What to expect from the US Supreme Court ruling on health-care reform

In the coming days, the US Supreme Court is expected to rule on the constitutionality of portions of the US Patient Protection and Affordable Care Act (PPACA).

Whatever the justices conclude – whether they uphold the law, rule that Congress doesn’t have the power to require citizens and legal residents to maintain health coverage, or strike down the 2010 health-care reform legislation in its entirety – the decision is expected to reshape employer-sponsored health insurance. The ruling will determine how those changes play out.

If they scrap the mandate that everybody have health insurance, the justices would interfere with other provisions, said Uwe Reinhardt, a health-care economist and professor of economics and public affairs at Princeton University. “They can rightfully say this is Congress’s problem,” Reinhardt said.

The mandate that everybody have health insurance goes hand in hand with three controversial provisions: The requirement that health insurers sell coverage to everybody regardless of health status, also known as “guaranteed issue”; that people in the same age group pay the same premium regardless of health status, also known as “community rating”; and that every company with a full-time workforce of more than 50 must offer affordable health insurance to its employees.

Congress would have to figure out a way to make the three requirements work without the mandate that everybody have insurance, Reinhardt said.

Failure to comply with the requirements could subject employees and employers to significant penalties.

By 2014, those controversial provisions would help introduce state-run health insurance exchanges and health-care subsidies, expand Medicaid and add 30 million to 40 million people to the pool of insured. Medicaid is the government health programme for low-income Americans.

Employers are particularly concerned about the excise tax on high-cost plans, according to a survey conducted last year by New York HR consulting firm Mercer. Starting in 2018, health benefit coverage that costs more than $10,200 for an individual employee or $27,500 for dependent coverage would be subject to a 40% excise tax under the PPACA. Mercer projected that 39% of employers with 50 or more employees could be subject to the excise tax.

What may not go away, even if the court throws out the law, are some of the provisions introduced under the PPACA in the past three years – especially the provision that lets young adults (up to age 26) stay on their parents’ plans, which has been popular with employees.
 
UnitedHealthcare, Aetna and Humana, three of the five biggest US health insurers, have said that they will continue some of the provisions related to ending retroactive terminations of policies, except in cases of fraud; eliminating dollar caps on lifetime benefits; and continuing simplified, independent reviews of appeals in cases in which coverage was denied.

“The protections we are voluntarily extending are good for people’s health, promote broader access to quality care and contribute to helping control rising health-care costs,” Stephen Hemsley, CEO of UnitedHealth Group, said in a statement.

But without a federal mandate, employers don’t have to take health insurers up on the offer, said Michael Bertaut, a health-care economist with Blue Cross and Blue Shield of Louisiana, who spoke about the PPACA’s potential impact at the AICPA CFO Conference in May.

Also, health insurers have not offered to stick with another PPACA provision, said Reinhardt. Known as “community rating”, it requires that every insured in the same age group pay the same premium regardless of health status.

How companies are responding to PPACA

About 20% of US businesses were offering family coverage that enrolled adult dependents on their parents’ plans about a year after that provision took effect, research by the Kaiser Family Foundation showed. Seventy per cent of companies with 200 or more employees offered the expanded coverage, but only 19% of companies with fewer than 200 employees did.

Employers also accelerated efforts to reduce health benefit costs, Mercer research found. Many large employers shifted towards high-deductible, account-based consumer-directed plans and wellness programmes that alert employees to health risks, which contributed to a 6.1% rise in overall health benefit costs in 2011, down from 6.9% a year earlier, Mercer reported. Mercer projected health benefit costs would increase 5.7% in 2012.

A big question has long been whether companies will drop health insurance coverage, if the court upholds controversial provisions such as guaranteed issue and community rating, or upholds the act in its entirety.

Mercer found that larger employers would be more likely to continue to offer health insurance coverage to their employees if the PPACA stays intact. Only 6% of companies with 500 or more employees planned to drop their health plans once state-run health insurance exchanges come online in 2014. Among smaller companies, about 20% said they would drop their health plans.

A study by business consultant McKinsey & Co., which didn’t differentiate by size of workforce, projected a much higher overall dropout rate of 30%.

Employers with fewer employees are more vulnerable to large rate increases than larger companies, according to Beth Umland, who directed the Mercer survey.

“You can see why the idea of dropping employee health plans would be attractive to small employers,” Umland said in a press release. “On the other hand, when you look at the experience in Massachusetts, where insurance exchanges have been operating under state-based health reform for over three years, it hasn’t happened.”

Projected cost of PPACA

Projections of how much implementing the PPACA will cost businesses have varied widely.

The Urban Institute, a Washington research group, used a simulation model and figured that total employer spending on premium contributions, assessments and vouchers would be 0.6% lower than without the law. Small employers would particularly benefit from the health insurance exchanges, according to the Urban Institute. Their total spending was projected to decrease by 8.7%. Medium-size firms would see an increase of 11.8%. Spending by large firms was not expected to change much.

In the absence of the PPACA, the Urban Institute forecast that more employers, especially small ones, would continue to drop health insurance coverage for their employees. Mercer projected that the PPACA in most cases would push up costs 2% or less.

About one-third of employers polled by Mercer last year estimated PPACA compliance would affect cost by less than 1%. Sixteen per cent expected costs to rise 5% or more.

—Sabine Vollmer (svollmer@aicpa.org) is a CGMA Magazine senior editor.