How the Obamacare Decision Could Impact Small Business Owners

Obamacare decision

There are always three June events that keep Americans entertained: The Stanley Cup series, the NBA championship playoffs, and the release of Supreme Court decisions.

This year the decision in King v. Burwell, with its potentially profound effect on the Affordable Care Act (Obamacare) is giving the NHL and NBA a run for their money in terms of capturing the attention of the media.

Simply put, if the administration loses this challenge, some 5 million Americans will lose the subsidies that underwrite a major portion of their health insurance costs. If it wins, those 5 million Americans won’t see any changes.

As written, the law provides subsidies for lower income individuals who sign up through state-run exchanges. Thirty-six states refused to create exchanges, so residents in those states signed up through the federal exchange. However, the language of the bill passed by Congress and signed by the president does not explicitly allow for subsidies to individuals who sign up for health insurance through the federal exchange.

The potential impacts for small businesses fall into three general categories:

  • The health insurance status of their employees if the court rules against the administration,
  • The guiding hourly employment regulations and penalties if the court rules against the administration, and
  • The new regulations if the court rules in favor of the administration.

It’s safe to assume that a fair share of small business workers used the federal exchange and received subsidies to get health insurance. It’s highly likely that most of them will drop their coverage if the court declares the subsidies illegal. This will put many small businesses in the position of deciding whether or not they should include health insurance as a benefit of employment.

However, there is another wrinkle to consider here. Obamacare declared employees to be full-time when they worked 30 hours or more, and businesses with more than 50 full-time employees are required to provide health insurance for those employees or face a stiff penalty. This is why we saw many employers reduce hours to less than 30 per week in the run-up to the law’s implementation

The interesting point is that the penalty is tied to the availability of subsidies. If the subsidies go away, so does the penalty and the motivation to keep employees at fewer than 30 hours. In other words, some employees may find themselves working more hours and earning more money than before Obamacare went into effect.

This point relates to what will happen to some small businesses if the administration’s argument carries the day. The “employer mandate” which requires businesses with 50 or more full-time employees to provide health insurance or suffer a steep penalty has been delayed several times. We’re now in the first year where it will be fully in effect.

So if the Supreme Court upholds this provision of Obamacare, this will be the first year that some small businesses will be facing the penalty.

(By the way, the federal government runs a Small Business Health Options Program (SHOP) exchange to help small businesses get coverage. However, aside from Congressional staffers, so few people used the exchange that it is fairly inconsequential to this discussion.)

In terms of overall policy going forward, it’s impossible to know exactly what will happen if the court strikes down this major provision in the law. Congress may decide to pass a stopgap measure (possible). Congress could amend the law to eliminate the offending language permanently (very unlikely). The administration may try to put some kind of “work around” in place (possible). Some of the 36 states could establish their own exchanges (not too likely). The most impactful elements of Obamacare might just go away (I have no idea how to handicap this one; it depends on all the other possible outcomes).

But one thing is crystal clear: no matter which way the court votes on this issue, we know the media will devote a lot of time covering both the jubilation and indignation in the days afterward. We just don’t know which side will be jubilant and which will be indignant.

If you want to dive even more deeply into the speculation, here are some resources for you:

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