After our 2012 Annual Meeting, I recapped a session from the conference that had focused on the topic of healthcare reform (See here, here and here). Once the Supreme Court announced their decision, Epstein Becker & Green’s healthcare experts once again came out to help us understand what’s in, what’s out and what’s next with their webinar on July 2nd.
Since it’s always good to hear from the experts, I thought I’d recap the webinar here for you, again, breaking it up into manageable bites (so to speak).
The webinar took the format of a panel discussion, moderated by EBG’s Lynn Shapiro Snyder, and including Stuart Gerson and Mark Lutes, also from EBG, and William Oldaker, from National Health Advisors LLC (and an EBG alum). Lynn said that the webinar would cover the:
- Overview and analysis of the Supreme Court of the United States (SCOTUS) Decision.
- Implication for the States.
- Implications for the participants in the health care delivery system.
- Potential Congressional response.
- Impact on the upcoming election.
Overview of the SCOTUS Decision
Lynn kicked off the discussion with an overview of the SCOTUS decision. She said that in March 2012, when the Patient Protection and Affordable Care Act (PPACA) was enacted, there was a deal cut – there was an individual mandate for Americans to buy insurance, or pay a penalty on the private side. In addition, there would be community rating and guaranteed issue of health insurance.
The federal government would support Medicaid expansion as well to new populations, at either 100% federal matching or down to 90% federal matching, and that would hopefully achieve 32 million new Americans covered by either private health insurance or entitlement programs.
How are we going to pay for that? There were a bunch of Medicare cuts or reductions in Medicare payment increases under our 1965 Medicare “a la carte” program, and there were reductions to Medicare advantage plans as well. In addition, the pharmaceutical industry was going to increase the amount of rebates it pays for outpatient drugs under Medicaid. There were also a few taxes in there, like taxing tanning salons and the medical device industry, which the panelists would talk about in more detail later.
There are also going to be fees paid by the insurance companies and new employer obligations, if they don’t do certain things, and the other one, which Lynn said is really at the mainstay of and will become more relevant as the years go by, is referred to as the “Cadillac plan tax” on employee health benefits, which puts a cap on the tax deductibility of the benefits package.
How are we going to do all of this? We agreed that there would be a federal/state sharing of the administration. It is hoped that the states would step up to the plate and administer this through state exchanges and the expansion of Medicaid, and if a state chooses not to go forward, the federal government would step in. But there was an opportunity for the states, if they want to, to play a significant role in the implementation.
To help people with the requirement to buy health insurance, people were given tax credits and subsidies for out-of-pocket expenses. If people still decided not to buy health insurance, they would then pay a penalty.
Lynn said that there are at least ten different names for the Patient Protection and Affordable Care Act, and we’ve heard a lot about the provisions she mentions above. However, there was a lot more in the statute that was at stake – we know there was money funding new cooperative health plans throughout the country, money given out for healthcare workforce provisions, increased healthcare fraud enforcement, new transparency under a federal sunshine law as to ownership and payments to doctors, and more.
Lynn outlined the four issues that were before the Supreme Court, so the audience would know the basics of what happened:
- First and foremost is whether the federal government, as opposed to the state government, could require Americans to buy health insurance or pay a penalty – is that constitutional? At the highest level, the court said that it was a tax, not just a penalty, and they decided not to address the issue directly in the majority opinion.
- Was the case barred by the Anti-injunction Act? That statute said that before you could challenge a tax, you had to first pay for it, and then wait for the administrative process of challenging it before you could go to court. The bottom line is that the court said that the Anti-injunction Act was not a bar to addressing the issue of the PPACA. Yes, it could be a tax for purposes of constitutionality, but it doesn’t have to be a tax for the purposes of the Anti-injunction Act. Lynn said that they, as lawyers, are comfortable with that type of analysis, because words matter.
- The third issue was whether there can be serverability of that mandate in case it was unconstitutional, and still keep a” Christmas tree list” of Affordable Care Act provisions. In that context, it was not needed to address this as to the mandate, since it was upheld as a tax.
- The last issue, which Lynn said would likely take up most of the time, is whether Congress exceeded its authority under the spending clause by expanding Medicaid, because it was coercing the states by saying that if you don’t extend Medicaid, you will lose your existing federal matching money. There, the Supreme Court said that there is coercion, and that the federal government is not allowed to coerce states, that it crossed the line. In our federal system, the states are separate sovereignties. We can still have a strong federal government, but the states have their own rights. Therefore, the only thing at risk now will be any new Medicaid money as to the new expansion, while existing Medicaid money is not going to be at risk. Interestingly, Lynn said, the Court did exercise their right to severability in this particular context.
Lynn said in conclusion that this is a relatively conservative majority opinion (not in a political sense). Stuart will speak more about the commerce clause, the necessary and proper clause, and the spending powers. In terms of the mandate, Lynn finds it ironic that the weakness in it – the fact that the tax is not so onerous as to make the tax a fiction – became the saving grace for its constitutionality. She said that in fact, we’re still not sure if the mandate, whether it’s a mandate or an option, will really help consumers purchase health insurance and make sure that people are in the system, especially the healthy ones that need to be in the system so that we can share the premiums and the risks appropriately. The questions still remain as to whether people will buy insurance, whether there will be new incentives, either at the federal or state level, if these new incentives will be constitutional, and whether the risk pools will be balanced.
Lynn said that the bottom line is that the SCOTUS decision maintains the status quo. It avoids disruption in the current implementation work.
