A lawsuit by 20 states was filed in federal court in Texas challenging the constitutionality of the Affordable Care Act (ACA) in February. Texas argues that last year’s tax reform law, which stripped the ACA of the individual mandate, made the ACA unconstitutional. If the individual mandate is stripped away, the Department of Justice (DOJ), agreeing with Texas, argues that two other key parts of Obamacare should fall with it.
The two provisions are the “Guaranteed Issue” and the “Community Rating.” Guaranteed Issue means that insurance companies need to sell insurance to any customer who wants to buy it, regardless of age, gender, health history, profession, or any other individual factor. Community Rating means that everyone who buys similar insurance should pay similar prices. Under the health law, premiums can vary based only on the age of customers and where they live, and, in some states, whether they smoke.
With these two provisions gone, opponents contend that health care costs for individuals will increase, and health care costs for employers should necessarily increase also. Individuals would have to apply to each health plan separately, filling out detailed medical histories and possibly taking medical tests to determine if they are eligible for given health plan. The cost for the plan is another issue.
Under the ACA, all health plans have to cover a standard set of health benefits and could not limit the amount insurance plans would pay in a year. If the lawsuit goes the way Texas and the administration proposes, “I would think that insurers would end up being stricter in their exclusions of people because they couldn’t limit benefits,” said Larry Levitt, a senior vice president at the Kaiser Family Foundation, a health research group. With the loss of required coverage, especially with the national opioid crisis, individuals may lose treatment options. And if employers screen out for opioids, there will be likely no health care policies available for these individuals.
Further, a case in New Mexico ruled that the Health and Human Services formula for collecting and paying money under the ACA’s “risk adjustment” program was “arbitrary and capricious.” Risk adjustment helps insulate insurance companies from the ACA requirement that they accept all customers for the first time — healthy and sick — without charging more to those who need substantial care. Last Saturday, the administration halted annual payments under the risk adjustment program. Unless an appellate court overturns the decision, more insurers could drop out of the healthcare market place.
Essentially, the U.S. insurance market for individuals would be at the same point it was before the ACA was enacted. Hospital emergency rooms would again become primary care for many, and with little in terms of reimbursement, could force health care systems to close down emergency rooms or change rules of practice.
Hospitals, doctors, medical schools, patient-advocacy groups, the health insurance industry, and others filed briefs in a Texas federal court disputing the argument that all or part of the 2010 law is unconstitutional. Striking down the law “would strip health coverage and protections from nearly 30 million people” and “have catastrophic economic consequences,” argues a brief from the Service Employees International Union (SEIU), which represents more than 1 million health-care workers.
Further, SEIU argued that declaring the law unconstitutional “would cause an enormous surge” in uninsured Americans, leaving hospitals and other providers of care with an estimated $1 trillion worth of services with unpaid bills and the loss of a million jobs.
The administration is countering these arguments by opening the door for Association Health Plans. Association Health Plans (AHPs) have existed for decades under limited circumstances of small businesses banding together to buy insurance. Final rules issued two weeks ago would treat AHPs like large-employer federal Employee Retirement Income Security Act (ERISA) plans, which are exempt from many existing ACA requirements, and potentially from state insurance regulations and oversight. For example, AHPs are not required to cover essential health benefits such as mental health services, prescription drugs, and oral and vision care for pediatric patients. Additionally, AHPs would not be subject to the premium rate restrictions of the ACA, nor would they be required to use the ACA’s rules in determining eligibility.
The new rules also erase a requirement that an association must already have existed for a purpose unrelated to health insurance. And for the first time, individuals (sole proprietors and their families) will be able to buy into the plans. Plans may be sold nationally, in groups of states or a single state. States will continue to regulate them. The DOL acknowledged concerns that the final rule could lead to less stable risk pools in the individual and small group markets, rising premiums, and cascading effects that could leave certain markets without any active health insurance issuers. Commenters also expressed concern that AHPs offering comprehensive benefits may also be disadvantaged, as healthy members could leave to join lower-cost AHPs (and return when their medical needs increase).
How this eventually plays out for employers is unclear at this time. However, assuming the ACA loses in Texas, it is likely by 2020 that there will be hefty premium increases for employers to maintain the same level of coverage as they have today. Benefits are an important component in the employee marketplace, and employers will have a hard choice to make. If a recession also hits as predicted by 2020 or earlier, employers will be in a tight bind. Therefore, employers will likely continue the trend of increasing the total compensation packages for employees while real wages stall.
Source: The New York Times 6/7/18, 6/12/18, The Washington Post 6/149/18, 6/19/18, National Conference of State Legislatures 3/1/18, CCH 6/26/18, Washington Post 7/8/18