Health care reform: what you don't know may hurt you

By Sheryl Nance-Nash Posted : 06/15/2012

health care reform facing court decisionAny day now, the U.S. Supreme Court could change the health care system by overturning or validating aspects of the Patient Protection and Affordable Care Act that was signed in 2010. There is also speculation that the entire law could be struck down.

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There's much at stake. "This is one of the most important Supreme Court decisions in a generation," says Alden Bianchi, a health care benefits attorney in the Boston office of Mintz Levin, who has read many of the briefs filed in the case.

If the law stands as is, reforms will be rolled out until 2015. To date, some 50 provisions already have kicked in. (See: "Health care reform you can take advantage of now.") For example, here are some key provisions already in place:

  • Adults up to age 26 can remain on their parents' health insurance plan.
  • Pre-existing condition insurance plans now make it possible for those who have been uninsured for at least six months because of a pre-existing condition to have coverage.
  • Small businesses can get tax credits for health insurance.
  • The medical loss ratio provision requires that health plans spend 80 percent to 85 percent of premiums on medical care or quality improvements. Health plans that spend less on medical care must issue rebates to their customers. According to a Kaiser Family Foundation report, rebates of $1.3 billion are due to consumers and businesses in August. The rebates are based on how health plans spent premium dollars in 2011.

What's a health care exchange and why should I care?

The linchpin in this legislation is the creation of health care exchanges, which are set to be established by 2014. The exchanges would operate as a farmer's market of sorts for health insurance, where businesses and individuals could go to purchase insurance rather than directly from the insurance companies, as they do now. Some of the benefits of the exchanges include increased competition, lower costs and lower premiums.

Exchanges also allow for "apples to apples comparisons because insurers will have to publish a summary of benefits, so you'll know what you're getting, comparable to a nutrition label," explains Timothy Jost, the Robert L. Willett family professor of law at Washington and Lee University School of Law in Lexington, Va., and co-author of case book "Health Law."

The exchanges would likely be set up on the Internet, much like Medicare Part D currently works, says Timothy McBride, professor and associate dean for public health at the Brown School at Washington University in St. Louis.

Ruling on the entire health reform law or just parts of it?

As it stands, no one is quite certain if the court will overturn the entire law or just sections of it.

Some have speculated that the court will overturn the entire law. "There are some who believe they will overturn the entire law because picking and choosing between various aspects of the law's 2,000 pages in order to keep some and toss others would be a Herculean task. And it might open them more to charges of 'legislating from the bench' than if they overturn the entire bill," says Lee Doble, managing director of employee benefits services at Frank Crystal & Company.

Bianchi disagrees: "I would be surprised if the Supreme Court washed out the whole law. If they did, they would no longer be a court, but a super legislature. The traditional notion of the court is that of umpires, they call balls and strikes. I'm shocked at the level of traction the argument that the individual mandate was unconstitutional got."

Others who are watching the case believe the court will only look at specific sections of the legislation, such as the individual mandate, or the mandate and controversial pieces like the provision to expand the Medicaid program. The Medicaid expansion would cover all citizens with income below 133 percent of the federal poverty level, with the federal government picking up nearly all the costs of the newly eligible.

"The individual mandate is most vulnerable," says Sallie Thieme Sanford, an assistant professor of law and adjunct assistant professor of health services at the University of Washington in Seattle. "The administration argued that the mandate is essential to the requirement that insurers not discriminate against those with pre-existing medical conditions. If people wait to buy community-rated insurance until they were expensively sick or injured, the theory goes, the individual insurance market would collapse."

If the mandate is thrown out, it would be a huge setback to the effort to make everyone insurable, to rein in costs and to improve the health care system for everyone, she says. Throwing out the provisions would indirectly impact everyone in part because the costs of uncompensated care -- estimated at $43 billion in 2008 -- are shifted to the insured and to the state and federal government.

Many unaware of health exchanges, health insurance rebates

Despite the huge ramifications, many Americans aren't attuned to the details. Recent research from CVS Caremark found that 78 percent of consumers who would be eligible for new health care coverage under the law have never heard of state-based health care exchanges. Sixty percent said they need help in understanding health care insurance terms and descriptions and navigating the complex health care system while trying to find affordable health insurance.

Similarly, nearly 90 percent of people who buy their own health insurance are unaware that the Patient Protection and Affordable Care Act could make them eligible for a partial refund of their 2011 health insurance premiums under the medical loss ratio provision, according to a recently released survey by eHealthInsurance. (See: Health care reform: The myths and facts about FSA and HSA.)

What's going to happen with the health insurance rebate checks?

While the rebates will average about $127 in the individual market, there's a bigger issue. "The rule is meant for insurers to spend a certain percentage on medical care, not administration. It shifts the focus so consumers get more value for their premium," says Lauren Sobel, a senior attorney with Consumers Union. Separate from the court challenge, Congress isn't likely to pass repeal legislation, and the president has vowed to veto such legislation. It is unlikely that an override could be mounted, says Doble.

Some industry watchers speculate that if there were a repeal to the minimum loss ratio that results in rebate checks, it would be on a "go forward" basis. "So if rebates have been calculated and delivered, insurers should not expect to receive those funds back," says Kevin Sliwa, partner, employee benefits with MJ Insurance.

Lasting impact: Young adult coverage, insurers stick with it

No one knows what the court will do, but the existing law is already having an impact.

According to The Commonwealth Fund Health Insurance Tracking Service for Young Adults, between November 2010 and November 2011, an estimated 13.7 million young adults ages 19 to 25 stayed on or joined their parents' health plans, including 6.6 million who likely would not have been able to do so prior to the passage of the Patient Protection and Affordable Care Act.

If the provision allowing for young adult coverage on parents' plans is eliminated, it's a double whammy. "Presumably, the tax provision allowing for exclusion of the income value of such coverage would also disappear, thus requiring employers to identify whether individuals over the age of 19 are qualified tax dependents in order to allow for the tax exclusion to apply," says Doble. For those who do not meet the dependency test, the value of the health insurance would be taxable to individual employees and employers would also have to pay payroll taxes on that value.

Les Levinson, a partner at the law firm of Edwards Wildman Palmer, says, "No matter what the court does, the train has left the station. Greater efficiencies, coordinated care -- the commercial pay market has been leading the way and they're not going backward. There is continued growth in collaborations with private companies to bring down costs. Ideas and products that were considered out-of-the-box 10 years ago are breaking through. It's just good business. [Health reform legislation] will have lasting impact. Some of the movement we've seen in the marketplace will continue, we're moving forward."

Indeed, some insurers say they will stay the course no matter what the court decides. UnitedHealthcare says it will continue provisions such as those related to coverage of preventative health care services, dependents up to age 26,and lifetime policy limits. Humana will permit coverage of dependents up to age 26 and will refrain from imposing lifetime dollar limits on coverage.

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