In just a couple of months, we should get a ruling in the King v. Burwell Supreme Court case and should know the fate of the premium tax credits in those states using the Federally Facilitated Marketplace instead of “an exchange established by the state.” Much has been written about the possible negative implications of a ruling in favor of the plaintiffs, and many of the disastrous consequences people are predicting could in fact materialize: millions could lose coverage; the individual health insurance market could go into a death spiral; and both hospitals and insurance companies could lose a fortune.
Agents, too, could be hurt by a ruling against the administration. Brokers across the country have spent the past couple years figuring out the Healthcare.gov website and working to get individuals enrolled in qualified plans and set up with financial assistance. If the subsidies go away, so would many of these clients.
The King v. Burwell case, though, isn’t the only important decision on the horizon. Back on Jan. 6, the first day of this Congressional session, the Save American Workers Act was introduced by U.S. Rep. Todd Young, R-Indiana, and two days later it passed the House. It was referred to the Senate Finance Committee, where it was read twice and is still awaiting further action.
This bill, of course, would re-define “full-time employee” for purposes of the employer mandate to mean an employee who works at least 40 hours per week rather than the standard of 30 hours. The argument is that employers have not traditionally considered 30 hours to be full-time, and trying to calculate employee hours to comply with the mandate is both burdensome and costly for employers. The biggest reason, though, that’s cited for changing the definition of full-time employee is because employers are cutting employee hours in order to avoid the shared responsibility penalties.
There are some problems with this line of thinking, and that’s why Democrats in the Senate oppose the bill and why the President has said he will veto it if it does end up on his desk. First, it’s a lot easier for employers to shift employees to part-time if they only have to cut one or two hours from their weekly schedule rather than 11 or 12. Second, there are existing laws under ERISA that prevent an employer from cutting employee hours if the sole motivation is to avoid offering an otherwise-eligible employee health coverage. Third, and most importantly, a couple of recent studies indicate this massive shift to part-time employment isn’t actually happening.
Despite the flawed arguments of SAW supporters, the proposed legislation is popular among individuals, employer groups, and a number of organizations, including insurance associations like NAHU. And despite President Obama’s promise to veto the bill if it does reach his desk, it’s also possible this is something he could bend on in order to advance his position on other important issues. With a GOP majority in both houses of Congress, the President will have no choice but to make a few compromises, and signing off on a popular bill could be a good starting point.
While many of the prognosticators have focused their attention on King v. Burwell lately, SAW is also important, and as long as we’re busy making predictions, it’s much more interesting to take a look at the court case and the 40-hour legislation together because that creates four possible scenarios with very different effects on the employer and individual markets.
30 hour workweek
Subsidies in all states
30 hour workweek
Subsidies through state exchanges
40 hour workweek
Subsidies through state exchanges
40 hour workweek
Subsidies in all states
Scenario 1: 30-hour workweek, subsidies in all states
This is the status quo and would arise if the Supreme Court upholds the premium tax credits and SAW either fails to pass the Senate or is vetoed by President Obama. It’s also the most likely scenario, though it’s impossible to predict what either SCOTUS or POTUS will do.
If things do remain as they are now, we have an idea of what’s going to happen. Most employers who are offering coverage, whether required to or not, have no intention of dropping it. Even with all of the play-or-pay analyses, employers do see a positive ROI from offering health coverage and other employee benefits and want to continue to do so. That said, some employers do realize that the family glitch is hurting the family members of employees who are blocked from a government subsidy by the employer’s health plan. Some employers, as predicted, will shift at least some of their full-timers to part-time status or replace full-time workers with part-timers when they hire new employees, but as of now this is far from an epidemic.
In this scenario, there is no difference between states using their own exchange and those using Healthcare.gov.
Scenario 2: 30-hour workweek, subsidies through state exchanges
The second possibility is that SAW will fail to pass but that the Supreme Court will toss out the subsidies in FFM states, and this would result in the huge mess a lot of people are worried about. In states with their own exchange, though, it would be business as usual – for them, nothing would change.
