BHCG Monitor: Focus on Health Care Benefits - April 2012

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BHCG Monitor: Focus on Health Care Benefits - April 2012


Health Care Reform Update – Uncertainties Abound

Despite employers and insurers' need to map out a strategy regarding their plans to meet the statutory deadlines of the 2010 Patient Protection and Affordable Care Act (PPACA), uncertainties about the law abound. Looming on the immediate horizon are the upcoming U.S. Supreme Court's ruling on the PPACA's constitutionality and the November general election – each with the potential to significantly impact the fate of the law and employers' best laid plans.

Since the law was passed two years ago, employers have been amending their plans to include the provisions of the law that went into effect last year such as the elimination of lifetime dollar coverage limits and extending coverage to employees' children up to age 26. At the same time, employers have been forced to consider their options regarding changes that take effect later such as the "pay or play" mandate as well as the excise tax for costly plans. How the Supreme Court rules will certainly influence the issues facing both employers and legislators.


Legal issues before the Supreme Court

There is no denying that the constitutional challenge to the health care reform law is one of the most important cases the U.S. Supreme Court has heard in decades. The case is so significant that the Court devoted an unprecedented amount of time to hear the issues – and even postponed other cases to clear the justices' calendars so they may get started on their health care reform opinions in anticipation of the ruling expected by late June or early July. Beginning on March 26, the Court heard arguments regarding four key legal issues (outlined below) that challenge the PPACA over three days.

Let's take a look at the basic elements of the four legal issues before the Court:

1. Individual mandate

One of the issues the Court will deal with directly is whether the law's provision requiring individuals to enroll in a qualified health care plan or pay a financial penalty (the individual mandate) is unconstitutional. Opponents of the clause see it as government intrusion into personal lives that could ultimately result in other mandated purchases. Those that support the law maintain that this issue is different because everyone in America will need health care at some point in their lives – it's not a question of 'if,' but 'when.' They argue if people wait to purchase coverage until later in life when health care costs are highest, it places an unsustainable financial burden on the system. Supporters also claim the Constitution allows the federal government to regulate commerce across states. Accordingly, they believe that because the health care crisis creates cost-shifting that affects interstate commerce, it is within the federal government's power to address the problem in this manner.

2. Severability

If the Court strikes down the individual mandate, they will then need to determine if the mandate can be severed from the rest of the law or if the entire law needs to be struck down as unconstitutional. The government argues that the loss of the mandate would only eliminate the prohibition on pre-existing conditions and community rating (which bars insurers from using medical history to charge higher premiums) and the rest of the law would be upheld. Opponents assert the individual mandate is inextricably tied to the rest of the law and the PPACA cannot stand without it.

3. Expansion of Medicaid

Effective in 2012, the current law extends Medicaid eligibility to all citizens and legal residents whose incomes are up to 133 percent of the poverty level, which will add 16 million people to Medicaid rolls. Although the federal government will pay all of the cost of coverage for new enrollees initially, it gradually will reduce its contribution to 90 percent in 2020. States not complying with the law's expansion will risk losing all their federal Medicaid funds. The states argue that with severely strained budgets, they cannot afford the expansion, but also cannot afford to lose federal Medicaid dollars, and thus, the expansion will violate states' rights to sovereignty.

4. Tax anti-injunction act

There is a possibility that the Court may rule to put off the decision on the individual mandate until 2015 because of a federal statute called the tax anti-injunction act. The statute prohibits the federal courts from rendering decisions on enforcement of a federal tax unless the tax is actually being collected. The question is, is the penalty a tax? The individual mandate's monetary fine (required to be paid by individuals without insurance) will not apply until 2014 and will not be collected until 2015. The Court may choose to invoke this statute to delay its decision until 2015, long past the current election when things are less politically charged.

The Supreme Court's options: uphold, strike – or both?

Adding to the uncertainty, the U.S. Supreme Court's decision could take any of several directions, considering the issues:

1. Uphold the law in its entirety

If the Court rules that the PPACA is constitutional in its entirety, it will remain the law of the land as it stands today. Employers, insurers, providers and states will be obligated to comply with the requirements and deadlines outlined in the law as well as subsequent federal regulations. However, the government may postpone some deadlines due to delays caused by the current uncertainties. For example, many states have postponed setting up exchanges as they await the results of the November election.

