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Halbig Decision Shouldn't Change Employer Planning for ACA Implementation

The recent decision by the Court of Appeals for the D.C. Circuit in Halbig v. Burwell (here) is certainly a major development in the ongoing saga of health care reform implementation. If it holds up, it would have a significant impact on the ACA as a whole, since both the employer and individual mandates are affected by the presence (or absence) of premium-assistance tax credits.

But this likely isn't the end of the line for tax credits in federally facilitated exchanges (which currently includes the Kansas exchange). The result in the case was not unexpected, given the makeup of the 3-judge panel. And there is a further expectation that the case will be given reconsideration by the full D.C. Circuit, which may lean the other way. (The government's lawyers have already requested such reconsideration.) So the decision could be short-lived.
Even if the decision stands, the Fourth Circuit's opposing decision in King v. Burwell (here) creates a "circuit split" on the issue, making the issue ripe for Supreme Court review. And we know the Supreme Court has been creative in its interpretation of things related to the ACA, like what is or isn’t a “tax." Concluding that the statutory reference to state-based exchanges really means either a state-based exchange or a federally facilitated exchange might not be a big stretch.
It's also unclear what immediate precedential impact (if any) the case has. The ruling would be controlling in the D.C. Circuit, but it may have limited impact outside of the circuit, at least for now. And it appears the IRS intends to continue providing the tax credits, pending opportunity for further review. So, for now, it remains business as usual.
If we assume the result in Halbig did become the law everywhere, there would still be challenges for employers subject to the employer mandate.
  • Large employers with employees in multiple states would still have reason for concern, if at least one employee resides in a state with a state-based exchange.Those employees could still qualify for tax credits, potentially subjecting the employer to penalties under the ACA's employer mandate.
  • States could switch from federally facilitated exchanges to state-based exchanges, and might be more compelled to do so if it means gaining access to tax credits for their citizens.
  • There will still be information reporting required under Internal Revenue Code Sections 6055 and 6056. This means that even if large employers are not subject penalties under the employer mandate there will still be a requirement to identify and provide information about the employers' full-time employees, although perhaps employers will feel less compelled to provide accurate reporting if there’s no significant penalty exposure associated with the reporting.
Bottom line, while the case is a big deal and something to watch closely, it shouldn't immediately change employers' plans for addressing compliance with the ACA as a whole and particularly the employer mandate. Large employers likely remain subject to penalty exposure beginning in 2015 if they are not offering affordable, minimum-value health coverage to virtually all of their full-time employees and dependents of those employees. So they will not want to use this case as an excuse to sit on the sidelines.



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Don Berner, the Labor Law, OSHA, & Immigration Law Guy
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Boyd Byers, the General Employment Law Guy
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Jason Lacey, the Employee Benefits Guy
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