining how applicable large employers, instead of purchasing health coverage for their workers, would be able to fund health reimbursement accounts (HRAs) to employees who purchase their own plans.

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Despite Ruling That ACA Is Invalid, the Law Stands for Employers

A ruling by a U.S. District Court judge in December 2018 that the Affordable Care Act is unconstitutional is not expected to stand but, if it does, the moves that have been made in the health insurance space to reduce costs, deliver better care outcomes and make the system more efficient would be expected to stay.

Read More