Two years after President Barack Obama signed the Patient Protection and Affordable Care Act into law, the U.S. Supreme Court this month will hear oral arguments on the constitutionality of the individual mandate that requires all individuals who can afford it to buy health insurance. The Court will also determine whether the Medicaid expansion is constitutional, which may affect employers with retiree health care plans. The majority of employers, however, are attuned to the Court's decision on the individual mandate and how much of the law will survive if that provision is found unconstitutional. Whatever the Supreme Court ultimately decides in U.S. Department of Health and Human Services v. Florida, here EBA outlines each potential ruling concerning the constitutionality of the individual mandate and how it affects plan sponsors and advisers alike.

1. The individual mandate is found constitutional and all of PPACA is upheld by the Court

If the Supreme Court decides that the individual mandate falls within the constitutional bounds of Congress' powers under the commerce clause, and declares all of health care reform constitutionally sound, experts say plan sponsors would continue to implement health care reform as required. (The challenge to the Medicaid expansion is not examined in this article.)

The main question would be whether employers stay in the game, rather than pay to have their employees enter the state-run exchanges - a question answered by simple math, says Karrie Andes, senior benefits manager for virtual meeting provider PGi.

"At that point, I believe ... there is a clear advantage to stop sponsoring health care and send employees to the exchanges once they are set up. Anybody can do the math," Andes says.

Ed Coates, senior manager of benefits and compensation at Texas Mutual Insurance Company, agrees: "The [employer] penalties are so low that it looks like a no-brainer to [allow employees to purchase coverage through] the exchanges." However, he adds, "if you're in a competitive industry where other employers are going to continue to provide health care, you're going to need to make up that loss in the total compensation package, and in some instances that may cost you more than providing the health care coverage."

The National Federation of Independent Business, a party in the legal suit challenging PPACA, states that if the mandate stays on the books, costs will increase in the individual market and small group coverage, which is where a major bulk of employer-sponsored coverage lies.

Amanda Austin, director of federal public policy at NFIB, adds that even if employers continue to offer coverage, they will need to shift costs, whether that is in the form of increased employee cost-sharing or major budget and personnel changes.

The National Association of Health Underwriters predicts "some serious rate shock" when the exchanges go live in 2014, according to Janet Trautwein, CEO.

"In many cases, it would cause a very dramatic increase in what people are paying for coverage. We need some sort of transition there, or preferably a different type of rating model so that we spread risk over a larger segment instead of narrowly," she explains.

The NAHU CEO stresses that employer costs will go up because of the change in how rates are calculated under PPACA. Instead of basing an individual or group rate on age or health status, in 2014 these rate determinations narrow.

Meanwhile, Trautwein says NAHU is tackling the issues currently under regulation, such as decreasing and simplifying reporting burdens. "We are proceeding full-steam ahead as if it will continue because we can't afford to do anything else," she says. "We can't just sit here and wait for the Supreme Court to decide on this."

 

2. The individual mandate is found unconstitutional, yet cannot be severed from PPACA

If the mandate is found unconstitutional, the Supreme Court then must decide whether the rest of the law functions without this piece. The justices may decide that all or parts of the health care reform legislation are too reliant on the individual mandate, and therefore declare the entire act unconstitutional.

Steve Wojcik, vice president of public policy at the National Business Group on Health, believes if PPACA is struck down in its entirety aspects of the law already implemented and popular with employees - such as extending the age limit of adult dependents to 26 and eliminating lifetime dollar limits on essential benefits - would remain. "[Employers] would probably take it provision by provision," says Wojcik.

Regardless, Wojcik and most experts agree that this scenario is a long shot because many parts in the law are unrelated to the mandate, and U.S. courts typically attempt to minimize provisions severed, even though there was no severance clause in PPACA.

 

3. The individual mandate alone is unconstitutional

So far, prominent conservative judges from the D.C. Circuit and 6th Circuit Courts of Appeals have penned opinions supporting the Obama position on the individual mandate. Another ruling from the 11th Circuit Court - the case that is now before the Supreme Court - ruled the mandate to be unconstitutional, but determined it is severable from the remainder of PPACA.

