Last week the Supreme Court ruled that all qualifying Americans are entitled to receive subsidies to purchase health insurance under the Affordable Care Act, regardless of where in the country they live. The decision leaves the status quo in place but nonetheless raises considerations for investors and business owners:
- As interpreted by the Administration, the ACA requires small business owners with more than fifty employees to provide health coverage to their employees beginning in 2016.
- There remains a concern about inadequate ACA enrollment, particularly by middle- and higher-income Americans. If enrollment continues to lag, it could lead to significant premium increases, as the insurance pool will not have sufficient “good” risks to balance out the less favorable ones.
- Speaker Boehner’s legal action against President Obama remains outstanding. Boehner’s suit objects to the Administration’s unilateral decisions to delay the employer mandate and to reimburse insurance carriers for losses incurred from insuring high-risk people. A Boehner victory (which most legal experts consider a long shot) could end the carrier subsidies, which likely would prompt carriers to increase premiums or cut coverage to recoup the lost revenue.
- The decision avoids a decline in health care stock values. Many companies – particularly for-profit hospitals – benefit from the greater insurance coverage provided by the ACA. However, premium increases discussed above could cause the feared “death spiral”, in which higher premiums leads to fewer healthy enrollees, which leads to higher premiums, etc. That consequence could hurt health care stock values down the road.
- The decision eliminates any realistic possibility of repeal of the 3.8% surtax on investment income for higher-income taxpayers. Revenue from that tax is used to pay for the bulk of the insurance subsidies that the Court upheld. There is no realistic prospect of a reduction in tax rates in sight.
Andrew H. Friedman is the principal of The Washington Update LLC and a former senior partner in a Washington, D.C. law firm. He speaks regularly on legislative and regulatory developments and trends affecting investment, insurance, and retirement products. He may be reached at www.TheWashingtonUpdate.com.
Neither the author of this paper, nor any law firm with which the author may be associated, is providing legal or tax advice as to the matters discussed herein. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. It is not intended as legal or tax advice and individuals may not rely upon it (including for purposes of avoiding tax penalties imposed by the IRS or state and local tax authorities). Individuals should consult their own legal and tax counsel as to matters discussed herein and before entering into any estate planning, trust, investment, retirement, or insurance arrangement.
Copyright Andrew H. Friedman 2015. Reprinted by permission. All rights reserved.