Small businesses are changing the way they offer employee health benefits. Owners and employees are saving up to 60 percent by giving money to employees to buy their own personal plans directly from insurance companies.
However, a Supreme Court ruling expected this week threatens to limit these savings.
With the individual health insurance approach, instead of providing one group plan, a small business allows each employee to purchase his or her own personal plan independent of the company and provides a monthly allowance to cover the cost.
Most small business owners and employees qualify for an additional allowance from the IRS to help cover the out-of-pocket health insurance costs. These additional allowances, called premium tax credits, are at the center of the King v Burwell Supreme Court Case.
What is King v Burwell?
If you haven’t followed the case, here’s a quick primer. The central issue is whether the IRS is allowed to extend these additional allowances (premium tax credits) to individual health insurance coverage purchased through the 30-plus federally-run exchanges at Healthcare.gov.
The petitioners (King) argue that the text of President Obama’s Affordable Care Act (ACA) only allows for premium tax credits on state-run exchanges, and that the regulations providing for tax credits on the federally-run exchanges, exceeded the authority Congress granted to it. In response, the federal government (Burwell) argues that the ACA permits premium tax credits to be paid in all exchanges. Oral arguments took place in March of this year and a decision is expected this week.
Who will win?
Most experts expect the ruling to be in favor of the federal government (Burwell), cementing the previously mentioned savings opportunity for small business owners and employees. However, if the Supreme Court rules in favor of King, small business owners and employees could lose access to billions of dollars in premium tax credits.
If the Supreme Court rules in favor of the petitioners, approximately 6.4 million Americans, including many small business owners and employees, would lose their premium tax credits. Keep in mind, King v Burwell only directly impacts Americans residing in the 30-plus states that have set up federally-run exchanges. The reality, however, is that everyone will be affected directly or indirectly.
Immediate impacts if King wins
A Supreme Court decision in favor of the petitioner in King v. Burwell would trigger the following immediate outcomes in the 30-plus states with federally-run exchanges:
1. Loss of premium tax credits
More than 6.4 million small business owners, employees and individuals would lose billions of dollars in premium tax credits.
Impact: The average out-of-pocket insurance cost for those affected would increase more than 300 percent.
2. Unraveling of Individual Mandate
Loss of premium tax credits will cause individual health insurance to become “unaffordable” (as defined by the ACA and calculated as a percent of income) for tens of millions of Americans.
Impact: Tens of millions of Americans would be exempted from the requirement to purchase health insurance coverage due to unaffordability. This would further increase number of uninsured and destabilize the insurance market.
3. Destruction of Employer Mandate
Loss of premium tax credits will cause the employer mandate to become unenforceable in states with federally-run exchanges.
Impact: Businesses in these states with 50 or more employees would no longer be subject to the $2,000 per employee penalty for not offering health insurance.
Due to the potentially negative impacts of a ruling in favor of the petitioners, many experts agree there will be bipartisan agreement to fix the issue in Congress. A congressional fix is expected to focus on preserving an affordable and stable individual health insurance market.
This would be great news for small business owners and employees, and would preserve the personal approach to employee health benefits.