Law & Courts

Schools Weigh Impact of New Challenge to Health Law

By Sean Cavanagh — December 17, 2014 | Corrected: February 21, 2019 8 min read
The future of the Affordable Care Act once again rests with the U.S. Supreme Court, and whatever decision the justices render could have a substantial impact on school districts and their employees.
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Corrected: This story has been updated with the corrected name of the East Porter County school system in Kouts, Ind.

The future of the Affordable Care Act, the sweeping and still-debated law meant to provide health care to millions of uninsured Americans, once again rests with the U.S. Supreme Court, and whatever decision the justices render could have a substantial impact on school districts and their employees.

The high court recently agreed to hear a challenge brought by plaintiffs who argue that the Obama administration is improperly allowing subsidies in a majority of states to flow to individuals participating in a federal health-insurance exchange. They contend the administration has gone beyond the authority granted in the law by awarding the subsidies to help those individuals—who could include workers in K-12 districts—pay for insurance.

A separate legal challenge pending before a federal court in Indiana, meanwhile, bears some similarities to the Supreme Court case but is more directly focused on the obligations of school districts.

That case was brought by the state’s Republican attorney general and a group of school districts, which are not only challenging the subsidies but also the law’s provision requiring employers of a certain size, including districts, to provide health insurance.

The potential impact on school districts of a ruling in the Supreme Court case will depend on the scope of the justices’ decision and its effect on the subsidies flowing to school employees in different states.

But the potential ramifications of such a ruling for the country and for schools could be “enormous in those states where it applies,” said Linda J. Blumberg, an economist and senior fellow at the Urban Institute, a nonpartisan think tank in Washington. “You have the potential to completely undermine the law in those states.”

Debate Over Language

The health-care law, by now broadly known as Obamacare, narrowly survived a challenge before the high court two years ago, when a group of plaintiffs asked the justices to declare it unconstitutional. The court narrowly upheld the overall statute, ruling that the provisions in the law were a legal exercise of Congress’ taxing authority.

Congress, then under Democratic control in both houses, approved the health care law in 2010 after fractious partisan debate.

The new challenge, King v. Burwell, hinges mainly on a single bit of language in the massive law.

The health-care law currently gives consumers access to subsidized health insurance through exchanges established by their states, or those facilitated by the federal government, in states that don’t have their own.

More than two-thirds of the states chose not to set up their own exchanges, a decision driven mostly by Republican state officials’ opposition to the law. Uninsured residents of those states have instead been able to turn to federal exchanges. The Internal Revenue Service has said that individuals in those states can receive subsidies through a federal exchange.

The plaintiffs in the King case, however, contend that the language of the Affordable Care Act doesn’t allow individuals in states that didn’t establish their own exchanges to receive health-care subsidies through the federal program. They point to wording that grants subsidies for insurance purchased on exchanges “established by the state.”

If that argument holds up, the plaintiffs say it means that no subsidies for individuals in those states should be allowed through an exchange established by the federal government.

Support Staff Affected

Backers of the Affordable Care Act see the challenge as absurd, describing it as a politically motivated effort focused on what amounts to a “drafting error” in the law. They say Congress clearly intended for users of the federal exchange to receive subsidies. The law’s intent was to give the uninsured access to affordable insurance, supporters of the health care act say, and subsidies—whether provided through a state or federal exchange—are essential to accomplishing that goal.

For school districts, and other employers, the health-care law mandates that if they have at least 50 workers, they must provide health insurance to full-time employees, meaning those who work an average of at least 30 hours a week, or pay fines—a provision known as the “employer mandate.” (Earlier this year, employers were given additional leeway in complying with the law, when the Obama administration delayed enforcement of the mandate until 2016.)

If the high court rules that individuals in states without their own exchanges aren’t eligible for federal subsidies, school employees who rely on Obamacare for insurance in many states would potentially lose those benefits, said Susan Relland, the CEO of American Fidelity Administrative Services in Oklahoma City, who consults with districts on how to comply with the law.

