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HASSETT’S OBJECTIONS - HealthCare Reform: It’s the Funding...

03.23.2011

Few legislative enactments have generated the strong reactions of the Patient Protection and Affordable Care Act.  In a nutshell, the Act seeks to expand care by: (a) requiring citizens to obtain private health insurance, (b) requiring insurers to provide coverage notwithstanding pre-existing conditions and without lifetime caps and with some limitations on the allocation of financial responsibility to insureds through deductibles and co-pays, (c) having the government subsidize the cost of insurance for those with income under a certain threshold and (d) reducing some Medicare reimbursements to providers as a means to offset the cost of the governmental subsidy.

The primary legal issue is whether the Commerce Clause authorizes the federal government to require individuals to purchase health insurance from private insurers.  Because the issue is the federal government’s power to mandate individual purchases of health insurance, the Massachusetts Court of Appeals’ unpublished decision upholding the constitutionality of Massachusetts’ individual mandate does not provide guidance.  See Fountas v. Comm’er of Revenue,Case No. 2009-P-0526 (Mass. App. 2009) (unpublished), review denied, 925 N.E.2d 865 (Mass. 2010).  

Five federal courts have addressed the constitutionality of the individual mandate.  Three courts have found the Act constitutional.  See Mead v. Holder, Case No. 10-950 (D.D.C. Feb. 22, 2011); Thomas More Law Center v. Obama, 720 F.Supp.2d 882 (E.D. Mich., Oct. 7, 2010); Liberty University, Inc. v. Geithner, Case No. 6:10-CV-00015, (W.D.Va. Nov 30, 2010).  Two other courts have held that the Commerce Clause does not authorize the individual mandate.  See Virginia, ex rel. Cuccinelli v. Sebelius, 728 F.Supp.2d 768 (E.D. Va., Dec. 13, 2010); Florida v. U.S. Dept. of H.H.S., ____ F.Supp.2d ____, Case No. 3:10-cv-91-RV/EMT (N.D. Fla., Jan. 31, 2011).  One of those courts severed the mandate and upheld the remainder.  See Cuccinelli, 728 F.Supp.2d at 789-790.  The other found the mandate to be an integral part of the statute and struck the entire Act.  Florida, supra at 36-39.

While the Commerce Clause issue is interesting, it does not address the ultimate policy questions arising from continuing advances in health science.  People are living longer and, as a result, consume more care, with most expenditures coming at the end of life.  The good news is that we can live longer, notwithstanding chronic illnesses; the bad news is that someone has to cover the cost.

Therefore, as a society, we face two economic and moral issues.  The first is the extent to which government should subsidize healthcare costs.  The second is the extent to which that cost should be covered through borrowing and, therefore, passed to future generations

My own view on the second issue is that it is shameful to fund our generation’s healthcare on the backs of our descendants.  The aging of our population, as well as its increased longevity, and the enactment of an unfunded Medicare prescription program has contributed to the deficit.  Deficits matter.

Politicians recently have said that it is time for an “adult conversation.”  I still wait.  The reality is that we cannot afford first dollar unlimited care for everyone, certainly not without regard to long term prognosis — not just length of survival but quality of life.  While the Congressional Budget Office concludes the Act will save money over the next ten years, that projection assumes cuts to Medicare and the actuarial timing of inflows and outflows raises fears of what happens after ten years.  The unfunded Medicare prescription act understandably triggers skepticism of governmental accounting.  Remember when the Iraq war was going to pay for itself?

Politicians decry the rationing of care.  But we already do so in several ways.  One is through market forces whereby the wealthy can afford more and better care.  While the poor can obtain emergency room care without insurance, that care (and the governmental subsidiary for that care) is limited to stabilization, unless they are “lucky” enough to be admitted. See 42 U.S.C. § 1395dd(b).  First dollar, long term and unlimited care are something else altogether.

Co-pays, deductibles and annual and lifetime caps are other forms of market-generated rationing.  The Act precludes lifetime caps, which necessarily carries an increased cost.

Another form of rationing is managed care.  As the United States Supreme Court noted in Pegram v. Herdich, 530 U.S. 211, 221 (2000), under any HMO, “there must be rationing and an inducement to ration.  [The] inducement to ration care goes to the very point of any HMO..., and rationing necessarily raises some risks and reduces others (ruptured appendices are more likely; unnecessary appendectomies less so) ....”  The criteria for rationing necessarily embodies “a judgment about socially acceptable medical risk.”  Id.