2. Strike down the law in its entirety

The entire law can be invalidated if the individual mandate is found both unconstitutional and not severable from the other provisions of the law. Continued compliance with the law's current provisions by employers and insurance companies would be called into question – in particular, the significant market reforms such as the prohibition of lifetime and annual benefit limits, the extension of children's coverage to age 26 and incentives for preventive care and wellness programs. Employers' focus will then shift to whether they should roll back plan design changes already put in place due to the law's mandates. It is expected many employers are likely to keep provisions, particularly those with a minor cost impact, although some may choose to make modifications.

Some health plans and providers have already taken significant steps toward implementation of new plan models based on the law's requirements. Similarly, some states have also begun setting up exchanges and may continue to do so, creating additional options for the market.

3. Uphold the law but strike down one or more of its components (i.e. the individual mandate)

If the Court finds the individual mandate unconstitutional but severable, employers and insurers will have to comply with the law's mandates and requirements. Employers could proceed with their strategies for 2014 as planned under the current law. Some observers contend the fallout may not be great because of what they say are the law's major weaknesses such as insignificant penalties and that the other reforms in the law would not be adversely affected. However, others contend if the Court strikes the mandate but upholds the guaranteed issue and the prohibition of pre-existing conditions provisions, a significant amount of adverse selection could occur. If the Medicaid expansion is struck down, it is likely that most states will continue to operate the Medicaid programs they already have but will be looking aggressively at utilizing managed care models and other ways to control costs.

4. Determine that a decision is premature (due to the tax anti-injunction act) and push the decision off

This outcome would put off any action until 2015, extending the period of uncertainty – an outcome that would not be welcomed by employers.

Considering individual ideologies and the implications of the case, most legal experts think it is more likely than not that the Court will uphold the constitutionality of the law or strike down the individual mandate but uphold the rest of the law, allowing employers to stay the course of their current strategies to comply with future requirements of the law. Even though there is no certainty in that prediction, recent surveys have shown that most employers are pushing ahead with strategies that assume the law will remain intact for the most part.


It is hard to overstate how politically important the Supreme Court case is to both Democrats and Republicans. Arguably, the November 6 general election could have an even bigger impact on PPACA than the Supreme Court decision, given that the potential result could be the ultimate repeal of the law. But, how likely is repeal? If we assume the Court allows the law to stand – with or without the individual mandate – we can make some assumptions about the various election outcomes' impact on the law.

Observers believe a repeal of the PPACA is highly unlikely if President Obama is re-elected. Even if a Republican-controlled Congress repeals the law, the President will veto the repeal. Congress would need a two-thirds majority in both houses to override the veto. If, after the election, Democrats control either house, it would be doubtful that repeal would pass.

If a Republican is elected president, repeal would still be unlikely if Democrats control either the House or the Senate. However, it has been speculated that a Republican president's appointees in the Department of Health and Human Services and the Centers for Medicaid and Medicare Services would, in all probability, delay major provisions of the law such as the state exchanges.

In short, most experts believe, without a Republican sweep of the presidency and both house of Congress, repeal of PPACA is extremely unlikely. It remains a much more likely possibility that, if the Supreme Court allows the law to stand, the provisions of the law that remain constitutional will become operational at some point. It appears employers' desire for certainty will have to wait – at least until the summer; and maybe beyond. Look for continuing updates and information regarding health care reform in this newsletter and other BHCG communications.

Works Cited

Cohen, S., & Rosenow, K. (2012, January). U.S. Supreme Court and Health Care Reform: A Momentous Decision Ahead. Towers Watson U.S. - Insider .

Geisel, J. (2012, March 7). Health Care reform law faces key court test. Business Insurance .

Looking Ahead to the Supreme Court's Health Care Reform Hearings (March 26-28). (2012, March 5). Retrieved from E is for ERISA.

Shapiro, A. (2012, March 22). Obama's Health Care Law In Court: An Overview. (S. Inskeep, Interviewer)

Stuart Taylor, J. (2012, March 15). The Health Law And the Supreme Court: A Primer For The Upcoming Oral Arguments. Kaiser Health News .

Sturm, M. G., & Meerschaert, J. D. (2012, February 23). Healthcare reform in 2012: Blind curves ahead. Milliman: insight .

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BHCG Monitor: Focus on Health Care Benefits - April 2012