Employers Need ‘Immediate’ Guidance Following PPACA Ruling

June 20, 2012 (PLANSPONSOR.com) - Depending on the U.S. Supreme Court’s ruling on the constitutional challenges to the Patient Protection and Affordable Care Act (PPACA), numerous issues could arise for employer-sponsored health coverage.

Employers will need “immediate guidance” following the court’s decision, said Jim Klein, president of the American Benefits Council, during a conference call. The Supreme Court’s decision could affect several important provisions that employers have already implemented in response to detailed regulations and guidance over more than two years since the law was enacted.

The court could take several directions regarding the constitutionality of the individual mandate provision: uphold the individual mandate as constitutional; rule that only the individual mandate is unconstitutional and is “severed” from the rest of the law; rule that the individual mandate is unconstitutional and certain insurance reforms are also invalidated and “severed” from the law; or rule that the individual mandate is unconstitutional and the entire law is invalidated.

If Individual Mandate Is Constitutional… 

If the court decides the individual mandate is constitutional, employers will be concerned about guidance from regulatory agencies about key elements of the law—particularly those that go into effect in January 2014—and they will have to “look forward very squarely about their obligations,” said Paul Dennett, senior vice president of health care reform at American Benefits Council.

Employers will need guidance about things such as what defines a full-time employee, as well as guidance about the “employer responsibility” provisions, which triggers a penalty for companies with 50 or more employees if a full-time employee obtains subsidized coverage either because the employer did not offer it or because the coverage the employer offered was too expensive or did not meet a test for “minimum value” established by the law.

If Only Individual Mandate Is Unconstitutional… 

If only the individual mandate is found unconstitutional and the rest of the law remains, the lack of the individual mandate could lead to instability in the individual insurance market, the American Benefits Council said.

In addition, it could affect early retirees or part-time workers not covered under an employer-based health plan because options would be limited and more expensive.

If Individual Mandate Is Unconstitutional and Insurance Reforms ‘Severed’… 

Under this approach, only the individual mandate and provisions dependent upon that mandate would be struck down. This decision could also have important implications for employers similar to the second option, the Council said.

For instance, it could make it difficult for early retirees or part-time workers to find coverage. In addition, it could bring uncertainty for the future of the health insurance exchanges unless states put workable insurance reforms in place to substitute what the court threw out.

If Entire Law Is Invalidated… 

If the individual mandate is found unconstitutional and the entire law is invalidated, it could raise immediate questions for employers, especially because of provisions that were already implemented since PPACA was signed into law on March 23, 2010, according to the Council.

Employers would immediately need clarity from the Internal Revenue Service and the U.S. Department of Treasury, Dennett said. Employers and health insurers who indicated they would continue to offer coverage to children up to age 26 at least until the end of the current plan year would need to know if this coverage would suddenly be considered taxable income to an employee or require employers to classify this as “wages” for payroll tax purposes.

“It needs to be abundantly clear from the government’s perspective,” Klein said, adding that employees and employers should not be penalized for dutifully following the law prior.

The Supreme Court is expected to rule on the constitutionality of the individual mandate before the end of the month.