When the managed care is through an ERISA plan, federal law protects the decisions of the plan administrator.  See Pregram, 530 U.S. at 225-229 (HMO is no fiduciary under ERISA plan).  While some would say that protection allows the administrator to make knowledgeable decisions without fear of liability, others say that it encourages restrictions of care.  Regardless, it has the effect of rationing care.

But this rationing is nothing new.  Before the prevalence of employer-sponsored plans separated patients from pricing decisions, patients and their parents weighed the cost of treatment against the expected benefits.  Because insureds now often feel little direct financial impact from treatment decisions, someone else must weigh these factors.

Decisions of life and death through rationing have been made for years by transplant committees.  They consider the age, health and prognosis of potential recipients before allocating precious transplantable organs.  Because, unlike money, organs cannot be printed or borrowed, our society accepts this type of rationing.  After all, even the most egalitarian among us understands that not everyone who needs a new liver gets one and that giving a liver to an otherwise healthy 30 year old makes more sense than donating it to the 60 year old recidivist alcoholic.  [Full Disclosure:  As I get older, my perception of the age at which care becomes wasteful has increased].

My point is that our national health policy should treat our nation’s current and future wealth with circumspection.  If we make the moral choice that we want to ensure care for all, then we need to pay for it and not bequeath an insolvent nation to our children and grandchildren.

Any “adult” implementation of this policy necessarily will require the rationing of treatment.  Fiscal and monetary policy cannot fund unlimited treatment without extensive deficit financing.  Further, if the government is funding the care, then it must implement the rationing through bureaucratic regulation.  The payor is the only party with the incentive to limit cost, except to the extent that the payor shares “savings” with providers.  See Pregram, 530 U.S. at 220 (payor reimbursement scheme with year-end distribution to providers did not violate duty to patients).

In other countries, care is rationed by committees reviewing quality of life benefits versus costs.  Some countries, such as the Netherlands, even allow active euthanasia.  In Christopher Buckley’s 2007 novel, Boomsday, the younger generation proposes financial incentives to the elderly (actually, to their families) for euthanasia.  

Our society is not ready to accept active euthanasia.  We envision the young saying, “Grandma, I love you so much that it hurts me so much to see you in pain...and, by the way, where do you bank?”  The Act’s provisions for end of life counseling have been decried as “killing grandma.”

The conclusion that saddling our descendants with the tab for our own healthcare is economically unwise and morally wrong leads to two other conclusions.  First, the decision in Cuccinelli, 728 F.Supp 2d at 789-790, striking the individual mandate but upholding the remainder of the Act is difficult to justify economically.  Requiring insurers to cover pre-existing conditions without a corresponding duty on citizens to obtain insurance necessarily would trigger substantial premium increases and higher governmental subsidies.

Second, any healthcare reform must address how much care we can afford now and how we allocate that care.  Historically, and apart from Medicare, Medicaid and related programs, we have allocated that care based upon market forces.  Medicare and Medicaid affected that allocation by providing subsidies to the old, the poor and the disabled, although that care is limited.

Not surprisingly, those unable to afford adequate coverage or care are dissatisfied with a pure market allocation.  As the gap between rich and poor grows and the purchasing power of the middle class decreases, those disfavoring a market allocation of healthcare naturally increase.  If some level of healthcare is to be guaranteed to all citizens without exploding the national debt, by definition it will be heavily rationed.  Ultimate authority for treatment, and the criteria for treatment, necessarily would be made by the payor (perhaps with independent opinions).  For a government program, the payor by definition is the government.  Some would prefer governmental oversight over insurer or HMO oversight, and that societal split probably mirrors the split over the Act.  The bottom line is that the days of making unfettered treatment decisions with your doctor are over, and have been for a while.  The sooner we face that reality, the quicker we can begin the adult conversation.

Lew Hassett is Co-Chairman of the firm’s Insurance and Reinsurance Practice. His practice concentrates in the areas of complex civil litigation, including insurance and reinsurance matters, business torts and insurer insolvencies. Mr. Hassett received his bachelor’s degree from the University of Miami and his law degree from the University of Virginia.