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June 24, 2021 | Covid-19 | Posted by Bob Greene, Senior HR Industry Analyst at Ascentis

Is the Third Time the “Charm?” SCOTUS (Again) Rules on the ACA

On June 17, 2021, the Supreme Court ruled, for the third time, that the Affordable Care Act is constitutional and will remain the law of the land. (Well, technically, by a 7-2 margin, they ruled that the plaintiff states’ Attorneys General, represented by Texas, lacked standing to challenge the law, but the ACA stands, once again, unmodified, as a result.)

The basis of the lawsuit had been the challenge by 18 states that, given that Congress, as part of the Tax Cuts and Jobs Act of 2017, had set the individual mandate penalty to zero, and since the Court had previously upheld the law on the basis that the individual mandate was constitutional under the Congressional power of taxation, with a newly zeroed-out individual mandate penalty, the ACA was no longer constitutional. This rather strange exercise of logic was not recognized by the Court, which could find no “particularized injury” to the 18 states bringing this latest challenge, and this led to the Court failing to find standing for Texas and its fellow states. The ruling marked the third time in nine years that the highest court found no basis to overturn the ACA, and many SCOTUS observers believe that this will be the final time the Supremes rule on the constitutionality of “Obamacare.”

So where, exactly, does that leave employers from a healthcare planning perspective?

The “Battle of the Executive Orders:” A Bit of History

The Trump Administration, together with the House and Senate of 2017-18, made no secret of their disdain for the ACA – trying as they did, more than 70 times, to repeal the law. While they were not successful in doing so, the prior Administration did place into effect two Executive Orders that attempted to weaken the law – their regulatory intent apparent from their titles. E.O.13765, “Minimizing the Economic Burden of the PPACA Pending Repeal” was signed on January 20, 2017 (Inauguration Day), and E.O.13813, “Promoting Healthcare Choice and Competition Across the United States,” was signed on October 12, 2017.

These two Executive Orders resulted, among other things, in the attempted liberalization of the rules around two specific types of health insurance: association health plans (“AHPs”), and short-term limited duration insurance (“STLDI”). Both plan types had been around for many years, but their terms were restricted, both by the ACA and rules in effect prior to 2010.

STLDIs: these health plans, sometimes referred to as “temporary health insurance” are designed not to be ACA-compliant. They need not meet minimum value standards under the ACA, they need not cover the 10 minimum essential benefits prescribed by the law, they can exclude pre-existing condition coverage, and they can impose annual and lifetime benefit limits. In a study of these plans, the Kaiser Family Foundation commented they could not find a single STLDI policy offering, nationwide, that included coverage for maternity benefits, for example.

Prior to the ACA, these plans were restricted to 12 months in maximum coverage term, but pursuant to the executive orders of 2017, the Department of Health and Human Services under the prior Administration extended their term (by allowing back-to-back renewals) to up to 36 months. The liberalization of these policy terms was challenged in court, but the D.C. Court of Appeals ruled in July of 2020 that the new plan terms were legal (the 2-1 majority noting succinctly, with reference to STLDI, “You get what you pay for.”) Critics of these plans frequently note the potential adverse selection impact of the healthiest Americans gravitating to non-ACA compliant plans, noting that popularity of the STLDI plans had increased at least 27 percent since the new rules went into effect, but the Appeals Court majority gave those criticisms little weight. In the meantime, the various states have taken up the regulation of these plans: 11 states have outlawed STLDI plans outright, another 17 states (and D.C.) restrict them to shorter terms than the 36 months allowed by federal rules, while only 22 states operate fully under the federal guidance.

AHPs: Association health plans also existed well before the ACA became law, dating back to the 1990s. The regulations governing AHPs were restrictive prior to the last Administration’s two Executive Orders, but so-called “Pathway 2” AHPs promulgated by HHS in 2018, could be organized within associations formed exclusively for the purpose of offering that health insurance. Similar to STLDIs, AHP rules allow the plans to circumvent many ACA protections, including: minimum value and minimum essential coverage, the potential for re-introduction of gender-biased premium pricing, and requiring underwriting approval for applicants (effectively eliminating pre-existing condition protections).

