On Tuesday, U.S. District Judge Ronald White ruled that individual tax subsidies, a critical element of the Affordable Care Act, are unlawful. Despite continued litigation about incorrect wording in the original legislation, experts from across The University of Texas urge employers not to wait for the ACA to be repealed. The countdown to compliance is on, and the time to act is now.
This article was originally featured in Texas CEO Magazine.
Earlier this year, two U.S. federal appeals courts handed down contradictory rulings about the legality of subsidies paid in states that have not established their own insurance marketplaces (such as Texas). The news generated more than a few hyperbolic headlines that suggested the Affordable Care Act had finally met its inevitable demise.
But health policy experts at The University of Texas at Austin caution business leaders not to delay action based on these dire predictions. Instead, they say, it’s time to be proactive and come up with a plan — even if that plan is not to offer insurance to employees at all.
Here are five things to keep in mind about the ACA:
1. It’s Not Going Away
“Whether you like it or hate it, the ACA is not getting repealed anytime soon — certainly not before the next presidential administration,” says Assistant Professor Sam Richardson, a health economist from Harvard who now teaches at the LBJ School of Public Affairs at UT Austin. And by then, he says, the ACA will have planted its roots deeply enough into how health insurance is provided that repealing it will be very difficult.
Kristie Loescher, a senior lecturer with the McCombs School of Business, agrees. “There is no way that most of the early-implemented aspects of the Affordable Care Act will ever be repealed because they are hugely popular. One of the best examples is being able to cover your children until the age of 26, even if they aren’t in college,” she says.
And while ACA opponents have asked the Supreme Court to decide the state exchange and subsidy case early — prompting some to think the end is nigh for individual and employer mandates — many policy experts agree that the case is a bump in the road.
“The intent of the law was obviously that there would be exchanges to provide these subsidies, so I think it’s grasping at straws,” says Robert Ligon, UT faculty member with the Health Informatics and Health IT program.
2. It Has Glitches, and They Affect Employees
The ACA isn’t without problems, as evidenced by the recent appeals courts rulings. These drafting glitches, Richardson says, are common in legislation and generally get fixed later.
One drafting issue that’s causing trouble is the Family Glitch. When it comes to employer-provided coverage, affordability is calculated only by the cost for the individual employee, which can’t exceed 9.5 percent of a person’s income — a figure that doesn’t account for the cost of covering spouses and dependents.
If an employer offers dependent coverage — and large businesses are required to — but doesn’t offset the cost enough to make it affordable, the employee may have no recourse. She can purchase a plan for her family through the ACA marketplace, but she won’t qualify for subsidies because her own individual policy is affordable. And depending on her income level, her children might not qualify for Children’s Medicaid or CHIP.
The problem is a political one, explains Richardson. “Republicans aren’t willing to do anything with the law, and Democrats don’t want to open up a can of worms, so you wind up with a glitch that everyone agrees was not the intention of the people drafting the law, but it’s the way that the law was written. You have this problem that doesn’t get fixed.”
3. Texas Companies Aren’t All Alike
As with any big decision, choosing whether to “pay or play” requires that business leaders assess a host of variables specific to their own companies. Chief among them is evaluating which wage groups employees fall into, and it’s worth noting that Texas as a whole doesn’t mirror national averages.
According to a 2014 report by the Federal Reserve Bank of Dallas, Texas has experienced very strong job growth in all four wage quartiles (lowest, lower-middle, upper-middle, and highest) compared to the rest of the nation, by huge margins. (See graph for details.)
And while job growth has been strong across all wage groups in Texas, the state has had the largest gains in the top two highest wage-earning categories. Big growth in “good” (high-paying) jobs has also made Texas the top destination for transplants for the past seven years.
Experts say that, from a business perspective, it may make more sense for some companies employing mostly low-wage workers to opt to pay the fine, which could be less expensive than offering insurance. Low-income workers may qualify for substantial federal subsidies and could possibly get a better rate for themselves and their families through the ACA marketplace.
Conversely, companies that employ high-income workers might be better off providing insurance and taking any available tax subsidies.
4. It’s Time to Act
Starting in 2015, companies with 100 or more employees must decide whether to pay or play, and companies with 50-99 employees will have to report to the IRS if they intend to offer group coverage in 2016.
Business owners “need to understand what the impact of this law is on their employees and on themselves going forward. There are a lot of different ways they might or might not decide to do things in terms of employee compensation and benefits,” says David Warner, professor of health economics and finance at the LBJ School of Public Affairs.
Understanding the company’s employee demographics and how those might influence health care offerings is an important factor to consider, along with how to grapple with policy oversights, such as the Family Glitch, that could have negative consequences for employees.
While companies tend to look at the bottom line when evaluating health care options, Richardson does offer a warning if employers decline to offer coverage. “Then the big loser is the federal government that’s then footing the bill for the additional [individual] subsidies. From a policy perspective, it’s really scary.”
Whatever a company chooses to do, the time to act is now, asserts Loescher.
5. It’s Not Going Away
No, it’s not, but with proper planning there may be advantages for employers.
“The ability to provide health insurance is going to be a small business’s linchpin to accessing talent,” says Loescher.
Ligon agrees. “People are more productive and more loyal when they see that their employers are taking an interest in their health and wellbeing,” he says.
With the ACA, workers — especially entrepreneurs, young adults, and the self-employed — can make career decisions that aren’t dominated by the fear of not having insurance. And Loescher maintains that this gives smaller businesses, startups, and nonprofits better access to high-caliber employees.
Still, many companies are concerned about cost. Should they be?
“For the business that has 50 or more employees, in two more years, [the employer mandate] is going to add expense. Now, will that expense be without any value? No. It will add an expense, but it will, as a benefit, allow that company to attract and retain better talent. And there’s no way, no way, any company — I don’t care how big or small you are — can succeed without talent,” says Loescher.
Graph is used with permission from the Federal Reserve Bank of Dallas, Q1, 2014.
Photo credit: Keoni Cabral / Flickr Creative Commons
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