No matter what corporations are doing — or not yet doing — to get ready for new health-care reform provisions scheduled to take effect from 2014 through 2018, the fate of the law hinges on an upcoming Supreme Court ruling and this fall’s general election.
CFOs’ interest in how those events will influence the fate of the Patient Protection and Affordable Care Act is clear. Willis Group Holdings, a global insurance broker, today released findings of a survey of 2,300 employers, about a quarter of which have quantified the costs of complying with the law. Among the survey participants, 56% said compliance has driven up their overall health-care costs, while 15% said the cost hike is more than 5%. Employers reported that the most significant cost drivers are the law’s provision for dependent coverage up to age 26 and the removal of annual and lifetime limits for essential health benefits.
Against that backdrop, James Klein, president of the American Benefits Council, last week laid out a cogent, logical forecast for how the Supreme Court case, at least, is likely to transpire. This month the court is scheduled to hear oral arguments on the constitutionality of the health-care reform law. The case’s import and complexity are such that while the court typically schedules one hour of oral arguments for a case, six hours are allocated for this one.
A key issue is the constitutionality of the law’s individual-mandate provision, under which people would be required to purchase health insurance. Twenty-six states and the National Federation of Independent Business are squaring off against the Obama Administration in the case.
Those who are challenging the mandate say the U.S. Constitution’s Commerce Clause, which grants Congress the authority to regulate interstate commerce, should render the provision invalid. Their argument is that a person’s decision not to get health-care coverage is not interstate activity, but rather inactivity, which Congress does not have the right to regulate. The opposing argument is that a decision not to get coverage has implications for health-benefit-plan sponsors, other payers who must cover the cost of compensated care, and health-care providers, and therefore does not constitute inactivity.
Klein, whose organization is an advocacy group for 356 corporate members that sponsor employee-benefit plans, made a prediction that many members may find disagreeable: that the mandate, and thus perhaps the entire law, will be upheld.
“I find it hard to imagine that any of the four so-called liberal justices, two of whom were appointed by President Obama, are going to vote against the constitutionality of the mandate,” Klein said at a health-care conference hosted by The Conference Board in New York City last week. “All those four have to do is persuade one more of the remaining five justices.” That’s likely to happen, he opined, because many conservative justices at the circuit-court-of-appeals level wrote opinions upholding the mandate.
Further, Klein suggested the Supreme Court will take political reality — the fact that this is an election year — into consideration, even though the justices surely wouldn’t acknowledge that in their written opinion. “It’s hard to believe the court is going to take it upon [itself] to strike down the law. I think they would rather uphold it and let the voters decide if they want to repeal it by electing different officials to do that,” he said.
He noted that Justice Anthony Kennedy is the most centrist of the conservative justices and “loves the role of being the king maker.” But he predicted that the final vote will be 6-3 or 7-2, adding that “it’s hard to argue that health care, which represents one-sixth of the U.S. economy, is not fundamentally entwined with interstate activity.”
Should Klein be wrong and the High Court strikes down the mandate, it will decide what other provisions of the law are not severable from the mandate and therefore must go as well. For example, the provision stating that people with preexisting health conditions cannot be denied coverage is “almost certain to be struck down,” because it was inextricably connected to the idea that everybody, healthy or not, would have to have health insurance.
Also up for consideration will be employer-responsibility provisions that are found in the same section of the law, called “Shared Responsibility,” as the individual mandate. Although the American Benefits Council has not taken a position on the constitutionality of the individual mandate, it filed a friend-of-the-court brief with the Supreme Court on January 27 asserting that if the individual mandate is not upheld, employers should not then be required to offer health coverage with terms that would have satisfied the mandate.
The standard the Supreme Court applies to determine if a provision of a law is severable from another provision that has been invalidated is whether it can still operate as Congress intended. “The text and structure of the law make clear that Congress intended the individual mandate and employer-responsibility provisions to operate together, as one comprehensive scheme of shared responsibility between employees and employers,” the brief stated.
If the individual mandate falls, employers also should not be obliged to communicate to employees information about the insurance exchanges that, under the law, the government helps individual states create, the brief argued. That’s because the stated purpose of the exchanges is to offer affordable insurance to help people comply with the individual mandate.
Regarding the exchanges, only 14 states have established them so far, and just 4 others are on a definite track to do so. Klein advised keeping an eye on the June 29 deadline for states to apply to the federal government for help in establishing an exchange. “If a state doesn’t apply for the money by then, in all likelihood it’s not going to move forward on establishing an exchange,” he said.
It’s interesting, he added, that June 29 is near the time the Supreme Court is likely to issue its ruling. If it upholds the mandate by that date, many states may quickly file for the money and set up an exchange.
Less clear, in Klein’s view, is how the elections will turn out. The law is unlikely to be repealed, in total or in large part, unless Republicans defeat President Obama, maintain control of the House, and gain control of the Senate.
Klein noted that the upcoming redistricting of congressional territories likely will net Republicans a handful of House seats, which would help offset the overall gain the Democrats are predicted to win. He also noted that the Republicans need a net gain of only 4 seats to win the Senate, and that of the 33 seats up for grabs this year, 23 are currently held by Democrats. That gives the Republicans more than twice as many opportunities to pick up a Democratic seat than vice versa.
If the Republicans win both houses of Congress but the president is reelected, there will be more opportunity for compromise on the health-care law because “the President will be liberated from having to worry about reelection,” contended Klein.