What About the Employer Mandate? Companies Watching Supreme Court Case

Next week the U.S. Supreme Court will hear 6-1/2 hours of oral arguments concerning the challenges to the Patient Protection and Affordable Care Act (PPACA). This is the most time the high Court has devoted to oral arguments since the 1966 challenge to the Voting Rights Act. Virtually all attention has been on the central question – whether Congress exceeded its Constitutional authority by requiring virtually all Americans to obtain health coverage.  Yet, that is only one of four questions the Court will consider. The other three have received scant attention. And the answer to one of them could have far-ranging consequences for millions of Americans whose coverage is provided by their employers.

The threshold question is a procedural one: whether it is premature for the Court to even consider the case since the PPACA tax/penalty for not obtaining health coverage will not be imposed until 2015, when Americans who fail to obtain coverage in the previous year file their income tax returns. Another question invokes the Constitution’s “Spending Clause” to determine if the Federal funds available to pay for PPACA’s expansion of Medicaid impermissibly coerces – rather than just encourages – the States to comply with the Medicaid provisions. Unexpected decisions on either of these two questions are “wild cards” that could leave the viability of the law in doubt.

The question receiving greatest media scrutiny is whether the Constitution’s “Commerce Clause,” from which Congress derives authority to regulate interstate activity, allows the federal government to require Americans to purchase health coverage. In essence, is declining to obtain health insurance (even though one will still presumably obtain health services) “activity” or “inactivity?”

If – and only if – the Court finds the individual mandate unconstitutional, it must then decide what other parts of the 2,700 page law are invalidated. The standard the Court would then apply is whether another provision of the law could operate “as Congress intended” in the absence of the provision (i.e. the individual mandate) that has been invalidated.

All parties, including the Obama Administration, acknowledge that PPACA’s insurance reforms are inseparable from the individual mandate. That is, the provision prohibiting denial of coverage to someone with a pre-existing health condition can only function if healthy and sick people alike are required to purchase coverage. Otherwise, many people would simply wait until they got sick before buying coverage and the concept of insurance would collapse. Hence, the insurance reforms stand or fall according to the fate of the individual mandate itself.

The American Benefits Council is concerned the Court could fail to realize that many requirements of the law imposed on employers also cannot function as Congress intended in the absence of an individual mandate. Accordingly, without taking any position on the individual mandate’s Constitutionality, the Council filed a “friend of the court” brief to draw the justices’ attention to the inextricability of the mandate and employer’s responsibilities.

The interconnectedness of those duties is found in the structure of PPACA that describes them in one section of the law called – appropriately – “Shared Responsibilities.” Congress did not intend the financial burden for providing coverage to fall exclusively on either individuals or employers.

The financial penalties employers must pay if they do not sponsor a health plan, or provide one that is deemed inadequate, are intended to help defray the cost of subsidies for employees obtaining coverage through insurance exchanges. As our brief notes, if the individual mandate and corresponding insurance reforms are struck down, some people with pre-existing health conditions will not be eligible for coverage. Therefore, to require employers to finance their non-existent coverage through penalties is illogical. Similarly, various employer notice requirements – including telling employees about their opportunity to obtain health coverage through exchanges – would actually undermine PPACA’s central purpose of expanding coverage by leading some employees with pre-existing conditions to forego employer-sponsored coverage under the false belief they could obtain coverage in the insurance exchanges.

Employer perspectives on PPACA span the spectrum from support to grudging acceptance to strong opposition. Regardless, employers are diligently complying with the law and want certainty with respect to their legal obligations. If the Supreme Court strikes down the mandate and fails to address the corresponding employer responsibilities, confusion will reign. But if the Court invalidates the individual mandate and upholds the employer provisions, it will directly thwart PPACA’s purpose, by requiring the law to be implemented (to the extent that would even be possible) in a way that is wholly inconsistent with Congressional intent. The only logical outcome if the individual mandate is found unconstitutional, is to acknowledge that the employer provisions must also fall along with the mandate itself.

James A. Klein is president of the American Benefits Council, a broad-based nonprofit organization dedicated to protecting and fostering privately sponsored employee benefit plans. The Council’s approximately 350 members are primarily large U.S. employers that provide employee benefits to active and retired workers.