The Patient Protection and Affordable Care Act (PPACA) has had a bumpy ride since before it became a law, but it might be facing its biggest challenge yet from the U.S. Supreme Court.
With the possibility that the court will strike down the entire act this summer, businesses need to start thinking now about how they will handle their health care coverage if that happens.
“I think people will be scrambling to figure out what this all means if the act were to be struck down,” says Bruce Davis, principal and leader of Health and Group Benefits at Findley Davies. “Employers need to take the time now to ask themselves, ‘What would we do Jan. 1, 2013, if the act is stuck down. What changes would we make?’”
Smart Business spoke with Davis about what challenges business face and how they should prepare if the Affordable Care Act is ruled unconstitutional.
What’s the current situation with the Affordable Care Act?
Everyone is waiting for the Supreme Court to render its opinion. Oral arguments were held in March, and the justices have indicated that they will render their opinion by July. It’s widely felt that the court will strike down the individual mandate within the act, which is the requirement that each citizen purchase health insurance. However, now there is a higher probability that the entire act will be struck down.
The American Benefits Council and the Blue Cross and Blue Shield Association filed briefs prior to oral arguments laying out strong cases that the individual mandate is so closely linked to the employer-shared responsibility (i.e. pay or play) provisions and insurance market reforms that the individual mandate can’t be excluded without striking those other parts, as well. In addition, some justices, such as Justice Antonin Scalia, have signaled their reluctance to wade through 2,700 pages of the law to figure out what should stand and what should go.
What are some of the challenges employers face if the entire act is struck down?
Companies have started planning for new health care reform requirements that will begin soon, such as the new communication requirements for summaries of benefit coverage, or determining how to report the aggregate value of employer-sponsored health coverage on their 2012 W2s.
Employers need to go beyond this to consider what they will do if certain PPACA coverage requirements no longer exist. For example, any organization that decided to forfeit its grandfathered status by increasing employee cost-sharing beyond specified limits would have to pay 100 percent for a comprehensive set of preventive care services, including contraceptive and sterilization services that concerned many religious employers.
If the Affordable Care Act is struck down, employers will have to balance the need to contain their health care expenses through cost sharing with the idea of sending employees messages that emphasize wellness and prevention.
Another consideration is that, under the act, employers aren’t able to cover over-the-counter prescription drugs through a Flexible Spending Account (FSA), health reimbursement arrangement, or Health Savings Account (HSA). Without the act, an employer might want to give employees incentives to use less costly over-the-counter medication.
It gets more complicated when employers start to unravel provisions they’ve already implemented. For example, under the Affordable Care Act, employers were able to extend coverage to dependent children up to age 26. If the act is struck down, will employers revert to pre-Affordable Care Act definitions of dependent children, such as to age 19, or to age 23 if a full-time student? Some employers might be uncomfortable with taking such coverage away, but without the act, that coverage will no longer be non-taxable.
Another example is the early retiree reinsurance insurance program (ERRP), in which the federal government paid out $5 billion to help employers sustain their retiree medical plans. Much of the ERRP was paid to state governments and to union health and welfare plans. If the Affordable Care Act were struck down, would a Republican-controlled House want that $5 billion back?
The Supreme Court is unlikely to provide any kind of transition rules or remedies if the act is struck down. While it’s possible the Obama administration would provide some direction, it’s unclear how the U.S. House will react. It’s anybody’s guess. Employers need to be prepared and start thinking about this.
What can employers do to prepare ahead of the court’s decision?
Employers need to take the time now to think about what they would or would not do as of Jan. 1, 2013, in the event the act is struck down. Many employers assume the act will remain in place, but it’s best to consider the opposite possibility and think about how such a verdict impacts the direction of their health plan and its cost-sharing features in terms of employee contributions, deductibles, co-pays or out-of-pocket maximums.
Employers should start having conversations among their leadership teams, especially human resources and finance, because there might be some tension between those two groups. For example, human resources may be inclined to leave things as they are to minimize concern on the part of their employees, while finance will be looking at all options to restrain growth in health benefit costs.
Bruce Davis is a principal and leader of Health and Group Benefits at Findley Davies. Reach him at (419) 327-4133 or [email protected].
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