As a senior benefits manager, Andes believes this scenario would be the best decision the Court could make. While she believes that many components of reform were beneficial, such as eliminating lifetime maximums, the individual mandate removes choice. In her opinion, if the mandate is struck down but health care reform remains, employers could tweak their plans while leaving in place already implemented provisions.

However, many experts argue that carving the individual mandate from the law without eliminating other closely tied provisions could have disastrous effects on the health insurance marketplace.

"The individual mandate is closely linked and intertwined [with other health care reform provisions, such as guaranteed issue, prohibiting pre-existing conditions exclusions, adjusted community rating] because the individual mandate is intended to guard against adverse selection that can occur when you have a guaranteed issue requirement, no underwriting, etc.," says Kathryn Wilber, senior counsel of health policy at the American Benefits Council. "All of those things fit so closely together that if you take the individual mandate out, then you have a market that isn't going to function very well."

She adds that about a dozen states tried to implement these insurance market reforms without a mandate, and "the insurance market collapsed. It's called the 'death spiral.' [Insurers] say they 'can't do business here because we can't insure if we don't have a risk pool.'"

For this reason, many believe that if the mandate were found unconstitutional, the Court would also remove certain provisions it deems inextricable from the mandate.

 

4. The individual mandate is found unconstitutional and certain closely linked provisions are severed from the law

Texas Mutual's Coates thinks this option would have the same result as if the entire Act were struck down. "As employers, we would have to do more with plan design and wellness going forward to keep our plans competitive and cost effective," he says.

Still, other mechanisms could be substituted for the mandate to balance the other dependent provisions. Limited open enrollment periods, penalties, longer contracts and deadlines could be used to incentivize individuals to purchase insurance before they get sick. A late enrollment fee draws from the Medicare Part D program and another option "acts to encourage individuals to join when they can and not delay until they need it because they may not be able to get in for another year at that point," says Wilber.

The real question if this scenario comes to light is whether or not Congress is able to act. Wilber wonders if politicians could find common ground, especially during an election year.

 

Factoring in the Tax Anti-Injunction Act

The Supreme Court also has hired a lawyer to argue whether the justices must follow the Tax Anti-Injunction Act in relation to the constitutionality of the individual mandate. This 1867 law requires that a tax (in this case the individual mandate would be defined as a tax, not a penalty) must first go into effect before a suit can be brought before the courts. If the justices followed this course, a prospective plaintiff could only bring a suit against the mandate after individuals begin paying the tax penalty for not purchasing insurance to the IRS in 2015.

The 4th Circuit Court of Appeals determined that courts have no power to decide the mandate issue until 2015 because of the Tax Anti-Injunction Act, an opinion shared by Justice Brett Kavanaugh of the D.C. Circuit in his dissention.

"It would just prolong the uncertainty; until the law is changed, it is the law. Even with this challenge under way, our members have told us that they are continuing to proceed with satisfying the requirements that they are subject to. But there is a cloud here, if you will, as long as this question is unresolved," says Wilber. She adds that the two legal parties have not considered TAIA to be an impediment, but the Supreme Court wants to hear arguments on the issue.

As a party to PPACA's legal challenge, NFIB's Austin explains, "I think that delaying the inevitable is not good for all sides, especially businesses and individuals involved with the case."

Most experts find this a highly unlikely scenario considering what a controversial issue health care reform has become.

Still, if the decision is postponed, "It's the same as if [the law were] found constitutional, you continue on," says NAHU's Trautwein. "You need to stay in the game and help [employer clients] with compliance."

 

How will the justices decide?

Based on lower court precedent, most legal experts expect the Supreme Court will find the individual mandate constitutional and uphold the law. Ultimately, this would mean employers continue as they are now: complying with new regulations, reporting requirements, and strategic considerations of the employer pay or play mandate, the insurance exchanges and the Cadillac tax.

Benefits manager Andes believes the Court will find the individual mandate unconstitutional, but keep the remainder of PPACA intact. She believes they should send the decision of how to increase insurance access to the states.

Texas Mutual's Coates says, "I think it'll be difficult for employers to move forward with a partial ruling," and he would prefer the Court either uphold the law entirely or strike it down. Removing the individual mandate alone or with certain insurance market reforms would only increase the level of confusion for employers, he says.

