Early next year, the Supreme Court is scheduled to hear oral arguments in a case that labor law and health care benefit advisers say could affect the Affordable Care Act’s strict employer mandate penalties.  

Arguments are scheduled to begin for King v. Burwell at 10 a.m. on March 4, a court spokesperson confirmed. The nation’s high court will answer whether consumers who utilize the public marketplace can receive premium tax credits in states that have not established their own exchange and utilize the federal HealthCare.gov option.

See also: Supreme court agrees to hear case challenging ACA subsidies

Language in the ACA states that these credits can only be given to those enroll into an exchange established by states. Meanwhile, according to the Commonwealth Fund, only 13 states and the District of Columbia have state-run marketplaces, with three other states using a state-run marketplace that funnels through the federal website.

Behind the subsidy discussion is a provision of the ACA that will likely limit the stiff penalties of failing to comply with the health care law. Jean Hemphill, a partner in Ballard Spahr’s Philadelphia office, notes that those punitive costs associated with the employer mandate will likely be shot down if the court finds that the Internal Revenue Services’ final rule extending premium tax credits to individuals on the federal exchange was an “arbitrary and capricious action.”

The law takes effect in 2015 and requires employers to provide coverage employers with 50 or more full-time or full-time equivalent employees,

“Both types of employer mandate penalties are triggered only when an employee enrolls for coverage in an exchange plan and receives a premium tax credit or cost-sharing reduction,” says Hemphill. “If no premium tax subsidies are payable in those states, the employer mandate penalties will never be triggered in those states. There will be no penalty for violating the employer coverage mandate in those states.”

See also: Employers won't feel immediate sting from federal court ACA subsidy ruling

John Barkett, the director of health policy affairs with Towers Watson Exchange Solutions, says that “what triggers that penalty is having one of their employees to whom they do not offer coverage go out and get the tax credit.” 

Meanwhile, the premium tax credits – not withstanding the ACA penalties – are an integral driver in ensuring that the law can function properly and be sustainable with new individuals signing up for coverage on the public health exchanges. According to Barkett, “if the court decides the so-called federally facilitated exchange can’t do that, then 37 states potentially will no longer have access to those tax credits that subsidize their plan.” He notes that 80% of consumers in the public exchange receive tax credits.

“Without being able to access those credits, 80% of people getting coverage will have to pay a lot more for coverage and many of them will likely leave the market,” Barkett says. He predicts the enrollees who will stay are those who have more complex health issues, and that will likely result in higher prices for everyone in the public health market next year.

Meanwhile, Hemphill agrees that premium subsidies are a game changer for many public exchange participants and employers.

“Without the premium subsidies, more individuals will become eligible for the exemption from the individual coverage mandate because the required contribution for the lowest-cost plan option would be in excess of 8% of their household income,” says Hemphill, practice leader of Ballard Spahr's Health Care Group. “Enrollment in those exchanges will be adversely impacted and the number of uninsured individuals will increase in those states.”

For those employers considering the public health exchange market for their part-time or retired employees, Barkett says that many will think twice because of the high cost that even the cheapest plans will offer enrollees.

“They either were considering [dropping] their health plans and [moving] folks out to the public exchanges to get coverage, or they’ve already done so,” explains Barkett. “But now, the value proposition doesn’t look so good, or wouldn’t look so good without the subsidy.” 

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