WASHINGTON, DC—In the six weeks since the U.S. Supreme Court ruled on the constitutionality of the Patient Protection and Affordable Care Act (PPACA), controversy about many of the bill’s core provisions has hardly died down. Different industries have different stakes in the debate.
The hospitality industry, for example, depends on many low-level or entry-level employees to function effectively. For the past two years since the bill was signed into law, many hotel owners and operators have been hesitant about hiring new employees because they were concerned about the potential cost of the legislation.
Many owners and operators expected all or part of the Act to be declared invalid. Since the Court’s decision was announced on June 28, they and their legal counsel have looked much more closely at the most problematic components, weighing alternatives, parsing language, reading between the lines.
Still, owners and operators remain even more eager for clarification, especially considering that January 2014, the date many of the Act’s more complicated—and contentious—provisions are scheduled to take effect, is only 18 months away. John McGowan, Jr., a partner in the Cleveland office of Baker Hostetler—whose practice includes healthcare and who has been following healthcare reform—provided perspective as to where the industry currently stands.
In its ruling, the Court upheld the basic rules and architecture of the Act, McGowan began. “The justices certainly upheld the employer mandate and all the rules that pertain to what employers must do to comply with the Act. This includes, if you’re an employer of sufficient size, the requirement to offer coverage to full-time employees and their dependents or pay a penalty,” he explained.
The ruling just adds to the concern owners and operators are already feeling. “Because of the work we do in the hospitality industry, we’re aware that there are a lot of different business models, ranging from large national and international companies that own and operate their own hotels to straight franchise operations to joint ventures where operators partner with local investors,” McGowan said.
He focused on how the employer mandate in the Act applies. “If you have 50 or more full-time employees or full-time equivalents, you’re subject to the employer mandate, but you don’t pay a penalty for the first 30 full-time employees—you, in effect, get a free pass,” he noted.
But he can envision how a limited-service franchise operation might be able to completely avoid the employer mandate because the staffing level wouldn’t pass these thresholds. “Even if you’re nominally subject to the employer mandate, you may not have 30 or more full-time employees,” he said.
However, if the owner were operating a chain of hotels where the chain was centrally owned and operated, the owner would be subject to the employer mandate. “The burden can really turn on business structure,” he added.
McGowan further clarified the 30 and/or 50 full-time employee numbers. “If you have more than 50 full-time employees and full-time equivalents, it makes you nominally subject to this new requirement. But you do not have to offer the coverage to part-time employees at all, even if they add up to more than the equivalent of 50 full-time employees. You also do not have to offer coverage, if you have 30 or less full-time employees,” he said.
Seasonal employees, meanwhile, count towards whether an owner or operator is nominally subject to the employer mandate. “But again seasonal doesn’t necessarily mean you have to offer them coverage. So you can see there being some staffing challenges and opportunities here,” he noted.
The Court upheld the employer mandate, not because it was a mandate, which the Court ruled would have been unconstitutional, but as a low-level tax. “It ruled that Congress has the power to tax individuals and so long as Congress taxes them in a non-punitive way it has the Constitutional power to do so,” McGowan explained.
This also suggests that, down the line, Congress can’t necessarily increase the tax or increase it to punitive levels, if, in fact, Congress finds there’s massive non-compliance.
In its ruling, the Court also rejected the part of PPACA that required states to accept expanded Medicaid funding and expand the Medicaid rolls to cover more individuals such as the working poor or face the loss of all Medicaid funding. States can now decide whether to accept the additional Medicaid funding in exchange for expanding their rolls.
“This may well cause financially pressed states or, for that matter, states with a different philosophy than that manifested by Congress and PPACA, to decline Congress’ offer to take additional money and cover additional people,” McGowan noted.
“States that decline the offer may then find themselves with additional working poor whom everyone thought were going to be covered by Medicaid. Instead, those working poor will be out there looking for coverage, either from an employer or from an exchange or they will go uninsured,” he concluded.