Unlike the judicial action taken upholding the expansion of STLDIs, the expansion of AHPs hit a roadblock in March, 2019, when a US District Court Judge ruled that the HHS regulations expanding AHPs exceeded the agency’s authority and were a clear end-around to ACA affordability and quality requirements. The Court took particular exception to the idea that a minimum of two private business entrepreneurs, each with no additional employees, could get together to form an “association” for the purpose of offering themselves ACA non-compliant health insurance – calling such an interpretation of ERISA, “a magic trick.” The Trump Administration filed a notice it intended to appeal the Court’s ruling.

On January 28, 2021, the new Biden Administration published E.O.14009 (“Strengthening Medicaid and the ACA”), which rescinded both of the prior Administration’s executive orders aimed at blunting the ACA’s impact. It further requested that the Court which ruled on AHP expansions “hold in abeyance” its intention to appeal that decision, while HHS decided on its next move. It is not difficult to divine the intention of the new Administration when it comes to these attempted plan expansions and their impact on the ACA: the new HHS Secretary, Xavier Bacerra, memorably called STLDIs “junk insurance” in his previous role as California state Attorney General, and led the effort in that state to outlaw them.

Where to From Here, for the ACA?

Appointing a 100% pro-ACA HHS Secretary and reminding Americans on social media, as SCOTUS announced the decision in California v Texas, that the passage of that law was a “big [bleeping] deal,” only scratches the surface of the support that this President and his Administration has offered the ACA. Other actions have included:

  • Re-opening, as a result of The American Rescue Plan Act, a special enrollment period for individual exchange-based coverage, through August 15 of this year,
  • Substantial liberalization of the funding for that exchange coverage, resulting in lower price tags and higher premium tax credits, as well as eased tax penalty rules for individuals, at least through 2021. (Note that this action has had the “no-good-deed-goes-unpunished” impact of increasing the likelihood of 2021 ESRP penalty assessments for employers making errors in their coverage offers to new, part-time and variable-hour employees, and the employer reporting requirements (e.g., 1094-c/1095-c) have not been eased at the federal level AT ALL. See our recent blog explaining why this is so), and
  • An increased effort to advertise to the American people the availability of exchange coverage – something that the prior Administration de-emphasized.

One last point: it’s not all “beer and skittles” when it comes to SCOTUS’s support of the ACA. While they found that the plaintiff states lacked standing in this latest challenge to the law itself, resulting in a “0 and 3” record for such actions by ACA detractors, just days later they denied review to, and left standing, a series of lower court rulings in a case consolidated under the heading Maine Community Health Options, et. al. v US.

In these cases, the plaintiff health plans were attempting ro recover billions of dollars in cost-sharing reduction payments owed under the ACA to insurers for prior years of losses incurred, but which Congress simply ignored by failing to appropriate the funds. In 2020, SCOTUS held, 8-1, that Congress could not ignore its obligations to make such payments, and the case was sent back to federal court to determine the amount owed. The lower courts, in the latest round of litigation, found that the amount owed to the health plans could be reduced, even to $0.00, based on contract law principles. The health plans again appealed to the Supreme Court, which denied review last week. The result is expected to be higher premiums for 2021 plan renewals, but the full extent of the impact is not yet known.

Bob Greene currently serves as Senior HR Industry Analyst at Ascentis. Bob’s 40 years in the human capital management industry have been spent in practitioner, consultant and vendor/partner roles. As practitioner, he managed payroll for a 5,000-person bank in New Jersey. As consultant, he spent 8 years advising customers in HRMS, and payroll and benefits system design as well as acquisition strategies. Bob also built a strategic HCM advisory practice for Xcelicor (later acquired by Deloitte Consulting.)