She then handed the platform over to Stuart, asking him jokingly whether the majority decision means that the federal government can require her to eat broccoli.
Analysis of the SCOTUS Decision
Stuart answered Lynn by saying that his son had asked the same question, and the answer is no, you can’t be required to eat broccoli but you can be made to pay a penalty or a tax if congress ever concludes that commerce in broccoli is a national imperative.
He said that we’ve been talking a lot about the mandate, but would talk about it less so in the future, because it doesn’t affect a great many people. However, to understand what happened in the Supreme Court, it’s necessary to understand the mandate. The mandate was put into the PPACA because it requires insurers to accept people with pre-existing conditions and not to rate them in a way that would be discriminatory against other people in their community. In other words, sick people have to come in, and in our aging population, there is a lot people like that. So the insurance industry convinced Congress that they needed an offset in order to avoid adverse selection, and that offset is the mandate.
Originally, the whole discussion of the mandate revolved around the Commerce Clause, always liberally interpreted until now. The Administration, which didn’t want to be perceived as raising taxes justified the individual mandate as an exercise of the Commerce Clause, a la the famous New Deal case of Wickerd v Filburn. This case was one in which during the New Deal, the Supreme Court upheld a congressional action which regulated an individual’s ability to grown an excessive amount of wheat for personal use.
When read this way, where the mandate is about people who are inactive, who don’t want to enter commerce, to apply the Commerce Clause to allow the mandate would have been to have an unlimited power. Stuart said that we’d remember that the solicitor general was criticized for not coming up with a cogent limiting principle, which Stuart agreed that he didn’t. Five members of SCOTUS so held, but as we look at the Supreme Court today – the one that’s going to come back in October for the new term – it’s very possible to say that it’s a “Roberts Court,” and it has exactly one member – the Chief Justice, John Roberts.
Stuart said this is a very unusual situation. Stuart said he would show us how Chief Justice Roberts maneuvered, and many are praising him, saying that this is what John Marshall did in Marbury v Madison. The holdings are quite succinct and they’re well-precedented, but they’re unusually arrived at.
First, the conservative justices – the Chief and Scalia, Kennedy, Thomas and Alito – all held that this unlimited Commerce Clause doesn’t go. And that now stands as an imposed conservative barrier. The four liberal justices felt the other way about it, and this was seen in their concurring opinion, led by Justice Ginsburg. However, if one of the older Republican justices resigns from the courts and is replaced in the second Obama administration by a liberal, we may have this old-time view of the Commerce Clause restored. Stuart, however, doesn’t expect to see much in this regard.
Wickerd now represents the outer limit of the Commerce Clause, and the cleverness is in the Chief stepping in and in essence, creating an alternative ground. Everyone knew that the tax power is a virtually unlimited power, but that wasn’t what the government argued. It was thrown in there as a third argument, an “also-ran” and very little time was spent on it in either the briefs or the court arguing.
Lynn said that someone in the audience wanted to know whether the fact that there were five justices who didn’t support the mandate under the Commerce Clause was a dictum or a holding. Stuart said that it’s a holding. The majority of the Court – and this the the cleverness of what the Chief did – he, and he alone, believed that the case should be decided under the tax power. He did a lot of maneuvering of something that Congress said wasn’t a tax to hold that it, in fact, was a tax. He did a fancy two-step not to apply the Anti-injunction Act to a tax that doesn’t take effect until 2014. It forced the liberal justices to join him in order to gain the five justice majority. So he was the whole court – it’s the opinion of one person, but Stuart said he’s the person with the big hammer.
Lynn then said that another audience member wanted to know what other lawsuits may be coming. Stuart said that there will be others, but first wanted to talk about the precedence of the main points. Then he would speak about what he expects will be a range of lawsuits – perhaps not the generally expected ones, but there will be a lot of them.
The Anti-injunction Act, now having been held to be waivable by the Congress, and the Chief reading into Congress with the intention to waive it, you’re going to see arguments in the future when there’s payer litigation saying that “now my suit is right,” when years ago, he might not have been able to argue that. You’re going to hear that a lot, though Stuart doesn’t expect that it will be widely accepted.
The other area which is very important, and again, where the Chief stepped in and did a very conservative thing, was the question of the coercion of the states and what the tax power does. Here, there were seven justices, if you read the different opinions, who believe that the tax power cannot be used in a coercive way.
While the tax power is very extensive, the states can’t be penalized under the tax power for refusing to join a program that does allow them to opt out. You’re going to hear more about that in future cases, not necessarily those involving healthcare, but involving the tax power generally, where, as a matter of federalism, the states are going to be given the right to opt out of these programs. Stuart said we would talk later about what the likely effect is, and he doesn’t think anyone believes that many states will opt out. However, it’s still a very important constitutional issue.
Stuart said that as for other lawsuits, you can look in a couple of areas. There will be cases involving the constitutionality of the PPACA – for example, it has a portion of provisions in it, and those are starting to filter their way through the courts. So far, they have been rejected.
What Stuart really suggests that we will see, the massive cases, are going to be regulatory challenges. This is a 900-page statute, with myriad provisions requiring agency action. Things such as reimbursement rates, because of the deficit reduction, are going to affect pharmaceutical companies, hospitals, and the whole range of providers in the healthcare industry, so Stuart expects to see regulatory litigation.
In the next post, I’ll delve into the implications for the states that Lynn and the panelists discussed!