WASHINGTON – The administration continued its march forward on implementing the nation’s controversial health care law this week, despite legal challenges that almost assure the legality of the reform will be decided by the Supreme Court.
Under new rules proposed Wednesday by the Departments of Health and Human Services, Labor and the Treasury, health insurers must begin providing descriptive labels – as well as a uniform glossary of terms – to potential customers in a consumer-information provision of the Affordable Care Act, the latest step in enacting President Barack Obama’s signature legislation.
“Today, many consumers don’t have easy access to information in plain English to help them understand the differences in the coverage and benefits provided by different health plans,” said HHS Secretary Kathleen Sebelius. “Thanks to the Affordable Care Act, that will change.”
President Barack Obama's signature on the health insurance reform bill at the White House, March 23, 2010. The President signed the bill with 22 different pens. (Official White House Photo by Chuck Kennedy)
The rules are scheduled to take effect in March 2012, allowing 180 million Americans with private health insurance to rest assured that “help is on the way to make sure you understand your health insurance,” Dr. Don Berwick, chief of the Centers for Medicare and Medicaid Services wrote in a blog post on the White House website.
Basic information such as annual premium, annual deductible, services not covered by the policy and costs of going to a provider in the network versus one that is not will be provided to customers.
People who are interested in obtaining coverage will also have access to standardized “coverage examples” much like the nutrition facts label required for packaged foods, which would illustrate what proportion of care expenses a health insurance policy or plan would cover for three common benefits scenarios—having a baby, treating breast cancer, and managing diabetes. Additional scenarios may be added in the future.
“It’s very important that consumers understand what the law is, what it isn’t and what it’s going to mean to them,” said Nancy Hicks, senior vice president and associate director of the North America Healthcare Practice at Ketchum in Washington, D.C.
Legal challenges
Even as the administration continues its push forward on the controversial health care law, courts are weighing in.
Two federal appeals court panels have reached differing conclusions on the constitutionality of the single mandate that requires all Americans older than 18 to carry health insurance or face penalty. Yet to weigh in is the 4th Circuit Court of Appeals in Richmond, Va. that heard arguments earlier this year. Last Friday’s ruling by the 11th Circuit Court of Appeals almost insures that the Obama health reform will reach the U.S. Supreme Court since the nation’s highest court often decides to accept cases where two or more of the federal appeals courts are in disagreement.
What isn’t certain is whether decision would come before the end of the high court’s 2011-12 term next June. Under normal practice, if the Supreme Court accepts a case after January, the resolution will come later, likely after the 2012 election.
State governments and companies are paying close attention to what the court will decide as they determine whether they should go ahead and plan for the law’s central provisions, which take effect in 2014.
At a town hall meeting on the first stop of his Midwest bus tour on Monday, the president told the crowd that he believes the Supreme Court will uphold the 2009 law’s controversial mandate.
But Republicans in Congress are actively pushing back on the law.
“Americans should have access to the health coverage that is right for them and their families, not be penalized for failing to purchase a plan devised by Washington,” the U.S. House Speaker John Boehner said.
“If I were to bet in person, they [the Supreme Court justices] will rule it unconstitutional,” said Anna Rittgers, attorney and senior fellow at the Independent Women’s Forum. “It really depends on how far is the Supreme Court willing to expand Congress’s power under the Commerce Clause.”
The argument turns on the fact that the federal government is one of limited powers and has only the powers granted by the Constitution, including the power to regulate “interstate commerce” or business between different states.
Before 1937, the Supreme Court interpreted the commerce clause narrowly, and gave the federal government only limited power to regulate the national economy. Since 1937, however, the Supreme Court interpreted the commerce clause broadly. In the case Wickard v. Filburn of 1942, the high court allowed the government to regulate how much wheat a farmer can grow, even if he doesn’t sell it.
Rittgers said it’s hard to believe the majority of the justices will allow the Commerce Clause to be expanded even more.
Although the high court has put some limit on the federal government’s power in the case of the Gun-Free School Zone Act of 1990 and a portion of the Violence Against Women Act, from a constitutional perspective it will break new ground.
“If the Supreme Court gives Congress the power to order every American to purchase health insurance because it will have an economic effect on interstate commerce, then there will be no limit to it,” Rittgers said. “Congress can pass a law that requires everyone to buy a pink Cadillac because if they don’t, it will affect the interstate commerce.”
“Congress may regulate commercial actors,” the 11th Circuit Court of Appeals ruled. “But what Congress cannot do under the Commerce Clause is mandate that individuals enter into contracts with private insurance companies for the purchase of an expensive product from the time they are born until the time they die.”
Adverse selection
On the flip side, in a voluntary market where Americans are free to choose, individuals at greater risk of high health care spending are more likely to desire coverage, while low-risk individuals are more likely to opt out. This “adverse selection” phenomenon increases the average insured risk and results in higher average premiums, which in turn drives out healthier people who would like to purchase health insurance but cannot afford it.
