Where Will the Supreme Court Go on Health Reforms?
by Ed Fensholt
Consequences vary with breadth of ruling.
Health reform’s D-Day—when the battle over the law takes a decisive turn—is almost upon us. By late June, the Supreme Court should decide the constitutionality of the law’s “individual mandate.” Should the court strike the mandate, it will also rule on the extent to which the mandate may be surgically excised from the law or whether the baby must be thrown out with the bathwater.
Two years into the law, and 19 months to go until implementation of its most dramatic and controversial provisions, the Supreme Court’s decision—regardless of what it is—will have significant consequences for businesses and the health insurance available to their employees. Among those possibilities:
If the Court Upholds the Individual Mandate
It’ll be business as usual, for better and for worse. For employers that offer group health insurance, the insurance remains subject to the reform law’s various mandates (coverage of adult children, prohibition on lifetime and annual dollar maximums, no-cost coverage of preventive care, etc.) that have added 3–5 percent or more to group insurance costs. The prohibition on annual dollar limits appears to stall the transition by some employers to a “defined contribution” approach to insurance, where the employer offers a health-reimbursement arrangement to fund employees’ purchase of individual insurance policies.
A new non-discrimination rule [currently not enforced] may complicate the desire by some employers—particularly small employers—to offer more generous benefits to key employees. Billions of dollars in excise taxes on insurance companies will take effect in 2014, adding around $10 per employee per month to insurance costs. Plans must begin distributing 8-page “summaries of benefits and coverage” during open enrollments beginning after late September.
Larger employers must report insurance values on employees’ W-2s, offer all full-time employees and their dependents a minimal level of health insurance to avoid one penalty, and offer more robust but still affordable coverage to avoid a second penalty. Employers must make substantial reports to state-based insurance exchanges and/or federal agencies, regarding the employers’ insurance offerings.
But the law also supplies advantages to employers, particularly small employers, that would be preserved. Insurers that fail to meet minimum “loss ratios” must refund some premiums to policyholders, and the size of premium surcharges an employer may impose on unhealthy employees increases by 50 percent. Although few small employers have taken advantage, the reform law authorizes tax credits to small companies [with modest payrolls] that offer health insurance to employees.
An affirmation of the individual mandate means it and the new health-insurance exchanges—and their generous subsidies to help the uninsured buy coverage—remain intact, of key importance to smaller employers relying on the exchanges to provide subsidized health insurance to their employees where the employer does not.
If the Court Strikes the Individual Mandate but Leaves All Else Intact
Almost everything described above would apply under this scenario too, with the exception that the health-insurance exchanges likely become unstable. The individual mandate is part of a three-legged stool that includes requirements on insurers to issue a policy to every applicant [and cover their pre-existing conditions], and to set an individual’s insurance premium—in the individual insurance market—by looking at the aggregate risk of the broader pool of insureds of which the individual is a member.
But without the mandate to encourage all uninsureds—particularly the healthy uninsureds—to enter the insurance marketplace, we’ll have a pool of mostly sick applicants, in a marketplace where the insurer must issue them policies and cover the sicknesses they arrive with. That spells disaster. What would your homeowner’s policy cost if you could buy it while your house was on fire?
If the Court Strikes the Individual Mandate, and the Rest of the Law for Good Measure
This didn’t seem a legitimate possibility until comments from several conservative Supreme Court justices, during oral arguments in late March, appeared to give legs to the notion. If this occurs, all of the reform law’s mandates and administrative hassles—and all the potential advantages—described in the preceding paragraphs [and many, many more not described in this article, including reductions in Medicare costs for seniors, incentives for medical students to select primary care, grants to community health centers, pilot programs aimed at promoting coordinate care, etc.] are unwound.
Republicans have vowed to introduce legislation to restore some mandates they see as popular [such as the requirement to supply coverage to adult children] but the GOP is divided over this.
So all eyes are turned to the Supreme Court. What the court decides, why it decides it, and how the decision is spun in this election year, is sure to be fascinating.
Ed Fensholt is senior vice president and director for compliance services at the Lockton Companies in Kansas City.
P | 816.960.9775
E | efensholt@lockton.com