The Supreme Court heard the first of three days of oral arguments on the constitutionality of the individual mandate provision of the Patient Protection and Affordable Care Act, sparking speculation, analysis and protests throughout Washington, D.C. and the nation. (Click here to hear audio from today’s proceedings.)  

Starting Monday morning at 10 a.m., today’s arguments centered on whether the legal challenge to the law's centerpiece requirement — that Americans obtain health insurance or pay a penalty — must wait until after that provision has taken effect in 2014.

Taking the long view, the benefits industry largely sees four scenarios, including the Supreme Court upholding the law and delaying ruling on the individual mandate until after 2014, when it affects Americans, thereby giving rise to a later ruling that could ultimately strike down the mandate but keeping everything else. Employers are trying to get a sense of what may happen because the outcome will affect work they’ve already done to comply with PPACA and future cost-containment strategies.

Most important for employers is knowing their options so they can make informed plan design choices once the Supreme Court rules.

“We’re finding that employers now are starting to focus on what this might mean for them; we’re seeing uptick in employers wanting to drill down and quantify,” says Brian Blalock, managing director and actuary at Verisight, in an exclusive interview with Employee Benefit News. His firm recently designed a tool, PPACAcalc, that calculates employer costs in each scenario for the small to middle market. “Even though many are looking at [discontinuing health benefits], most don’t believe that they would go that route.”

Michael Turpin, executive vice president of USI Insurance Services, tells EBN: “I think employers are in two camps: [One camp is] those that know enough about reform to know that a decision striking down they mandate excludes severability and in doing so, brings down the entire ACA is highly unlikely and therefore, they are moving ahead with getting much more comfortable with the notion that they must continue to aggressively manage costs. A second group of less sophisticated employers hope that reform will be struck down, curtailed or repealed and replaced.  They are less informed of the political ins and outs but are sort of ‘whistling in the dark’ and hoping something happens.”

If the individual mandate is ruled unconstitutional and inseverable from the rest of the law, more popular provisions — specifically, prohibitions on excluding patients with pre-existing conditions and mandating dependent eligibility for individuals up to age 26 — may be difficult for employers to roll back without raising the ire of plan participants.

Such complications may be why “large employers are hoping that the employer mandate gets wiped out. They don’t want to have to deal with it,” says Don Garlitz, director of exchange solutions for bswift, which provides software solutions for employee benefit administration.

Blalock thinks the Department of Health and Human Services might increase the “pay or play” penalty come 2014 so that employers are more likely to keep providing coverage. “I don’t know that they know what their competitors would do, and would they be able to attract and retain employees.” At the end of the day, employers want to know if they will be the only ones punting coverage, and if it will affect their ability to keep talent.

But before any of this can be fleshed out, at the core of oral arguments today was the Anti-Injunction Act, which dates back to 1867, and whether taxpayers must actually begin paying the penalty for not purchasing insurance before objections to the mandate can be raised in court.

The Anti-Injunction Act generally bars any challenges to a tax law until it has taken effect because such lawsuits can stop the federal government's Internal Revenue Service from collecting tax revenues.

Before Congress approved the legislation, Obama insisted the penalty for failing to obtain insurance was not a tax. The legislation used the word "penalty" rather than "tax." Under the law, the penalty is due when Americans pay their annual taxes.

But a U.S. appeals court based in Virginia and a dissenting judge on a U.S. appeals court in Washington, D.C., held it would amount to a tax and the lawsuits therefore were barred until the money was paid, not expected until after 2014.

The Obama administration, which is defending the health care law, and the 26 states and the independent business group that are challenging the law, have agreed the challenges to the insurance mandate can be decided now.

The Supreme Court accepted the administration's recommendation that it consider the tax issue. To obtain another point of view, it appointed a private-practicing attorney, Robert Long, to argue the challenges were barred because of the tax law.

He argued in a written brief the Anti-Injunction Act applied because Congress specified the penalty shall be assessed and collected in the same manner as taxes by the IRS. The penalties are estimated to bring in at least $4 billion a year.

Stay tuned to EBN all this week for additional exclusive coverage from the Supreme Court.

Additional reporting by James Vicini of Reuters.

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