King v. Burwell, Cadillac Tax, Wellness Will Be Central in 2015, Practitioners Say

Bloomberg Law for HR Professionals is a complete, one-stop resource, continuously updated, providing HR professionals with fast answers to a wide range of domestic and international human resources...

By Kristen Ricaurte Knebel

Jan. 15 — The year employers have been dreading has finally arrived, but they will have more on their minds than implementing and complying with the Affordable Care Act's employer mandate, practitioners told Bloomberg BNA.

Just like in the early years after enactment of the ACA, employers face some uncertainty while courts tackle legal issues surrounding the health-care law. In the coming year, the U.S. Supreme Court's anticipated decision in King v. Burwell could play a major role in the health-care landscape for employers, practitioners said in interviews conducted in late December.

In that case, the Supreme Court will decide whether the ACA permits people to obtain federal subsidies to buy insurance if they don't live in states that run their own markets selling coverage.

In addition, employers are anxiously awaiting guidance on the 40 percent excise tax on high-cost health plans, known as the “Cadillac tax,” that is set to begin in 2018.

Practitioners said wellness programs also are likely to be a contentious issue in 2015, especially in the wake of the Equal Employment Opportunity Commission suing Honeywell International Inc. in October over its biometric testing requirements.

King v. Burwell

The legal dispute before the court centers on a four-word statutory phrase. The law says people qualify for tax credits when they purchase insurance on an online marketplace “established by the state.” At least 34 states have never established their own markets, and the question is whether people can collect the subsidies even if they buy policies on the federal exchange.

Hanging in the balance is more than just health insurance subsidies for individuals in states with federally run exchanges. If the court is to rule that individuals in those states aren't able to receive subsidies, it would take a chunk out of the ACA that would affect individuals and employers alike, William F. Sweetnam Jr., a principal at Groom Law Group Chartered in Washington, told Bloomberg BNA Dec. 22.

If the court finds that the Internal Revenue Service's position isn't supported by the statute, it throws “a big hand grenade into all of this stuff because it not only affects the subsidies, but it also affects the individual mandate,” as well as the employer mandate, Sweetnam said.

“As an employer, it’s something that I probably need to be following, particularly if I’m an employer in a state that has a federally run exchange,” Sweetnam said.

Vanessa A. Scott, a partner at Sutherland Asbill & Brennan LLP in Washington, agreed that the decision could have a huge impact on employers, saying Dec. 22 that nixing subsidies in those states would mean employers wouldn't get hit with a penalty under tax code Section 4980H(b) if they fail to provide affordable, minimum essential coverage to at least 95 percent of their full-time employees.

“That could be a very big deal,” Scott said. “This is one of those ACA cases, a lot like NFIB v. Sebelius, it’s going to be a really big deal for employers and they really need to be paying attention.”

Amy N. Moore, senior counsel at Covington & Burling LLP in Washington, said a ruling against the Obama administration would be a big blow to the ACA.

“If the Supreme Court strikes down the premium tax credit, basically says it is not available for federally facilitated exchanges, it will pull the rug out from under the Affordable Care Act,” Moore said Dec. 22. “Either somebody will have to solve the problem legislatively, or it’s hard to see how the act will continue to function.”

Congressional Fix?

Sweetnam said there will be a big push on both sides of Congress to figure out what the next move will be, depending on how the court rules.

“I’m not sure at this particular point in time the Republicans actually know how they would want to address this, but I think it’s something that they’re going to have to look at,” he said.

If the court were to rule against allowing subsidies to individuals in states with federal exchanges, it opens up a possibility for Congress to address this issue, Gretchen K. Young, senior vice president of health policy at the ERISA Industry Committee, said Dec. 19.

“You could just change a couple of words in the statute and you could fix the problem, but to do that of course you’d want something in return,” she said.

A ruling against the Obama administration would have the potential to bring everyone to the negotiating table, according to Kathryn Spangler, senior vice president for health policy at the American Benefits Council.

“I think the president would want to work with Congress to sign something,” Spangler said Dec. 23. “I imagine that the president is going to push for a fix legislatively and then I would think that the Republicans would want to use that for leverage or a bargaining chip to say, we’ll fix this, provided we get some serious changes to the law.”

Potential proposals could include repealing the employer mandate, the medical device tax or changing the individual mandate in some way, she said.

Sooner or Later

As for why the court took on the case now, rather than wait for discord in the lower courts, Sweetnam said, “they knew that it was going to come to them at some point, so they might as well address it sooner rather than later. It is a big deal.”

Moore agreed and said the longer the court waits to hear the case, the harder it will be to go back and unwind the ACA.

“It’s an important issue and if the court sits back and lets it make its way through the lower federal courts for another couple of years, you’ve got a situation where the outcome of the case, especially if the courts decide the tax credit is not available, is just going to be that much harder to absorb,” she said. “So I do think the court is right that it’s an issue that needs to be resolved and needs to be resolved sooner rather than later.”