In K-12 systems, the workers most likely to be affected by a loss of federal subsidies would be support-staff members who are considered part-time employees even though many of them work relatively long hours, Ms. Relland said.

Other employees, such as teachers and administrators, whose coverage is provided by districts would not be affected.

Yet predicting the impact of a loss of subsidies on the country’s overall school workforce is difficult. One recent analysis co-written by Ms. Blumberg estimates that more than 7 million Americans are expected to rely on federal subsidies and could have their coverage disrupted if the Supreme Court rules in favor of the King plaintiffs. But those figures don’t include a breakout of school employees.

Other factors cloud the potential impact of a court ruling on schools. If the subsidies are deemed illegal, it’s likely that the impact for school employees and others would vary from state to state.

In states with their own exchanges, such as California, the subsidies for school employees and others presumably would stay in place, Ms. Relland said. But in the two-thirds of states without exchanges, the subsidies would likely end, unless those states took some step to keep those workers eligible for that insurance—no sure thing in states where political opposition to the federal law is running high.

Another complicating factor: If the Supreme Court strikes down the subsidies, some school employees would be likely to continue to seek coverage through federal exchanges, even without the subsidies, Ms. Relland said. Individuals with certain illnesses or conditions who couldn’t get covered before adoption of the federal law would be the most likely candidates to do so, she said.

The court is expected to make a decision on the case by the end of its current term, in June.

Ind. Districts Weigh Costs

The Indiana lawsuit, Indiana v. Internal Revenue Service, brought by the state’s elected Republican attorney general, Greg Zoeller, and a group of school systems in the state, also challenges the federal subsidies. But it makes an additional, related argument that because those individuals don’t quality for subsidies, employers—including school districts—in states without exchanges cannot be penalized for not offering full-time workers health insurance.

Superintendent Rod Gardin, of the East Porter County, Ind., school district, one of the school systems challenging the federal law, hopes the case will end up freeing his 2,400-student system from new financial obligations it faces under the law.

Initially, the district estimated it had 70 employees working enough hours each week that the system would be required to offer them health insurance. The estimated cost of insuring them would have been $260,000 a year for the East Porter County district, in Kouts, Ind., which has an annual budget of about $22 million, Mr. Gardin said—or it could have paid even higher fines to the federal government, had the district chosen not to cover those employees.

The district ended up cutting the hours of 45 of those employees—who include custodians, kitchen workers, and classroom aides—to move them below the 30-hour threshold for qualifying for insurance. That leaves 27 employees who are slated to receive new coverage in 2016—reducing the cost to $100,000 a year, Mr. Gardin estimates.

Careful Estimations

Yet calculating the school system’s pricetag also requires some guesswork. The district does not know, for instance, how many of those workers might choose to obtain coverage through a spouse’s insurance plan.

Even so, unless local voters approve a tax increase to cover the costs, which Mr. Gardin views as unlikely, “we have no way of raising the money” to cover the insurance costs, he said.

Jim Hamilton, a lawyer representing the Indiana districts, said because the Supreme Court case is focused on subsidies, it’s hard to know whether the justices will bore in on employers’ obligations, too. But he believes that if the court invalidates the subsidies, then the employer penalties affecting districts and others “should fall as well.”

Yet because the King case is directly focused on subsidies, not the employer mandate, it’s hard to know whether the high court will, in fact, address employers’ obligations, Mr. Hamilton added.

The Indiana case, which is now pending before the U.S. District Court in Indianapolis, also challenges the Affordable Care Act on other grounds that the King case does not: It says the law violates the 10th Amendment to the U.S. Constitution by imposing a tax on states that refuse to follow federal policy.

Regardless of the outcome, Ms. Relland says she has one unequivocal piece of advice to districts, as challenges to the federal law wind through the courts: Stay the course. Districts should plan on adhering to the employer mandate, she said, rather than assuming it will go away and trying to catch up to compliance later.

“Filing a lawsuit is not the same as invalidating a law,” she said.

A version of this article appeared in the January 07, 2015 edition of Education Week as Schools Weigh Impact of New Challenge to Health Law

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