Supreme Court’s Affordable Care Act Decision and Small Businesses

The United States Supreme Court’s recent decision in King v. Burwell clears up a final lingering question surrounding the Affordable Care Act. Issued June 25, 2015, the decision upheld the tax credits that are intended to make health insurance affordable for millions of Americans. The credits are available to those whose employers do not provide insurance and who do not qualify for a government program such as Social Security. People in that situation are expected to purchase insurance through a state or federal insurance exchange.

The Significance of the Case

The Court’s decision ends speculation as to whether the tax credits would be available for people in all states. The Act’s framework called for states to establish insurance exchanges through which people could buy insurance. This option is necessary because the Act also imposes a tax consequence for those who do not ultimately have health insurance coverage.

Language in the law stated that the credits were for people who bought through a state exchange. It also required the establishment of a federal exchange for citizens of states that do not set up their own. In the case, King argued that if a state did not establish an exchange, no credits were available. The Court found that the credits applied to those who obtained insurance through either a state or federal exchange.

The Significance for Businesses

The Act exempts businesses with fewer than 50 employees from the requirement to provide health insurance. Employers of 50 or more workers are required to provide insurance or pay a penalty to the government. In addition, if any employee of a large employer could not afford the insurance offered and found it necessary to buy insurance through an exchange, the employer would have to pay the penalty. The uncertainty of the tax credit had businesses hedging their bets on how to structure their insurance plans and, for small employers, whether to offer insurance at all.

If the credits had not been available in the 34 states with no state exchange, then small employers may have felt a stronger urge to offer insurance to employees. If they would have offered a plan, it would have been required to meet the federal coverage standards and would have imposed substantial reporting requirements. Larger employers, while still required to offer a plan, would not have had to worry about the penalties if any of their employees opted to buy less expensive insurance through the federal exchange.

The King ruling was effectively the last challenge to the continued viability of the Affordable Care Act. The lack of tax credits in 34 states would have undercut the entire scheme of the law. Employers who were delaying decisions on their insurance benefit plans until the Court ruled now know what to do.

Creative Business Lawyers are trained to unravel complex legal regulations that affect your business. The Affordable Care Act is just one example of a significant new requirement that complicates the operation of a business. We can help you evaluate the landscape and decide how you should proceed with complicated regulatory requirements. Make an appointment today to discuss any questions you have, or schedule a LIFT Start-Up Session, which includes employment structuring, financial, and tax systems you need for your business.