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SCOTUS Decision on the PPACA – Impact of the Upcoming Election & Implications for Employers

Our series recapping the Epstein Becker & Green webinar on the Supreme Court’s Decision regarding Obamacare continues! Today, we’ll be talking about the impact of the upcoming election on the plan, as well as the implications for employers.

Impact of the Upcoming Election

Lynn asked the panelists to comment on the Presidential election and the swing states, saying that there wasn’t even agreement among the panelists as to which states are the swing states. Bill agreed, and said that both political parties count different states as swing states. He thinks that the six states that both parties agree on as swing states are Colorado, Nevada, Florida, Ohio, Virginia and Pennsylvania. 

Some Republicans think other swing states include Iowa, Wisconsin, and New Hampshire, while Democrats think Arizona and North Carolina are swing states. Bill said that if you look at the six, and you look at what the various parties and independent organizations are doing, they’ve centered on these states, and that’s where almost all of the money is currently being spent.

Bill believes that whoever wins the majority of these six states, however their electoral votes are combined, will determine how the election turns out. He added that the east, the west and the south are not included in either side’s view of what is in play.

Mark asked Bill about what the early returns are suggesting the impact of the decision might be within those six states. Bill said that in the more industrial areas of the country, which he would class as Virginia, Pennsylvania and Ohio among the swing states, the decision seems to have a positive effect. It’s a little harder to read in Florida, which is a very conservative state, and in Colorado and Nevada, it depends on which poll you read. He said that if you look at the Medicaid provisions, both Colorado and Nevada will likely take the expanded Medicaid, though Nevada is not 100% sure. The Hispanic populations will be very strong on that in both states, and if it’s rejected, he thinks you’ll see Hispanics in those states becoming very upset.

Stuart commented that while healthcare and health insurance are the center of the universe for the panelists and likely for most of the audience on the webinar, it’s not for the American people. He said that on the list of issues that are of concern for people in general, healthcare is low on the totem pole. People are focused on job creation, the economy in general and other immediate pocketbook issues, and this will determine what happens in the election.

He suggested that we keep that in mind, that although healthcare is the biggest part of the economy, the fastest growing part, and the biggest creator of additions to the deficit, we won’t get to it until we get through the elections, which will be focused on job creation.

Bill agreed with Stuart, and said that in Colorado, Nevada and Florida, a major issue is immigration reform, because of the large Hispanic population. Lynn said that some of those states, like Florida, represent one of the six states that make up over 50% of the 32 million. There are only six states with a little more than half the 32 million, and in each of those six, the politics is different as to whether they’re implementing it in a timely manner, and the demographics are different in that they’re still going to have a large uninsured population no matter what because of the immigration issue. So she does think you have to look at all the pieces of the equation.

Implications for Employers

Lynn moved on to the next topic, implications for employers, asking Mark to comment on what the decision means for employers. Mark began by saying that it’s a very different world for large and small employers.

Small Employers

In 2014, small employers will begin to think about whether to continue providing healthcare, or have the option to do something differently, like pay the free rider penalty. In many respects, neither decision is especially attractive to employers. However, the portion of exchanges targeted to small employers are able to solve certain fundamental issues around adverse selection and risk order balancing, and this could emerge as an alternative for small employers, as opposed to paying the penalty.

The key to the success of the exchange will be the ability to attract a critical mass of employers, and then the cost curve to the employees who enroll over time. The PPACA greatly expands the number of employees who are eligible for benefits under a certain employers’ plan. By mandating that the employers provide coverage to all employees who work over 30 hours a week, and by mandating that coverage be extended to dependents through the age of 26, the world has changed in terms of cost.

So if we think further ahead, the richness of the benefits that must be offered in terms of what is eventually defined as the essential health benefits, and what is defined as preventative health services, also affects costs. Mark said there have been Kaiser studies that project cost increases in the neighborhood of 8-9% flowing from all of this. But there’s a lot of academic debate over this.

Consequently, for most employers, dropping coverage and paying a free rider fee could make sense from a purely economic standpoint. The reality is, however, that the decision whether to provide benefits is not simply an economic question. The justifications that employers have traditionally relied on in providing benefits are still relevant, and the decision to discontinue could hamper their ability to compete in other ways in the post PPACA world. These justifications include things like recruitment and retention tools, as employers that offer benefits will be more attractive to talent than employers who do not.

