Spencer Fane LLP Logo

Health Care Reform: So Where Are We Now?

It’s been nearly a year since the passage of the two bills known as “health care reform.”  Although significant elements of this reform are already in effect, both the 2010 general elections and vigorous legal challenges have caused some to wonder whether the “meat” of the reform — slated for 2014 — will ever be implemented.  Unfortunately, this question may not be answered for many months, or even years.

Legislative Repeal Efforts

Having reclaimed the House of Representatives in last November’s elections, the Republican Party is generally intent on repealing all of health care reform.  Although the Democratic majority in the Senate (not to mention President Obama’s veto power) makes that highly unlikely, we can expect to see a number of other legislative efforts to limit or modify the legislation as enacted last spring.

Both parties have already agreed to repeal one aspect of that legislation.  This is the requirement that all businesses file a Form 1099 with the IRS for any vendor to whom they paid more than $600 during a year.  Although not directly related to health care reform, this provision was included in the law as a way of recovering nearly $20 billion of the costs associated with reform.  In response to fierce resistance from the business community, both houses of Congress have already passed separate bills repealing this requirement, and the President is expected to sign any agreed-upon language.

Republican legislators have also promised to limit the scope of health care reform by starving the administrative agencies of the funding they would need to implement its provisions.  Whether that effort will be successful is yet to be seen.  It could lead to another government shutdown, of the type last seen when the Republicans took control of Congress during the Clinton Administration.  In any event, certain aspects of health care reform (such as the early retiree reinsurance program and the statewide pools for the long-term uninsured) had their own multi-year appropriations hardwired into the reform legislation.

In addition to their policy of opposing the version of health care reform as enacted by the Democratically-controlled Congress, the House of Representatives has now directed its committees to report replacement legislation designed to achieve twelve specific goals.  These Republican goals are listed in House Resolution 9.  One of these twelve goals — prohibiting taxpayer funding of abortions — has already become a flashpoint of controversy.

Legal Challenges to Reform Legislation

At the same time that Republicans in Congress have been mounting legislative challenges to health care reform, some 28 states have launched challenges in court.  Most of these lawsuits have been dismissed on the ground that the parties bringing them (typically, state attorneys general) did not have “standing” to challenge those aspects of health care reform that do not take effect until 2014.  These include the law’s “individual mandate,” which would require that all legal residents either have health insurance or pay a tax penalty for failing to do so (subject to certain religious and income-based exemptions).  

As of today, however, four federal trial courts have reached the merits of these legal challenges.  Two have upheld the law, but two have invalidated the individual mandate.  One of these latter decisions went on to invalidate the entire statutory structure, on the ground that there is no basis for separating the invalid provision from the remainder of the law.

None of these trial courts has specifically enjoined the federal agencies from continuing to implement or administer the law.  Moreover, it is clear that the question of the law’s constitutionality will have to be decided at the appellate level — most likely by the U.S. Supreme Court.  The timing of any appellate decision is unclear.  Both the Fourth and Sixth U.S. Courts of Appeal have granted expedited review of lower court decisions, however, with oral arguments scheduled for May or June.

The Virginia Attorney General has even asked for direct review by the Supreme Court.  Such direct review is extremely rare.  Typically, the Supreme Court prefers to allow the intermediate courts of appeal to address legal issues first.  If those appellate courts all agree, the Supreme Court may never need to address the question.  At a minimum, appellate court opinions often help to focus the areas of legal inquiry.  Given the large number of states challenging this law, however, it is conceivable that the Supreme Court will agree to decide the question of its constitutionality without waiting for the appellate courts to issue their rulings.

Once the issue does reach the Supreme Court, the composition of the Court will be significant.  Although the Court currently has a working conservative majority, legal commentators have noted that even certain of the conservative jurists have shown a willingness to approve of fairly expansive federal powers.  It is therefore quite possible that even a conservative Court would uphold the individual mandate and other controversial aspects of the reform legislation.

Recent Administrative Actions

In the meantime, the Obama Administration has continued to issue regulations and other guidance designed to implement the law.  This all started with a surprisingly prolific regulatory summer.  By the fall, the focus had shifted to less formal guidance (such as FAQs), often intended to ease compliance for insurers and employers.  For instance, this guidance has included the following:

  • A deferral (until further guidance is issued) of the nondiscrimination rules for insured health plans.
  • Interim procedures by which a self-funded plan may comply with the requirement that non-grandfathered plans implement an external review process.
  • A six-month deferral of certain other aspects of the new claims and appeals procedures.
  • A six-month deferral (until June 30, 2011) of the time to amend Section 125 cafeteria plans to reflect the post-2010 prohibition on reimbursements for  over-the-counter (“OTC”) medicines or drugs unless the participant has a prescription (or the drug is insulin).
  • A reversal of the original position concerning the effect on a plan’s grandfathered status of changing insurance policies (allowing such changes, but only after November 15, 2010).
  • Granting hundreds of waivers of the law’s prohibition on placing low annual limits on “essential health benefits.”
  • Clarifying that neither the “automatic enrollment” nor the 60-day advance notice requirement of the law will be implemented until further guidance has been issued.
  • Clarifying that certain age-based coverage distinctions may favor younger individuals over older individuals — so long as those distinctions apply to all covered individuals, and do not single out older dependents.
  • Clarifying the permissibility of “value-based preventive care limitations,” despite the requirement that non-grandfathered plans provide first-dollar coverage for preventive care services.
  • Making the W-2 reporting of the value of health care coverage optional for 2011.

At the same time, the agencies have made clear that they will vigorously exercise their authority to review annual premium increases, particularly for increases exceeding 10%.  They have also issued guidance to the states concerning procedures to be following when implementing the state-wide “exchanges” that are to become effective as of January 1, 2014. 

At this point, it would likely take either a Supreme Court decision or a 2012 Republican sweep of both Congress and the White House to halt the 2014 implementation of health care reform.  Employers and their advisors would therefore be well-advised to continue planning for that implementation.