Healthcare Reform and the Courts, Part 1

The Patient Protection and Affordable Care Act is over 2,700 pages long and affects virtually every aspect of healthcare delivery and its related financing (the insurance component) including Medicare, Medicaid and private insurers.|

The decisions to date, the ones to come and their meaning to agents and our industry This is the first article in a 3-part series on Healthcare Reform and the Courts. Subsequent articles in this series can be found here: Part 2 and Part 3. A lot of agents have been wondering what the outcome will be with the legal challenges against the Patient Protection and Affordable Care Act. I will attempt to articulate what I think might happen. My discussion will be limited to certain aspects of the bill — primarily with regard to the individual mandate and the question over severability. So I will be excluding a fair amount. Remember, the Patient Protection and Affordable Care Act is over 2,700 pages long and affects virtually every aspect of healthcare delivery and its related financing (the insurance component) including Medicare, Medicaid and private insurers. It even deals with student loans. Also, my discussion will be limited primarily to one challenge to the law — the one that involved dozens of states suing the federal government in a Florida court. There are a number of other legal challenges against the federal government that might lead another observer to draw a different conclusion on how these challenges will ultimately pan out down the road. But given the clout and importance of the states, many observers including myself have been particularly interested in that one. Before I address what I think might happen with the Supreme Court, I think it is important to understand the status of the States' lawsuit and how they got here. So I will be first explaining why the states sued the federal government, how the court ruled and the subsequent action by a district appeals court. The Reason The States Sued The Feds The primary reason over two dozen states and other parties (the plaintiffs) sued the federal government is because of the individual mandate. They simply do not think that the federal government has the authority to mandate citizens to buy health insurance. The states believe that the decision about whether or not to compel someone to buy insurance is theirs to make and not the federal government's. By the way, this is why folks aren't challenging the likes of Massachusetts which has a similar mandate in place. Massachusetts has the authority as a state to do this. In more technical terms, the states believe that the federal government via the Patient Protection and Affordable Care Act is stretching what's known as the "Commerce Clause" beyond what it was designed to do and is an overreach of power by the federal government. It all harkens back to our history and the compromises that came together to form our nation. The federal government has powers but so do the states. The original 13 individual states wanted to retain a certain amount of autonomy when they formed the union. So there are powers unique to the federal government and there are powers unique to the states. The Commerce Clause was created about a hundred years ago and has evolved over time. It was created to address the question of which governmental entity has the power of regulating business when business is transacted across state lines. For example, let's say that California has the authority to regulate the California Widget Makers. Colorado has the authority to regulate the Colorado Widget Makers, too. But the way they regulate their Widget Makers is different than how California regulates its Widget Makers. The regulations are different and were promulgated out of the customs and needs of the unique populations. Let's now assume that Joe's California based widget company has decided to expand its customer base beyond California and into Colorado. Which regulations apply to Joe? Colorado's or California's? The Commerce Clause exists, in part, because it answers this question and creates consistency for the likes of Joe because he only has to play by one set of rules and not two. Back to the Patient Protection and Affordable Care Act. So the law mandates that people will have to buy individual coverage starting in 2014. The states are saying "no, whether or not they should be forced to buy coverage is our call, not yours." The feds are saying it's their call because a persons decision about whether to obtain or go without coverage transcends state lines and affects everyone throughout the country. The states disagree. But how they're saying no via their lawsuit in Florida is interesting because their argument is based on this: The Commerce Clause only applies to those people who are engaged in commerce. Those who choose not to buy a product are therefore not involved in commerce and the mandate, therefore, should not apply to them. They say the feds cannot force people out of inactivity into activity. The feds counter by saying that because of regulations that compel hospitals to care for people regardless of whether they have coverage or not, that while someone may appear to be inactive, they're really not because they'll eventually need care, they will get it and the rest of us will end up footing the bill via cost shifting (keep in mind that about 20% of our commercial premiums are a direct result of doctors and hospitals charging carriers more to make up for the lack of payments they're getting from the feds and the uncompensated care they're giving to folks who don't have any coverage). In their lawsuit, the states also asked that if the court agreed with them about the individual mandate, that the whole law should be thrown out and ruled unconstitutional. The basis of their argument is that there is no severability clause anywhere in the 2,700 plus pages of the law. A severability clause basically enables the bulk of the law to survive even if a portion of it is thrown out. These clauses are typical in business contracts (such as agent agreements). But there isn't one in the Patient Protection and Affordable Care Act and the states said that it should be thrown out if the mandate goes down.

John Nelson

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John Nelson

John Nelson has long been a champion of legislative and educational efforts in the health insurance industry. He is a Chief Executive Officer of Warner Pacific Insurance Services, one of the nation’s largest health insurance general agencies serving over 35,000 small employers with over $1.5 billion of inforce premium.


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