Young said the court took the case now because it wants to overturn the law.

“Otherwise they would have waited for the split to develop,” she said. “The reason you want to overturn it earlier rather than later is the longer you wait, the more embedded the ACA is. The more people have coverage, the more people are taking subsidies and are happy about that.”

Looming Cadillac Tax

Even though it is three years from kicking in, the 40 percent excise tax on high-cost health plans has been the elephant in the room for employers for quite a while now. While no guidance has been issued on the tax, 2015 is a big year, particularly for collectively bargained plans that are embroiled in contract renegotiations.

The excise tax, often referred to as the “Cadillac” tax, is an ACA provision aimed at businesses with generous health benefits. Employers with coverage exceeding $10,200 for individuals and $27,500 for families will be taxed 40 percent starting in 2018, on the theory that the plans boost medical costs.

Scott said 2015 is the year that employers negotiating three-year collective bargaining agreements are “going to start needing to think about how they’re going to approach” the tax.

A large portion of health plans covering union-represented employees will be affected by the tax “and the unions don’t really know what the rules are, so they are finding it difficult to negotiate around the subject,” Moore said.

Those employers and unions would like to take the tax into account in their bargaining, but with no guidance to speak of, “at this point everyone’s hands are tied. Nobody knows how to deal with this tax in collective bargaining negotiations,” Moore said.

Obsession With Tax

Outside of union plans, Young said employers are “obsessed with the Cadillac tax and the impact of the tax, absolutely obsessed.”

Spangler said the ABC is “very concerned about the tax and its implications for employer-sponsored coverage. Many have already started making changes to their plans to set a glide path to avoid the tax in 2018.”

In October, Stephen B. Tackney, a deputy division counsel/associate chief counsel with the IRS, said the agency was developing guidance on the excise tax, but the agency may initially ask for feedback more than it provides answers for those anxiously awaiting enlightenment on how the tax will play out.

Young hopes to see guidance on the tax this year because “a lot of very, very basic, fundamental questions aren’t answered in the statute.”

Moore said she hopes to see some guidance on the tax in 2015, but she thinks “the regulatory agencies are finding this a very difficult statute to interpret.”

Alden J. Bianchi, a member at Mintz, Levin, Cohn, Ferris, Glovsky & Popeo PC in Boston, had a different take on whether employers would see guidance on the Cadillac tax this year, saying Dec. 19 with it being three years out, “I suspect that they will not look at that as mission critical this year.”

Other ACA Changes 

Although no one thinks the ACA will come to an untimely end in 2015 at the hands of a Republican-controlled Congress, there may be some attempts at changing the law.

“I think you’re going to see them try to address other changes to the Affordable Care Act. One that I think will be an easy one to get through is the repeal of the medical device tax,” Sweetnam said.

Another issue Congress could look at is defined contribution health plans, something that Treasury and the IRS have made clear is verboten in Notice 2013–54.

Young said there are smaller ACA-related issues that could make their way through Congress, but nothing that would get signed by President Barack Obama.

“There are lesser things you can do for the Affordable Care Act. I don’t think that they could get a bill through to the president that would take away the employer mandate or take away the Cadillac tax, but I still might think there are important measures of some less momentous consequence,” including changing the definition of full-time employee from 30 hours per week to 40, she said.

On Jan. 6, the White House pledged to veto House legislation (H.R. 30) that would increase the threshold for full-time employment under the ACA from 30 hours to 40 hours per week.

Wellness Programs

Another issue that could come to the forefront this year is wellness programs. The EEOC raised eyebrows when it sued Honeywell in October over its wellness program and many would like to see a resolution to the issue in 2015.

“The EEOC really doesn’t seem to be on the same page as the rest of the administration. You’ve got the administration encouraging wellness programs. And the EEOC, which is an independent agency, it has both democrats and republicans on the commission, really has taken a number of steps that seem unnecessarily hostile to wellness programs,” Moore said.

After the legal action in October, employers are hesitant to develop wellness programs, because it isn't clear what they can and can't do, Moore said.

Many wellness programs incentivize employees to provide health information in order to improve their health, but no one is required to give that information, Moore said.

“Employers would like to give employees incentives to provide the information. It isn’t clear to what extent those incentives are compatible with the EEOC’s interpretation of the Americans with Disabilities Act and the Genetic Information Nondiscrimination Act,” she said.

Young also suggested that wellness programs might “make more than a cameo appearance in 2015,” with a possibility that Congress could try to tackle the issue.

To contact the reporter on this story: Kristen Ricaurte Knebel in Washington at

To contact the editor responsible for this story: Jo-el J. Meyer at


Request Bloomberg Law for HR Professionals