Despite wild day in courts, Obamacare subsidies remain intact

Yesterday, two courts issued two diametrically opposed rulings. The DC Circuit Court of Appeals ruled that people cannot receive a government subsidy if they live in one of the 36 states served by the Federal exchange. By contrast, the Fourth Circuit Court of Appeals upheld the IRS’s authority allowing subsidies in all states. Although the former ruling is being touted as the latest blow to the President’s signature law, it is likely just a political diversion that will have very little effect in the big picture.

Access to Federal subsidies, also known as premium tax credits, is what puts the “affordable” in the Affordable Care Act. These subsidies reduce the cost of insurance premiums for individuals and families making up to 400% of the federal poverty level (FPL).

As many as 4.5 million people who enrolled in individual coverage through the new state and federal marketplaces since January 1st, have done so with federal subsidy support.

Due to the large political divide surrounding the health law, it’s no surprise that there have been many lawsuits on this topic, and today’s opposing rulings were made on party lines. Early analysis by legal experts have determined that because there is disagreement by different courts, this may be a case that the Supreme Court decides to take up, but not before an appeal to the full DC Circuit Court of Appeals takes place. That appeal will be an “en banc review”, meaning all 11 judges will participate, with a majority being Democratically appointed judges.

This full court appeal will likely occur in 2015, and the losing side would be expected to appeal to the Supreme Court. If SCOTUS does hear the case, a final ruling would be expected in the summer of 2016. By then, it is projected that over 7 million Americans will be buying health insurance with tax credits.

As the Affordable Care Act continues to roll out and take shape, there will continue to be delays, changes, IRS rulings, and legal challenges. When the dust settles (maybe not until mid 2016), leading experts agree that subsidies will remain intact. In the short term, subsidies remain available, and industry groups such as AHIP and NAHU are encouraging business as usual. In addition, these groups argue that currently active subsidies will likely remain in tact, and consumers should not be concerned of any subsidies being “recouped.”

At this point, employers continue to need qualified guidance to evaluate all of their options, traditional and emerging. As such, brokers need tools that help employers contemplate the impact of these options on the physical and financial health of their employees. The individual marketplace will remain as a realistic emerging option in these discussions, and advisors should not shy away from these opportunities due to the politics in play.

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