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NAW News

Health Care Reform

- January 2012

With the enactment of the Patient Protection and Affordable Care Act (“PPACA”) – ObamaCare – in the spring of 2010, the attention of stakeholders has necessarily turned to the regulatory process by which the new health reform law is being implemented, and the judicial process by which it is being constitutionally challenged. At the same time, the legislative effort to repeal or, short of that, change key elements of PPACA, has remained highly active as well.

On the legislative front, the Republican-controlled House of Representatives took action early in the 112th Congress to repeal PPACA; however, that NAW-supported effort fell 13 votes short in the Democrat-controlled Senate. A fall 2011 effort in the Senate Appropriations process to defund the new health care law though the FY 2012 Labor HHS Appropriations bill also fell short. In the wake of the repeal initiative, two elements of PPACA were repealed with NAW’s support: the expansion of the IRS Form 1099 reporting requirement imposed on businesses to cover virtually all business-to-business transactions of $600 or more (annually, in the aggregate); and a provision which required employers, beginning in 2014, to offer vouchers to employees whose income does not exceed four times the federal poverty level (FPL) and whose premium contribution is between 8% and 9.8% of income. With these vouchers, with a value equal to what the employer would have paid on the employee’s behalf had the employee enrolled in the available option with the highest employer contribution, the employee could decline to enroll in the employer plan, purchase coverage in an exchange and keep the excess, if any, of the value of the voucher over the cost of the purchased plan.

A “limited” victory of sorts was scored by PPACA opponents when the Department of Health and Human Services (HHS) announced in the fall of 2011 that it was cancelling its effort to implement that portion of PPACA known as the Community Living Assistance Services and Supports Act (“CLASS Act”), essentially a national insurance program for long term care assistance that was supposed to be self-sustaining. However, the CLASS program was criticized as an irrationally designed insurance program that would require substantial future taxpayer bailouts. Ultimately, HHS agreed and Secretary Sebelius informed the Congress, “Despite our best analytical efforts, I do not see a viable path forward for CLASS implementation at this time.” Nevertheless, the Obama Administration does not support legislative repeal of the CLASS Act. House legislation to repeal CLASS (H.R. 1173) was approved by the Energy & Commerce Committee last November and reported to the full House and is scheduled for consideration in the Ways and Means Committee in mid-January. Senate repeal legislation (S. 720) is pending in the Finance Committee. NAW supports CLASS Act repeal.

NAW is simultaneously engaged in two efforts to repeal particular provisions of PPACA; the “free-rider” employer mandate and the “hidden” health insurance tax (HIT). The former penalizes employers of 50 or more employees which fail to provide “affordable” health coverage to their full-time employees. The latter imposes a fee on insurance companies based on their “net premiums” and market share. The HIT is designed to raise $87 billion in over the first 10 years and $208 billion in the following decade. The Congressional Budget Office (CBO) confirms that these costs will be “passed through to consumers in the form of higher premiums for private coverage.”

Sen. Orrin Hatch (R-UT) and Rep. Charles Boustany (R-LA-7) have introduced legislation to repeal the employer mandate (S. 20/H.R. 1744, “American Job Protection Act”). S. 20 is pending in the Finance Committee, H.R. 1744 in the Ways & Means Committee. Rep. Boustany and Sen. John Barrasso (R-WY) have introduced legislation to repeal the HIT. Rep. Boustany’s bill (H.R. 1370) is pending in the Ways & Means and Energy & Commerce Committees; Sen. Barrasso’s bill (S. 1880, “Jobs and Premium Protection Act”) is pending in the Finance Committee. NAW is working with our allies in the Small Business Coalition for Affordable Health Care and the Stop the HIT Coalition in aggressive efforts to build support on the Hill for S. 20/H.R. 1744 and H.R. 1370/S. 1880 respectively.

Both of these issues are addressed in a broader NAW-supported package of health reforms (S. 1049/H.R. 2676, “Small Business Health Relief Act of 2011”) introduced by Sen. Jon Kyl (R-AZ), the Senate GOP Whip, and Rep. David Schweikert (R-AZ-5). This legislation also repeals and replaces the following provisions of PPACA: catastrophic plan section; prohibition on the use of Health Savings Account funds for over-the-counter medications; the $2,500 Flexible Spending Accounts cap; and it strikes the grandfathering regulations now in place.

Since the enactment of PPACA, NAW has engaged the regulatory process on several issues, including the employer mandate, exchange standards for employers, grandfathering, health coverage affordability safe harbor for employers, non-discrimination rules, and summary of benefits and coverage. None will be more important than the regulatory effort now underway at HHS to define the “essential health benefits” (“EHB”) package mandated by PPACA, because this will define what employers must provide to meet the employer mandate and what individuals must buy to meet the individual mandate. On October 7, 2011, the Institute of Medicine (IOM) released its eagerly-awaited report on EHB. Without suggesting specifically what the benefits should be, the IOM included affordability and flexibility among the key features it emphasized. On December 16, 2011, HHS released a guidance bulletin outlining the regulatory approach it intends to take to define EHB and contends their approach emphasizes state flexibility in the selection of a benchmark plan reflecting the scope of services offered by a “typical employer plan” to best meet the needs of their citizens. NAW and our allies in the Essential Health Benefits Coalition are currently evaluating the HHS guidance and plan to comment as appropriate.

The federal courts have been busy with various challenges to the constitutionality of the individual mandate contained in PPACA. In summary:

The US Court of Appeals for the Fourth Circuit (Richmond) dismissed the conflicting cases before it, one from the US District Court for the Eastern District of Virginia and one from the US District Court for the Western District of Virginia, on technical grounds.

The US Court of Appeals for the Sixth Circuit (Cincinnati) affirmed the US District Court for the Eastern District of Michigan’s ruling upholding the constitutionality of the individual mandate.

In Florida et al v. U.S. Department of Health and Human Services, the US Court of Appeals for the 11th Circuit (Atlanta) affirmed in part and overturned in part the decision of the U.S. District Court for the Northern District of Florida. The 11th Circuit agreed with the District Court’s ruling that the individual mandate violates the U.S. Constitution; however, the court reversed the lower court’s ruling invalidating the entire law as a result. (Note: PPACA does not contain a severability clause, and the district court ruled that the individual mandate is not severable from the rest of the statute thus invalidating the health care reform law in its entirety.)

In light of the conflict among the circuits, in mid-November 2011, the U.S. Supreme Court agreed to take the case and scheduled oral argument for late March 2012. A decision in the case is expected the following June. Among the possible outcomes are: uphold the mandate (in which case severability is not an issue); strike down the mandate but uphold the rest of the statute; strike down the mandate and PPACA’s market reforms along with it; strike down the mandate and the entire statute; or dismiss the litigation (leaving the statute with its individual mandate in place) on technical (i.e., lack of standing) grounds.