In FFM states, millions of individuals would lose the premium tax credits that are helping them pay for health insurance. At the same time, the employer mandate would, in effect, go away for many companies. The employer mandate is triggered by one or more employees receiving a premium tax credit in the individual market, but if all of a company’s employees are located in FFM states and the tax credits are not available in those states, the employer shared responsibility penalty wouldn’t apply – even if the company doesn’t offer health insurance at all.
In essence, we’d go back to “the old status quo” in states using Healthcare.gov. Before PPACA passed, there were no premium tax credits and there was no employer mandate. Companies offered coverage because their employees wanted it, and this helped them attract and retain quality workers. With the government assistance no longer available, employees would once again see great value in employer-sponsored coverage, and this could give companies that offer health insurance a competitive advantage.
Scenario 3: 40-hour workweek, subsidies through state exchanges
If the Supreme Court rules in favor of the plaintiffs and the Save American Workers Act does end up passing, we’ll see completely opposite trends in states with their own exchanges and those using the Federally-Facilitated Marketplace.
In FFM states, the scenario described above would take shape. The subsidies would go away, and for many companies the employer mandate would as well. While employers would no longer be required to offer coverage, many would continue to do so because employer-provided coverage would become a deciding factor for many job applicants. Millions would lose coverage in the individual market and employer coverage would grow.
In states with their own exchange, though, the reverse would happen. Companies subject to the employer mandate would avoid penalties by shifting some of their workers to part-time. This could be easily accomplished by cutting just an hour or two from their weekly schedules, and employers would know that many of these individuals would have another option in the individual market. In these states, employer coverage would shrink and individual coverage would grow.
Scenario 4: 40-hour workweek, subsidies in all states
The fourth possibility is that the Supreme Court will uphold the subsidies and that the 40 hour workweek bill will end up passing. It does make sense that a ruling for the administration in the King v. Burwell case would prompt lawmakers to take action on the bill in order to provide relief to employers subject to the mandate, so this scenario isn’t that far-fetched.
If this does happen, employers with more than 50 employees will have a strong incentive to move their lower-paid workers to part-time status. Based on their income, these employees and their family members probably qualify for significant subsidies in the individual market and could therefore be hurt by the employer plan. They’re also the ones that are most likely to cost the employer a penalty if they’re working full-time and the group plan is considered unaffordable for them.
This is exactly the sort of scenario that Health Partners America, a company based in Birmingham, Alabama, had in mind when it developed its individual private exchange solution.
As Doug Foshee, HPA’s Business Development Manager, explains, “If an employer makes the decision to cut dozens of employees back to 38 hours a week, we can have an employer- or agency-branded exchange solution built right away. This will allow the employer to offer an individual healthcare solution and provide employees ample time to review individual policies with a licensed professional.”
Most group brokers, Foshee continues, don’t have time to sit down one-on-one with employees to help them select individual policies and apply for a premium tax credit, especially if all of their group clients are making similar decisions. A private exchange site, though, is designed to handle this type of volume.
Get Ready One thing is certain: in just a few weeks, we’ll have some answers, at least on King v. Burwell and possibly on SAW as well. But a “wait and see” approach, as we’ve learned in the past, can be a bad strategy. For brokers looking to capitalize on the opportunities created by PPACA, it’s far better to prepare ahead of time for the various scenarios – that way, you’re already positioned to take advantage of the opportunity when everyone’s scrambling for answers.
True, it’s possible nothing will happen – the Court could uphold the subsidies and the Save American Workers Act might not even make it out of committee. But if one of the other three scenarios comes to pass – if opponents of the legislation get their way – that’s when things will get really interesting. Under the different scenarios, we could see millions lose coverage in either the individual or employer markets, but right now we don’t know which it will be. So it seems like the only prudent thing to do is get ready for all possible scenarios – make sure you have not only a plan B but a plan C as well.