Further, Mark said, employers who do not offer benefits are likely to become targets of unionization activities, because of the cessation of benefits can lead to employee dissatisfaction. Additionally, health employees are typically more productive, and providing them with health benefits is the most effective way for employers to ensure the health of their workforces. Therefore, as it currently stands, Mark thinks that small employers are stuck between the proverbial rock and a hard place. Employers that decide to continue benefits, in many respects, are continuing down an unsustainable path, as it’s likely that the costs will continue to increase. On the other hand, by dropping coverage, employers will expose themselves to the threat of unionization, they’ll risk losing valuable employees to competitors , and employee productivity could also suffer.

Large Employers

Mark didn’t paint a much rosier picture for large employers. He said that it seems unlikely that large employers will abandon employer-provided health benefits in favor of a defined contribution approach. In the near term, employers are likely to work to control the costs of their plans as they continue to absorb the cost features added by the PPACA. They’re also going to be looking to the possibility of a 40% excise tax in 2018, and working very hard to manage the cost of their plans so that they don’t run into that. The tools that employers utilize to level off cost trends will include standard wellness incentives, as permitted by the PPACA, and Mark expects that they will have a new interest in working with local provider systems on the major cost drivers that they are experiencing.

Local provider systems are creating care management methodologies in the context of building for CMS and experimenting with, and working to, reduce unnecessary re-admissions. Those care management capabilities that those local health systems are developing, many at the instigation of CMS and CMMI programs, could potentially be deployed to attack some of the big cost drivers – employer plans, particularly with respect to chronic conditions, such as lower back pain, COPD, etc. Mark said that as these groups move forward, to get a handle on these costs, particularly with the threat of the 2018 excise tax, he expects to see more creative partnerships between local provider systems and employee welfare benefit plans.

Lynn said that there are questions coming in about whether the decision making about whether to buy health insurance – either to continue it at the employer level or at the individual level – seems to be about tangible things like financial concerns, but also those intangible things, like health and wellness. For example, if there’s going to be a more affordable premium for the individual market through a state exchange, is it possible that certain people who are currently working would leave the workforce because they’re just waiting for Medicare eligibility, open up new jobs for other people, create perhaps a boon to the economy, or innovation?

Mark said that successful exchanges certainly hope to reduce what has been called “job lock,” under the current systems. And if job lock was ever sufficiently addressed, you could have that. Stuart said that there are people in the administration – the old public option advocates – who believe that we would have a better healthcare system if there was a migration away from what was an accident in the American experience, the employer/employment-based health insurance. There are a lot of people who view the PPACA as transitional towards that. He said that there are indeed some companies that want to get out of the healthcare business, and in terms of the potential impact on small businesses, the only thing you need to know is that the case in front of the Supreme Court was called “National Federation of Independent Business against Sebelius,” the lobby/trade association for small business where most jobs are created.

Lynn said that audience members were also asking the panelists to define small employers versus large employers – she said that the magic number is 50, and encouraged everyone to go back to the summary of the original statute, because everything that was mentioned about that when the statute was first enacted is still the case. She said that EBG has summaries on their website, as well as other summaries on other websites.

There’s an issue with how you count the number 50 in terms of full-time employees, and there has always been an issue – both in this statute and in others, of whether employers will fool around with the numbers to stay below the 50, or jump way up above the 50, so they can avoid being on the cusp, which can create havoc in the employer operation. But Lynn would forewarn people to take a look at these provisions, and added that the states also have the opportunity to select a different number as well, as part of the exchange implementation. The states may choose a lower number, and that doesn’t mean that they’re eligible for some of the subsidies and tax credits. The states can do what they want to do, separate and distinct from what the federal government provides.

Lynn said that one of the other things that was coming up as part of the questions is the issue of the employer penalty. She asked Mark to comment on the possibility of employers paying a fee, specifically whether it’s really a numbers game, or if employers will really be making this decision based on the intangibles as well.

Mark said that he thinks it definitely won’t be a simple financial calculation, as it impacts workforce retention and the ability to recruit talent in a very competitive world. Bill added that if you look at Massachusetts as a model, more employers are giving their employees health insurance now than before they enacted their plan. Massachusetts is different than a lot of states, but they have a higher percentage of employers offering healthcare, and a lower percentage of employers paying the penalty.

Tomorrow, we’ll delve into the implications for the healthcare industry sectors, like manufacturers, payors, providers and service providers.