Healthcare reform in 2012: Blind curves ahead
Two big uncertainties are at the top of everybody’s mind this year as the United States travels the bumpy road of healthcare reform—the forthcoming U.S. Supreme Court ruling on the constitutionality of the 2010 Patient Protection and Affordable Care Act (PPACA) and the November general election. It is hard for health plans, providers, and state government leaders to know whether to proceed with plans to meet the PPACA statutory deadlines or to hold back until the path ahead becomes clear.
This article takes a look at some of the main issues and their implications for the immediate future.
The Supreme Court
The Supreme Court will hear arguments on the several cases challenging the PPACA beginning on March 26, and a decision is expected by the end of the court’s current session in June or July. That decision could take any of several directions:
- Upholding the law in its entirety
- Upholding the law in general but striking down one or more components of Title I, specifically:
- The individual mandate
- Guaranteed issue
- Prohibition of pre-existing condition exclusions, or even
- All of Title I (including, but not necessarily limited to the individual mandate, guaranteed issue, the prohibition of pre-existing condition exclusions, the prohibition of lifetime and annual benefit limits, the extension of children’s coverage to age 26, incentives for preventive care and wellness programs, etc.)
- Striking down Title II (which includes the expansion of Medicaid eligibility)
- Striking the law down in its entirety
Many observers believe that the court will uphold the law, but strike down parts of it. The individual mandate, guaranteed issue, and prohibition of the use of pre-existing conditions appear particularly shaky, and it will not be surprising if they are struck down. It is unlikely that the court will overturn one of these three components but not the others, as both the administration and plaintiff states agree that these parts of the law are inseparable. It also seems unlikely that the rest of Title I, some of whose provisions have already been implemented, will be invalidated.
Similarly doubtful is the removal of Title II from the law. Here, the most important argument is over the provision that requires states to expand their Medicaid programs by raising income-eligibility levels to 133% of the federal poverty level (138% including the “disregard” factor) or else they will lose federal funding. The plaintiffs argue that this provision is unduly coercive toward the states. However, there would appear to be a precedent in a Reagan-era law (on a different subject) that also carried the threat of withdrawal of funds from noncompliant states.1
What are the implications of these outcomes?
If the law is constitutional. If the court rules that the PPACA is wholly constitutional, all of its provisions will remain the law of the land (at least for the time being). Insurers, providers, and states will be bound by the tasks and deadlines set by the legislation and the subsequent federal regulations; however, because the current uncertainties are causing implementation delays, it may be necessary for the government to move some of the deadlines to later dates.
Given the amount of time states need to get ready for the exchanges, such delays may become all the more necessary as the nation awaits the results of the November elections, which could signal significant change to at least some of the reform legislation.
If the court strikes down the legislation. If the court decides that the law is unconstitutional in its entirety, the federally directed reform program will come to an end. However, because some insurers, healthcare plans, and providers have already taken steps toward implementation, there may arise a number of new twists in private plans that, in some way, mimic features of the PPACA model. Moreover, some state governments have already begun setting up exchanges. It is uncertain whether these changes will remain in place if the law is struck down.
If the court takes the middle ground. If the ruling is that the law stands overall but the individual mandate, guaranteed issue, and prohibition of using pre-existing conditions are unconstitutional, the result will likely be a health insurance market very similar to today’s market. Most likely, only the healthier, less wealthy populations will participate in the exchanges (because they will receive a subsidy)—and probably not in very large numbers. Those less healthy individuals who do not purchase coverage through the exchanges could turn to the high-risk pools that most states now have in place (if they continue to exist), and the states will bear the responsibility of finding funds to pay for this less-healthy population.
If the individual mandate is declared unconstitutional, but guaranteed issue and the prohibition of using pre-existing conditions when rating individuals remain, then a significant amount of adverse selection will occur in the state exchanges.2
In the unlikely event that all of Title I is overturned, there will be no state exchanges (except for those that individual states choose to run on their own), and all of the PPACA constraints on private healthcare insurers will be removed. If Title II is overturned, most states will probably continue to operate the programs that they already have, and, faced with their current budget problems, they will be looking more and more at managed-care arrangements for Medicaid.
The November 6 general election may prove to be a bigger factor than the Supreme Court decision, because the potential result could be a complete repeal of the PPACA. Assuming that the Supreme Court allows the law to stand, with or without the individual mandate, guaranteed issue, and the prohibition of pre-existing condition exclusions, here are three scenarios:
President Obama is re-elected. If the president is re-elected, a Republican-controlled Congress may try to repeal the healthcare reform legislation, but President Obama will veto the repeal. Unless Congress overrides the veto—which is doubtful because it requires a two-thirds majority in both houses—the program will move forward; the exchanges will be created, and all other provisions of the PPACA (minus any that are ruled unconstitutional) will eventually become operational. If the Democrats control either house, no repeal bill is likely to pass.
