The High Court’s ruling upholding the Affordable Care Act has surprised many. The response to the ruling has been mixed thus far and although some view it as much needed clarity on the issue, others have been quick to denounce its effect and will wait to take any action until after the upcoming elections. The Court’s ruling lifted the fears of the health insurance industry as it avoided the worst case scenario—fear that the individual mandate would be stricken down while the remaining provisions upheld leaving insurers to provide more cost-free preventative care to policyholders without a means to increase premium volume.
The Act’s effect will remain unsettled until at least November.
Presidential candidate Mitt Romney and GOP congressional leaders have already vowed to repeal the law if they succeed in this year’s election. Romney claims he will act to repeal the law in his first day in Office. States have followed differing paths in preparing for the decision. Some states have but a hold on any action until after the election and some have already begun to plan for implementation of the new requirements under the Act.
With regard to a cornerstone of the Act, the creation of insurance exchanges, many states have refused to take steps or plan for their creation. Under the Act the creation of these online marketplaces will allow for individuals and small businesses to comparison shop for health insurance. States that have put efforts on hold will now have to rush to get their plans approved by January and will have to get their programs up and running by the following year.
It is estimated that 30 million uninsured people will receive coverage under the Act. Cutbacks to government reimbursement schemes, new fees, taxes, and pressures to create new payment models that focus on efficiency and the quality of care could alter the American standard of health care in an effort to affordably finance the new insureds. The upside to this is the impact on the health care and insurance industry with 30 million new individuals required to pay policy premiums, and correspondingly, 30 million new individuals with means to pay for health care. Under the Act we will likely see congruity in coverage levels across carrier’s with competing plans due in large part to mandated service levels. The Act had already led to changes in the insurance industry, as many insurers pledged to keep some of the Act’s reforms regardless of the ruling.
The most talked about reforms are the requirements to keep young adults covered until age 26, eliminating an insurer’s right to deny coverage for children with health problems, elimination of lifetime benefit limits, eliminating co-pays for preventative services, and eliminating the practice of charging people with medical problems, and women higher premiums. As insurers face these new requirements there will surely be a focus on cutting costs in providing coverage. What is already being seen is that insurers are beginning to move away from the traditional style of paying fees for each service and instead are tying reimbursements to quality of care provided and are rewarding providers that keep costs under control.
As with any reform, there must be a system in place to report on whether or not the costs of health care required under the Act have been contained and/or decreased. It will be a challenge for insurers to enroll 30 million new policyholders in a short period of time and will this process will likely entail premium increases for those with existing coverage. With heavy mandates and wide availability of coverage there is no doubt that insurers will seek rate increases to keep the playing field fair. In judging the effectiveness of the Act, the numbers of individuals that have actually taken advantage of the Act and sought regular and preventative medical care should be tracked. It will also be critical that individuals required to purchase insurance retain a choice in how and from whom they receive their health care services.
Both insurers and policyholders have expressed concerned over the insurance premium taxes called for in the Act. Many worry about the adverse impact of the premium tax particularly on small businesses and seniors. The Act imposes a large sales tax on health insurance beginning at $8 billion in 2014 and rising to $14.3 billion in 2018. This premium tax will raise the cost of coverage for small employers, individual market customers.
Another area that deserves attention is the shift away from employer sponsored insurance that is likely to follow the Act’s implementation. It is expected that overall thirty percent of employers will stop offering employer sponsored insurance after 2014. This move may make sense for employers and its lower income workers. Employers will need to be prepared to react to the market changes, and it is likely that employers will increase compensation in other ways in order to retain talent and remain competitive. Employers work with their employees to educate them to become actively involved in the purchase of heath care, including sharing in premium costs, making strategic decisions as to co-payments and deductibles, incentives with HSA payments, and wellness programs.
However, if the Act has the effect of eliminating a large portion of private-sector employment-based health coverage, ERISA’s current regulation of health benefits may need to be amended or repealed. ERISA laws apply to privately purchased, individual insurance policies or benefits only in certain situations. Therefore, the move away from employer sponsored plans may call the viability of ERISA’s regulations into question.
A copy of the decision and the accompanying executive summary can be found here and here