In 2009, a total of 50 million Americans were uninsured and the vast majority was in low- or moderate-income families. Uncompensated care costs for the uninsured amounted to about $57 billion in 2008, and about 75 percent of this was paid by federal, state, and local funds for care of the uninsured, according to a report released by the U.S. Government Accountability Office.
“To make the provisions that restrict rating and eliminate exclusions for pre-existing conditions work, health insurance markets must attract a balanced cross-section of risks,” said Cori Uccello, senior health fellow for the American Academy of Actuaries. “This means finding a way to encourage the enrollment of low-risk individuals. The individual coverage mandate may be the best tool available to achieve that.”
“I would expect that if the mandate got shut down, it would make the premiums for a state like California go from about $150 to a high of about $550,” said Philip Lebherz, founder and chief executive director of the Foundation for Health Coverage Education, a nonprofit based in California.
The impact of an individual mandate and market reforms will vary across states, depending on their current market rules. In states that allow underwriting and premium variations by health status, the uninsured population may be less healthy, on average, than the uninsured population in states with guaranteed issue and community rating.
According to Lebherz, New York implements community ratings. Therefore, someone age 25 pay the same thing as someone age 63, which would be around $575 a month for a health savings account type plan that has a $2,000 deductible. In California, it’s age rated.
Most of the insurance companies are operating on a profit margin between 2 and 5 percent – and they will raise the premium rate to cover the extra expenses, said Lebherz
“In general, I would expect the premium to go up about 400 percent in a state that currently has underwriting,” Lebherz said.
Service providers
“You can force somebody to buy health insurance, but that doesn’t mean they can. They have to have an affordable option,” said Dr. Fred Sweet, president of the Rockford Spine Center and clinical assistant professor of surgery at the University of Illinois. “It’s like telling people they have to be 10 feet tall or they are going to be penalized.”
Sweet thinks the only way to really make health insurance affordable is to subsidize it or provide government subsidized care that would be similar to either Public Aid or Medicare. In either scenario, taxpayers are left to pick-up the difference.
Given the current limitations on the spending in these arenas, this has a net effect of requiring healthcare systems to provide increased services at lower pay per patient.
Sweet explained the impact he might experience as a spine surgeon depending on whether more people will be put on government subsidized care or will be forced to buy insurance.
Every time he walks into the operating room, it costs his around $2,000 in just overhead expenditure. If he operates on a very well insured patient, Sweet might be paid a generous amount ranging from $12,000 to $15,000 for doing three or four hours of work. On the other end of the spectrum, a Medicare patient might pay him $1,600 to $1,800, which gives him a net profit of only $200 to $300. The majority of his practices is somewhere in between.
“Do you want really complicated life-risking, paralysis-risking spinal surgery and you are paying some guy $100 an hour? That’s what you pay the plumber,” said Sweet.
“Our current system is already having significant financial difficulty without adding more to the workload,” Sweet said. “On average, Medicare patients make up 50 to 60 percent of primary care doctors’ practices, but only accounts for 10 percent of their income.”
“I’m in spine specialty practice and a lot of my patients can’t go anywhere, so we feel an obligation to help and care for those people,” Sweet said. “But maybe a primary care doctor who can’t afford to stay open shouldn’t see Medicare patients so that he can still earn a living.”
For people who do not have insurance coverage, and therefore have no general provider of medical service, such as a family doctor, when they do have a medical issue that arises, they go to the emergency room, said Dr. Steven G. Ullmann, professor and director of the University of Miami School of Business’ programs in Health Sector Management and Policy.
“And the emergency room is the highest cost, lowest quality in terms of provision of care, because every event is a new event. So that means at every event you have to do new diagnostics,” Ullmann said.
In a report released by the Government Accountability Office, experts offered an alternative approach by imposing tax.
Rather than a penalty associated with a mandate, a tax could be imposed on all taxpayers to help cover the costs of emergency room and other uncompensated care incurred by people without health insurance. The tax could be rebated or waived upon proof of health insurance, and would be assessed on a sliding scale based on income.
What’s next?
Three-quarters of U.S. health care employers expect costs to rise under the health reform law, including 43 percent who believe the cost increases will be significant, according to a recent Buck Consultants survey. The survey also found that nine out of 10 respondents plan to pass on additional costs to workers through higher employee contributions or reduced benefits.
According to the estimate of the Congressional Budget Office, the legislation will increase the number of non-elderly Americans with health insurance by roughly 34 million in 2021. About 95 percent of legal non-elderly residents will have insurance coverage in that year, compared with a projected share of 82 percent in the absence of that legislation and 83 percent currently.
The legislation will generate this increase through a combination of a mandate for nearly all legal residents to obtain health insurance; the creation of insurance exchanges through which certain people will receive federal subsidies; and a significant expansion of Medicaid. The provisions of the laws related to health insurance coverage will have a net cost to the Treasury from changes in direct spending and revenues of $1.1 trillion during the 2012-2021 decade.
The Obama administration has until Sept. 26 to ask the full 11th Circuit to review the case, or it could appeal directly to the Supreme Court.