Waiting on the future: The Supreme Court and health care
The Supreme Court’s decision on the Patient Protection and Affordable Care Act (ACA) is expected any day now. While politicians, pundits and academics offer the full spectrum of opinions about the ACA, employers are left to plan for an uncertain future. No one can say for sure how the Court will rule, but we can anticipate how various rulings will likely affect Colorado businesses.
The Court’s Options
The Supreme Court has a number of options in ruling on the ACA. It can:
• uphold the ACA as passed;
• invalidate portions of the law; or
• determine that the invalidated portions are so central to the functioning of the law that, without them, the ACA cannot survive and invalidate the entire law.
There are three primary issues before the Court:
1) Is the ACA’s mandate that individuals obtain insurance or pay a monetary penalty constitutional? This is the so-called “individual mandate” and is both the most controversial provision of the ACA and the most likely to be invalidated. The individual mandate was included in health care reform efforts to offset the costs of two other provisions that prohibit insurers from denying coverage or charging higher premiums to those with pre-existing conditions (the so-called guaranteed issue and community rating provisions). If the Court invalidates the individual mandate, it may also strike the guaranteed issue and community rating provisions because of their enormous costs.
2) If the Court decides that the mandate is not constitutional, is the individual mandate provision severable from the rest of the law? If the Court determines it cannot be severed, the entire law will be invalidated.
3) Separate and apart from the mandate issue, is the ACA’s Medicaid expansion constitutional? The ACA expands Medicaid eligibility to almost all non-disabled elderly adults up to 133 percent of the federal poverty guidelines (income of $14,856 for an individual, or $30,656 for a family of four). Once again, if the Court determines that the Medicaid expansion provision cannot be severed from the ACA, it will invalidate the law in its entirety. Since the expansion of Medicaid has less impact on employed individuals, this article focuses on the likely consequences of the Court either striking down the entire law, or striking only the individual mandate.
What It Means
If the Supreme Court votes to uphold the ACA in its entirety, states, employers, providers and insurers can continue to implement plans that began when the law passed in 2010. The individual mandate will take effect in 2014, unless Congress acts to repeal or postpone it. The ACA creates “health benefit exchanges” to allow individuals, families and employers to purchase health care coverage. Colorado, one of 14 states that passed legislation authorizing the creation of online exchanges starting in 2014, is actively engaged in implementing health care reform.
A decision invalidating the entire ACA would be the most disruptive to employers because many provisions of the ACA are already in effect. For example, the provisions of the ACA that provide small business health care tax credits, prohibit lifetime limits on coverage, restrict annual coverage limits and mandate coverage for preventative health services have been incorporated into benefit plans. These provisions are typically favored by employees, but are expensive for employers. To maintain these benefits, employers may have little alternative but to consider shifting a greater portion of the financial burden onto employees than the ACA would have allowed, or face unwinding them from their current plans. Either choice presents enormous challenges to employee relations and the administration of health care plans. And, since the Employee Retirement Income Security Act (ERISA) mandates that employers provide 60-day notice of any reductions in benefits or modifications of plan terms, employers will have to address changes to their plans in short order.
A decision invalidating only the individual mandate would be less disruptive for employers. However, removing healthy young individuals from insurance pools will likely result in fewer people being covered and an increase in premiums, especially if coverage for pre-existing conditions is left intact. The Congressional Budget Office has estimated that 16 million more people will be uninsured without the mandate, with increases in insurance premiums of 15 to 20 percent in the non-group individual market. The increase to group premiums is harder to anticipate. Regardless, employers will need to re-evaluate the cost of their health plans, as well as plan terms, if the Court strikes the mandate.
No matter how the Court decides, some provisions of the ACA that have already been enacted are likely to remain in effect. For instance, the provision allowing children to stay on their parents’ plans until age 26 led 6.6 million young adults to join plans in 2011. Because the inclusion of young healthy individuals helps insurers offset costs, both insurers and employers favor maintaining the provision. Last week, United Group Inc., Aetna Inc. and Humana Inc. announced that they will voluntarily keep some of the ACA’s popular provisions, including allowing children to stay on their parents’ plans until age 26. The insurers also indicated that they would voluntarily keep simplified independent reviews of appeals of coverage denials mandated by the ACA regardless of how the Court rules.
The Road Ahead
The future of health care reform is in flux. Employers should be alert for the decision from the Supreme Court on the constitutionality of the law and whether any of its provisions, or the law itself, are invalidated. Once the Court issues its decision, it is possible that Congress or state and federal regulatory agencies will act to expand health insurance coverage. And, of course, no matter how the Supreme Court decides, the 2012 elections could be another game changer.