"Up until now, the Supreme Court has been pretty generous as far as what Congress can do under the commerce clause, so I think there will be a lot of probing [during the oral arguments] on what exactly the limits of the commerce clause are. I think they're going to be careful on that because it has implications far beyond health care reform," says Debbie Harrison, a senior regulatory analyst at the National Business Group on Health.

The reverse also is true. If the Supreme Court doesn't limit Congress's commerce power by upholding the mandate and law, what are the limits of that power beyond the individual insurance mandate? The D.C. Circuit Court of Appeals upheld the mandate, but said it was "troubling, but not fatal" that the Justice Department had not shown a limit to Congress's power.

 

Brokers and benefits: the big picture

The justices' decision clearly has significant implications for the future of health benefits.

Tiffany Downs, a partner at Ford & Harrison LLP, believes that if the Court upholds the constitutionality of the mandate and law, we "will be headed down the path to universal coverage and toward a European-type [system] of government-sponsored health care. This could be the first step to . . . employers deciding that it's too costly to continue providing health care. We would be taking the first steps away from employer-sponsored coverage," she says.

Adds Austin: "I think that we have seen a steady erosion of employer-sponsored insurance year after year. I think it's a challenge for employers to maintain such an expensive compensation piece and I think it will continue to erode because the cost is not going down, obviously.

"The structure of the exchanges and that the subsidies are only available to individuals and the way the employer mandate is structured makes it advantageous from a financial perspective to drop coverage."

Wilber disagrees, explaining that the Council's "sense is that the law builds on the employer-based system; that is what we heard from policymakers and the Obama administration." She believes employers will continue to offer coverage in order to attract and recruit talent as well as for productivity reasons and the ability to tailor plan coverage to their employees' needs and company culture.

"It's going to come down to what an employer needs to be competitive in hiring and retaining their workforce," seconds Coates. "If offering a comprehensive health care plan is required in that particular industry and by your workplace demographics, an employer is not going to be able to walk away from coverage."

Coates advises employers that once regulations come out and the Supreme Court decision is made to "start acting immediately so [you're] not rushing to prepare for 2014 open enrollment, because there will be a lot of questions from employees. Communicate with employees on a regular basis on health care reform and how it impacts them, so they don't have the uncertainty about what's going to happen to their benefits going forward."

Even so, Trautwein believes employers could drop coverage "if we don't see some relief from the employer requirements ... some of which could be done on a regulatory basis."

She cautions that if plan sponsors decide it's easier and cheaper to pay rather than play, "I think that would be a real game-changer for our country, not just health insurance." If a good percentage of people are paying through a subsidy in the exchange, it doesn't matter that an insurance company is involved in processing the claim, says Trautwein. "It means that the government is the primary payer, and I think that has the potential to take away a lot of choices that people have today. I think that's a bad idea," she adds.

If the Supreme Court finds the mandate and law constitutional, NFIB's Austin believes that brokers' longevity in the market depends on their involvement with the state insurance exchanges and how well the exchanges are utilized.

"When you have a population that is so reliant on the broker and agent community right now, you need to be very careful to transition out of that and you should not shy away from using them as resources," Austin advises regulators.

Trautwein is optimistic that brokers will play an integral role in the exchanges, based on her conversations with the Department of Health and Human Services. According to Trautwein, HHS has told NAHU that "'we want brokers to place business in the exchanges and we know that the exchanges need [brokers] in order for them to be successful. How can we work with you to ensure that happens?'"

No matter what, Austin says, "there will be a model that works. And just like travel agents, some of these things will fade out over time, and new businesses will be born that work," adding that brokers could concentrate on the individual market.

Ford & Harrison's Downs agrees that advisers could move to that market, or even sell and manage other types of insurance, such as disability or life insurance. She adds that most brokers are already moving from businesses with commission-based compensation to consultancy models.

"Employers need to be in compliance until the law is not there anymore or is struck down," she says. "I think that employers need to have a very open, friendly relationship with their agent-broker because they are going to be knowledgeable on their plan."

Trautwein agrees: "Our members are telling me that the questions [they're asked to answer] and amounts of service they're asked to provide for their clients are greater than it has ever been. There is a lot more compliance knowledge needed and they are very busy advising their clients right now."

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