Healthcare Reform and the Courts, Part 3

Understanding the details of the Patient Protection and Affordable Care Act, its legal challenges and what this all really means to our industry and, most importantly, the American public is fundamental in empowering them to look in the right direction for answers to a complicated question that is facing all of us — who is going to treat us when we need medical care and how are we going to pay for it?|

John Nelson

September 27, 2011

This is the third article in a 3-part series on Healthcare Reform and the Courts. Preceding articles in this series can be found here: Part 1 and Part 2. Why And When The Supreme Court Will Likely Take The Case Before we get into how the Supreme Court is likely to reconcile these contradictions between the lower courts, let's talk about the question of whether or not the court will even take the case on and the basis of their decision to do so. The fact is that the Supreme Court has to be asked to rule on a case first. And if they are, 4 out of the 9 justices have to agree to take it. When the court takes on a case, it's usually because the justices believe that the case particulars can create the foundation of a ruling over an issue that the justices have viewed historically as being inconsistent with constitutional law or that is confusing and something that they believe they should address or clarify. So the justices pick and choose cases that they can best use to harvest rulings that help the country in this regard. Often, when they take on a case, it has little to do with the actual issue of the case. More, it has much to do with a bigger picture question or issue pertaining to constitutional law. So what is the big, compelling question/issue that the Supreme Court might want to resolve using the Patient Protection and Affordable Care Act as the vehicle? I think it's the Commerce Clause. This clause has been around for almost a hundred years and it has slowly grown to cover a lot of commercial activity throughout the country. The line between the autonomy of the states and the role of the federal government that was so carefully engineered by our founding fathers seems to have become more blurred over the last century and especially during the last decade. Where do you draw the line? How far reaching should the Commerce Clause be? To the extreme, if the Commerce Clause continues to grow in influence and affect more and more businesses and everyday life, then what's the point in even having states? These are very compelling questions for the justices to address, in my opinion. And I can't imagine a greater platform and vehicle for a grand discussion and directive on this than the Patient Protection and Affordable Care Act. A prospective ruling on this could be the ruling of the decade – not because of the mandate but because of how it affects states and their relationships with the federal government. So that's why I believe the Supreme Court will take it. But when will they get it? No one's sure. The federal government will want to delay the time the case gets to the court as long as possible. The more it's delayed, the more aspects of the Patient Protection and Affordable Care Act are likely to be rolled out and become part of societal infrastructure — if a state has already received money and built an exchange with it, what do you do if the court throws out the Patient Protection and Affordable Care Act? My bet is the exchange (or pieces of it) stays in place. And this is why the states want to see the case go to the court right away. From what I've read, there's a 50/50 chance that the court will issue a ruling before the next year's election. How Will The Supreme Court Rule On The Patient Protection And Affordable Care Act? I for one think there's a 60/40 chance in favor of the court ruling against the mandate. I have no clue whether they will consider the mandate severable or not, but many observers think the possibility of the court overturning the entire Patient Protection and Affordable Care Act is unlikely. What If The Supreme Court Overturns Just The mandate And Leaves The Rest Of The Patient Protection And Affordable Care Act Intact? If they rule against the mandate, leaving the guarantee issue and the no-preexisting clauses intact, we'll have an individual insurance market rife with adverse selection and severe price increases just like the health insurance environments we already have in New York and New Jersey. So what would lawmakers do with this kind of ruling and the prospects of the entire country turning into a New York-like market? There is no clear cut answer here. Democrats and many Republicans consider medical underwriting an anathema. They don't like it at all. So there would be a natural reluctance to repeal the guarantee issue portion of the law. The other thing is that many Democrats believe that the mandate is not really necessary. Last year, I heard an advisor to the White House state that eliminating the mandate will make no difference at all and that people will continue to buy coverage because it "is the right thing to do". So I really doubt that if the Patient Protection and Affordable Care Act remains intact sans the mandate, that we will see Congress abolish the guarantee issue portion of the law. However, I do believe that we will see regulations that will be geared towards protecting the integrity of the individual market such as special open enrollment periods. Right now, as the law is written, anyone after January 1st, 2014 will be able to sign up for individual coverage, be covered for their pre-existing conditions and not be rated up according to their health history. There is a mandate to buy coverage but the penalty for failing to do so is very weak. This is a recipe for adverse selection and disaster. There might be a way to fix this, though, via regulations. A rule could be promulgated that states that all citizens have a one-time opportunity to sign up for individual coverage and it is during the month of January, 2014. Sign up then and you'll get your coverage as envisioned by the Patient Protection and Affordable Care Act. If you miss this date and change your mind later, then carriers would have the right to rate you up and impose a waiting period. I see the scenario of creating a rule like this more likely than Congress making a politically unpopular law that reinstates medical underwriting. What If The Supreme Court Overturns The Patient Protection And Affordable Care Act Entirely? If the Supreme Court throws the whole thing out, then a lot of things will revert back to the days before the Patient Protection and Affordable Care Act was implemented but ghosts of it will remain.

The MLR requirement will go away — but some of the states will miss it and might pass legislation to reinstate it on their own with perhaps even tighter restrictions. Will commissions on individual climb back up to the levels they were before the Patient Protection and Affordable Care Act was signed into law? Probably, but I wouldn't be surprised to see carriers take a little while to increase them.
The federal funding and rules for exchanges go away — but states are already developing them. Do they stop midstream and throw out what has already been built? Or do they stay the course and continue building them (keep in mind that Utah and Massachusetts already have exchanges up and running). It's hard for me to believe that exchange development for all states will be stopped wholesale if the Patient Protection and Affordable Care Act goes away entirely. My bet is that some states will continue to build their exchanges albeit with an emphasis on the individual market and less on small group.
Will healthcare delivery costs go up or down if the Patient Protection and Affordable Care Act goes away? Delivery costs are always trending up but if the law is overturned, the rate of increase is likely to slow due to providers not needing to cost shift as much as they are now due to higher populations of Medicaid patients and cuts to Medicare.
Agents and the industry can breathe a sigh of relief — maybe. For about a month or two. The Patient Protection and Affordable Care Act relieved a lot of pressure on the states to do something about escalating healthcare costs and the growing populations of uninsureds. If the Patient Protection and Affordable Care Act goes away, states will feel more compelled to act on their own. America's healthcare system has been broken for some time. That's why Congress acted and created the Patient Protection and Affordable Care Act. Unfortunately, the law is bending the healthcare cost curve up and is making things worse. But if the Patient Protection and Affordable Care Act goes away, we're still left with a broken system that is rapidly becoming a black hole in our economy. Healthcare eats up 16% of our GDP. In 40 years, at the current rate of growth, it will account for 40% of our GDP. How are we going to pay for it? The Patient Protection and Affordable Care Act's demise would lead to a short term sigh of relief for many but the problems that we've had before and after March, 2010 will continue to haunt lawmakers, business, agents and our industry until they are tackled in a meaningful way.

Many of you know me to be optimistic about the future of agents. And I am because the role of the agent will become more valuable over time, not just as a distributor of health insurance products — but as educators to the public and facilitators of meaningful change to the way our healthcare is delivered and financed. Understanding the details of the Patient Protection and Affordable Care Act, its legal challenges and what this all really means to our industry and, most importantly, the American public is fundamental in empowering them to look in the right direction for answers to a complicated question that is facing all of us — who is going to treat us when we need medical care and how are we going to pay for it? If you'd like more detailed information regarding courts and the Patient Protection and Affordable Care Act, including verbatim copies of the judges' rulings to date on all cases, contact me, and I'll respond accordingly.