What does the Supreme Court’s decision to uphold the PPACA mean for employers?

What does the Supreme Court’s decision to uphold the PPACA mean for employers?

Health Care Reform

July 26, 2012

In a surprising decision, the US Supreme Court ruled in favor of the hotly debated Patient Protection and Affordable Care Act, which was enacted in 2010.  At the time of the vote, Congress was divided strongly along partisan political lines.  In addition, 26 states contested the new law as unconstitutional as did a number of employer representatives.  On June 28^th the Supreme Court released its majority opinion in favor of upholding the PPACA.   One of the key rulings in their extensive decision was a 5-4 vote on the “individual mandate,” which requires that individuals be covered by health insurance or face a penalty, upholding that it is constitutional, based on the Congress’ general taxing power, not the Commerce Clause of the US Constitution.  The majority ruled that the “penalty” was in effect a tax and that the mandate provision was able to be upheld and sustained under Congress’ taxing power. 

The Supreme Court’s decision will result in a number of changes in many arenas, including the continuation and acceleration of health plans to begin and continue their implementation of significant plan adjustments.  They will need to ensure that services are delivered and adjust the allocation of costs contingent to PPACA.  The current system of employer sponsored health plans will expand to one of the largest avenues for Americans to obtain health coverage.  The decision reiterates that employers will have to significantly expand their coverage offerings to employees, with greater obligations and costs as required by the PPACA.

Now what?

Employers need to carefully monitor the staggered effective dates required by the different provisions of the PPACA.  There are a number of steps employers can take to prepare themselves for the changes that are approaching.

Employers need to know the law affects both large and small employers.  Employers that have greater than 50 full-time employees will now be required to provide insurance coverage for their employees or face a tax penalty.  Small employers, those with less than 25 employees and who’s annual wages are below $50,000, are typically not able to afford to offer their employees’ health coverage.  Under PPACA provisions, small businesses will now be eligible for a small business tax credit to help offset the cost of offering health insurance to employees.  The tax credit is currently up to 35% of the insurance premium cost and will offset the cost of a portion of the premium.  Beginning in 2014, this percentage will increase to 50%.

Employers will need to ensure that the policy they choose meets the minimum requirements under PPACA.   It is important that companies review the minimum coverage requirements for their business size prior to choosing a plan.  The definitions of full-time employee are different for healthcare than may be defined in a workplace.  There are specific requirements and provisions for employers based on the number of employees. 

Employers will need to carefully assess the financial ramifications of the PPACA.   Employers will need to examine whether or not it is more beneficial for them to provide health insurance coverage options to their employees or face the tax penalty that will be assessed to them.  Employers will also need to consider what dropping coverage will do to employee morale and on workforce recruitment and retention.  Employers will need to recognize that it is not a cut and dry decision on whether or not to follow the provisions or to pay the penalty. 

Employers must carefully review the new requirements and determine whether their current benefit plan is acceptable or if changes need to be made.  There are strict limitations on how much of the cost can be shifted onto employee and employers will need to decide whether the monetary increase to provide health benefits can be treated as additional overhead or whether cuts in other benefits must be made.

Employers will need to have a clear understanding of the law’s provisions.   The law contains very detailed provisions as to what must be covered and what employers must provide.  Employers will need to ensure that they understand and follow these provisions. 

Employers will need to monitor changes and keep up with current developments.   There will be constant releases of new details and regulations.  These must be monitored and followed. Employers will also need to keep themselves educated on the changes and developments within the insurance market and their new and revised services, offerings, and costs.

The Bottom Line

Although the Supreme Court has currently upheld the PPACA, the controversy around it continues to swirl.  There will most likely be future attempts to overturn the ruling and the outcome will be decided in Congress.  The upcoming November election will also play a role in the future of health care reform.  At this time, the future of the Act is not clear, and will not be until after the election.  The candidates hold very different views on health care and there may be drastic changes to come.  Employers must keep themselves current with the ever changing laws and regulations to ensure they are compliant.

Adapted from FEDERAL EMPLOYMENT LAW INSIDER. Vol. 9 No. 11 July 2012 – “What the Supreme Court’s upholding of the PPACA means for employers” J. Scott et. al.