There is also some speculation that President Obama might back off of some PPACA provisions because of their political unpopularity, but this remains, at most, a remote possibility.
A Republican president is elected, but the Democrats control at least one house of Congress. No attempt at repealing the 2010 legislation is likely to pass, and PPACA will remain the law of the land. However, the real power of implementation rests with the executive branch, and it is probable that the new president’s appointees in the Department of Health and Human Services and the Centers for Medicare and Medicaid Services will delay the major provisions of the law. In particular, the exchanges will probably not be implemented by the currently scheduled date of January 1, 2014.
The Republicans capture the presidency and both houses of Congress. In this scenario, it is almost certain that the 2010 legislation will be significantly modified, if not repealed. States that have already taken steps toward setting up exchanges may or may not carry them forward in the absence of federal subsidies should the Republicans repeal the subsidies.
The Supreme Court is expected to rule by the middle of 2012, although there is also a chance that the court will postpone its decision until its 2012–2013 session. In any case, the road ahead will not be clear until after Election Day 2012 at the earliest.
And in the meantime …
Following the passage of PPACA, health plan administrators went to work figuring out what they had to do and began taking steps toward meeting the earliest deadlines. A number of deadlines loom in 2012, not the least of which is the requirement that between July 1 and October 1, states must file an operational model for their exchanges, including the Summary of Benefits and Coverage. Another big deadline this year is the payment of rebates by insurers with loss ratios below the minimums, beginning in August. Still more deadlines will occur next year, including the requirement to have the exchanges in place and to start open enrollment, as well as the adoption of the International Classification of Diseases, 10th edition (ICD-10). Meeting 2013’s deadlines will require steady progress throughout 2012.3
A number of questions revolve around the exchanges. The operational aspects of the risk-adjustment mechanisms, the question of collecting payments prospectively or retrospectively, the transfer of people out of Medicaid and into the exchanges (and vice versa)—these are complicated challenges that must be resolved if the exchanges are to function.
Given the current uncertainty, however, health plans are hesitant to proceed—although some parties have gone to work setting up private exchanges for employer brokers. Theoretically, these exchanges are a step ahead if and when the exchanges actually come into play.
Meanwhile, as we wait for a resolution of the judicial and political questions, healthcare costs continue to climb. Partnering with providers, as some insurance companies have begun to do, may be the best route to combatting high costs in the long run, whether it be through an accountable care organization (ACO) or some other arrangement. These relationships might be a natural outgrowth of the heat that the government has begun to put on insurers regarding rate increases. Regardless of the motives, engaging providers in the management of healthcare costs is a positive move.
Some states—e.g., California, Utah, and Washington—are already building their exchanges. If the court strikes down Title I or the entire law, it is very unlikely that additional state exchanges will develop—and uncertain whether those now under way will become operational. If some exchanges survive, multistate insurance companies could continue to do business as usual in states without exchanges while, for states with exchanges, insurers could build off of one or another existing exchange model for that part of their business (as they have, for example, in Massachusetts).
If the PPACA survives the judicial and political processes, there will be opportunities for insurance carriers and other payors who get a head start on preparing for the sea change to come in 2014. In the first place, plans could benefit from analyzing the best options in plan design for their customers. They could help educate employers about best employer practices—for example, wellness program credits, and maximizing government subsidies in general.
From the standpoint of states, the potential expansion of Medicaid will provide an important source of coverage for vulnerable populations, but looks like an added financial burden to their already strapped budgets. Hoping to find savings, some states have expanded or implemented new Medicaid managed-care programs. Many others are considering similar moves, both to help with their current budget problems and also to deal with the huge financial impact of expanded enrollment in 2014.4
States that are early movers, doing what they can in anticipation of a full PPACA implementation, would be in a much better position to make the most out of reform than those who have waited for the dust to settle. Whether or not this potential opportunity turns into an actual opportunity depends on where the road takes us over the next nine months.
2There is likely to be some adverse selection even if the mandate stands, because the penalty for not buying coverage is weak and many healthier uninsureds will probably choose to pay the penalty rather than purchase coverage.
3For a summary of the year-by-year deadlines, see United Healthcare’s online “Timeline of Provisions,” retrieved January 24, 2012, from http://www.uhc.com/united_for_reform_resource_center/health_reform_provisions.htm.
4 It is not only expanded enrollment that state governments are worried about. Beginning January 1, 2013, certain primary care payments under Medicaid rise to 100% of Medicare payments for the same services. The federal government will fund this increase for the first two years, but if states decide to continue the higher payments after 2014, the funding responsibility passes to the states.
Commercial risk adjustment and transfer payments: Are you ready?