The Supreme Court’s recent decision1 upholding most of the Patient Protection and Affordable Care Act (“ACA”) raises more questions than it answers, as the focus now will shift to how the ACA’s major provisions will be implemented, especially in the states.
In a 5-4 opinion, the Court upheld the ACA’s mandate requiring individuals to maintain “minimum essential” health insurance coverage or pay a penalty to the Internal Revenue Service. To reach this holding, the Court construed the mandate as a tax within Congress’s constitutional taxing authority.
At the same time, the Court struck down a provision of the ACA under which the states would have been required to accept a major and costly expansion of Medicaid or risk losing all funding for existing Medicaid programs. Under the ruling, the states may accept the Medicaid expansion but will not be penalized if they elect not to do so. All other provisions of the ACA are left in place.
The Court’s decision means that all of the ACA’s insurance reforms remain valid and enforceable, including guaranteed issue, community rating of insurance and the establishment of insurance exchanges, all of which will become effective in 2014. Also surviving are the ACA’s revenue-generating provisions relating to health insurers and insurance plans, including the limit on deductibility of executive compensation, the annual policy fee, the “Cadillac plan” excise tax and the provision under which health insurers collectively will pay the federal government a large annual assessment, starting at $8 billion in 2014 and growing to $14.3 billion by 2018.
The Supreme Court’s decision will increase the pressure on states to take action to implement all or parts of the ACA. States, in particular, will need to examine closely the ACA’s provisions regarding exchanges, insurance market reforms and Medicaid expansion to determine what action, if any, the state should take in reaction to the Court’s ruling.
As a result of the ruling, it is clear that exchanges will play a significant role in the future distribution of health insurance. The ACA, and the Department of Health and Human Services’ (“HHS”) regulation implementing the ACA, envision three potential forms of exchanges: (1) a state-created and run exchange (“state-based exchange”); (2) a federally-created, but state-managed exchange (“partnership exchange”); or (3) a federally-created and run exchange (“federally-facilitated exchange”).
Issues that states must consider include to what extent the state will want to influence the operation of the exchange and their individual citizens’ experience with the exchange. If a state chooses to manage a federal partnership exchange, the state also will need to consider how to finance these management functions. Will the funds come from the federal exchange through the exchange’s ability to assess participating insurers, or will the state need to create its own funding source to pay for the cost of managing with the federal exchange?
Perhaps the largest exchange-related issue states must consider will be the availability of subsidies for those individuals that qualify for premium assistance under the ACA. Republican members of Congress have argued the subsidies are available only through state-based exchanges. If this position prevails, states might feel compelled to adopt exchanges to ensure the subsidies are available for their residents. The final issue is how much leeway HHS will provide states to meet their obligations to offer a state-based exchange or to participate in a partnership exchange.
All of the ACA’s “insurance reforms” remain in place under the Court’s ruling, thus confronting states with the question of whether they will adopt the reforms at the state-level. Absent state action, the enforcement of the insurance reforms falls back to HHS. Following adoption of insurance reforms under the Health Insurance Portability and Accountability Act (“HIPAA”), each of the states enacted similar reforms to ensure that state insurance departments could enforce the reforms under state authority. This process, however, took some time, resulting in direct federal enforcement of the law in a few states for a period of time before state authorities were willing or able to assume enforcement powers.
States also will likely debate whether to expand their Medicaid programs. The Court’s ruling provides that the ACA’s Medicaid expansion is voluntary, i.e., states will not lose their existing Medicaid funding if they fail to expand their programs as contemplated under the ACA. Each state must weigh the pros and cons of the ACA’s significant influx of federal dollars against existing state budgetary woes.
On the federal level, there likely will be a lot of activity in Congress, but it is quite unlikely there will be much, if any, action with real effect until after the November elections. On the regulatory front, HHS was operating under the assumption that the ACA was constitutional, so it will be business as usual there. As a result, expect to see several new regulatory initiatives released over the next several months. Like HHS, the National Association of Insurance Commissioners also has been moving forward on ACA implementation, most recently with the development of five exchange plan management white papers. Next up for the NAIC is consideration of model legislation to implement the ACA insurance reforms at the state level.
1. Nat’l Federation of Ind. Business v. Sebelius, 56 U.S. __ (2012).