What does the latest ACA ruling mean for employer-sponsored healthcare plans?

December 17, 2018

 

On Friday, December 14, 2018, Federal District Court Judge Reed O’Connor in the Northern District of Texas issued a highly anticipated and controversial decision in a lawsuit (Texas v. Azar) challenging the constitutionality of the Affordable Care Act (ACA). In the Judge’s view the whole law is invalid based on two of his key findings:  

  1. Because the Tax Cuts and Jobs Act (TCJA) set the ACA’s so-called “individual mandate penalty” to $0 starting in 2019, the individual mandate is unconstitutional based on Judge O’Connor’s understanding of prior U.S. Supreme Court rulings; and 
  2. The individual mandate is so critical to the ACA that it alone (or with only closely related provisions) can’t be carved out of the ACA in order to leave the rest of the law in effect (also called its “severability”).   

What happens now?
Judge O’Connor did NOT grant an injunction, which could have required every aspect of the ACA to immediately stop.  The ruling is expected to be “stayed” (not acted upon) while the decision is appealed to the Fifth Circuit Court of Appeals and presumably then to the Supreme Court.  This means that the law is currently, and is likely to remain, fully in effect — at least in the near term. 

Recommendations: 
Because of the long legal process that is ahead before we definitively know the future of ACA, we see this as an opportunity for employers to step back and get perspective on what a sweeping decision like this could mean to their organization. With that broader perspective in mind, we suggest focusing on three key areas:

  • The ACA is still fully in effect.  With appeals and a “stay” expected, it’s Alight’s impression that there is likely no immediate action needed to change plan rules or designs, but given that Alight doesn’t provide legal advice, employers may wish to review with their legal counsel. There is a long list of changes employer plans could make if the ACA were to be invalidated at some point in the future. For example, employers could offer coverage to different groups than the ACA’s defined 30 hour per week “full-time employee” without fear of a tax penalty. However, these changes may be far off or, in fact, may never actually happen. We expect there are many months or even years to go before we have a final decision for plan consideration or action.
  • Short-term: focus on people. Since news reports of the ruling tend to focus on major changes and possible loss of coverage for millions of people through the ACA Marketplaces, this may be a scary time for some employees. Individuals who, for example, have pre-existing conditions or who need expensive treatments might be wondering if this case would apply to just the ACA Marketplace plans or also to their employer-offered coverage. If it becomes final as it is now, the decision would apply to employer plans, which may be something employees have concerns about and try to discuss with employers even before the lawsuit is resolved.  Alight encourages employers to consider how they will respond in the coming days and weeks to employee questions about whether plans will be changing (either soon or in the future). 
  • Longer-term: the possible future of ACA and employer health plan considerations. There are a number of different possible outcomes for Texas v. Azar based on the expected appeals (up through the U.S. Supreme Court).  Without getting into the many variations, the two main scenarios are: 
    1. The decision is ultimately overturned and instead, the ACA or parts of it beyond just the individual mandate are found constitutional and therefore may continue. If this happens, the “then current” (there is the possibility of law or regulatory changes between now and then) state of the ACA or at least parts of it will remain in effect. 
    2. The decision is ultimately affirmed and the entire ACA (or major parts of it related to health coverage) is considered invalid. If this happens, employers will be faced with many decisions about how to handle coverage eligibility and plan designs that have been available for many years. We would expect some employers to essentially keep all of the employee-facing benefits “the same” and others to make plan adjustments that would otherwise be prohibited under the ACA, but that they feel better fit their particular needs or preferences. 

Whether this lawsuit is ultimately overturned or affirmed, there will be disagreement about whether the outcome is good or bad for employers, their plans, and their people. This is the time to start considering how to handle a potential change of this magnitude and, maybe more urgently, how to address any anxiety-inducing uncertainty for your organization, employees, and their families in the meantime. 

Alight will continue to monitor this case and other ACA and health plan developments, and provide updates and actionable information as it arises.  Please connect with us if you have questions or would like to learn more about the ruling.

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