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Health care reform law faces key court test

Employer planning complicated by legal uncertainty

Health care reform law faces key court test

WASHINGTON—Employers' desire for certainty about the health care reform law will have to wait until at least sometime next year, when the Supreme Court rules on the legality of the law.

The justices agreed last week to review a lawsuit challenging the 2010 Patient Protection and Affordable Care Act, with a decision expected by the end of the court's term in June.

The decision to hear the challenge sets the stage for one of several decisions, experts say:

• The court either could uphold or strike down the issue directly before them in the case, which is whether a health care reform law provision requiring individuals to enroll in a qualified health care plan or pay a financial penalty, is unconstitutional.

• The court could decide the entire law is unconstitutional. Such a decision is possible if the justices strike down the individual mandate and find that the mandate is so intertwined with the broader provisions the broader law would fall with it.

• The court could rule that a decision is premature. That scenario is possible if the justices follow an appeals court ruling that a challenge to the individual mandate could not occur until individuals actually pay a penalty for not enrolling in a plan. The first penalty payment wouldn't be due until April 2015, the deadline for filing 2014 federal tax returns.

How the Supreme Court rules will greatly influence the issues facing employers and lawmakers.

Since the passage of the reform legislation in March 2010, employers have had a dual focus.

Their immediate focus has been amending their plans to comply with provisions that went into effect this year, such as extending coverage to employees' adult children up to age 26 and knocking out lifetime dollar coverage limits.

At the same time, employers have been preparing for other changes that take effect later, such as an excise tax that will be imposed on the most costly plans. And many have analyzed whether it will makes sense to offer a health care plan after a key reform law provision—the availability of federal premium subsidies to lower- and middle-income uninsured individuals—begins in 2014.

If the Supreme Court strikes down the entire law, employers' focus will shift abruptly.

Initially, there would be “relative chaos in terms of planning with everyone having been geared up” to comply with the law, said Helen Darling, president of the National Business Group on Health in Washington.

But if the law were to be overturned, employers' focus will shift from implementation to whether and how they should roll back health care plan design changes that they already have put in place.

For example, virtually all employers had to amend their plans to comply with the age 26 adult child coverage mandate. Prior to the reform law, employers typically ended coverage at age 19, or 23 or 24, in the case of children who were full-time college students.

Many employers, especially those for whom the age 26 requirement had only a minor cost impact, are likely to keep that provision.

“Once something is extended, it is hard to take back,” said Gretchen Young, senior vp-health policy with the ERISA Industry Committee in Washington.

“I do not believe we would go back to our full-time student age 25 limitation as I do not believe this change has had a major impact on our plan and has been very well-received by our employees,” said Joseph Molloy, vp-benefits/employee services at North Shore-LIJ Health System in Lake Success, N.Y.

Some employers might take a middle approach, keeping the extension of coverage until age 26 but reinstating prior requirements, such as the adult child being a full-time student, Ms. Darling said.

If only the individual mandate were struck down, federal lawmakers and the Obama administration would face a different issue.

If individuals faced no penalties for not buying coverage and could purchase it any time through exchanges, massive adverse selection would be certain, experts say.

That is because the law bars insurers, which would write coverage provided through the exchanges, from denying coverage for pre-existing medical conditions, making it certain that many individuals would wait until they had expensive-to-treat medical conditions before getting health insurance.

Without an individual mandate, “you have a worst-case scenario. You'd have individuals sitting on the sidelines until they need coverage. You would not have a spread of risk, and that would drive up costs” enormously, said James Napoli, a senior counsel with Proskauer Rose L.L.P. in Washington.

“How could the exchanges function? Premiums would skyrocket,” Ms. Young said.

In addition, “insurers would not want to write coverage” through the exchanges, said Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago.

With costs to subsidize those dramatically higher premiums far higher than budgeted, lawmakers and the administration would have to search for new approaches, experts say.

Yet another possibility is that the high court could put off action until 2015, a potential outcome that would not be welcomed by employers.

“More than anything, employers want certainty,” said Michael Thompson, who is a principal with PricewaterhouseCoopers L.L.P. in New York.