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Alert - Sneak Preview: Our 2012 Healthcare Outlook

Later this month, Plante Moran’s healthcare practice will be issuing our 2012 Healthcare Industry Outlook. In today’s Perspectives we offer an excerpt. Specifically, we share an overview of the variables that make up what promises to be two of the top stories of the year – The U.S. Supreme Court’s review of the health reform law and the 2012 Presidential Election. Thanks to our colleagues at consulting firm Strategic Health Care for authoring this portion of the Outlook.

Supreme Court Review and the 2012 Elections

The future of Affordable Care Act (ACA) will depend largely on two events in 2012, the Supreme Court’s decision in Florida, et. al. v. United States Department of Health and Human Services, et. al. (Florida v. US) and the 2012 Presidential election. The Supreme Court decision in late spring will undoubtedly have a large impact on the outcome of the 2012 elections, and both of these events will have long-lasting effects on the nation’s healthcare system.

Supreme Court Review

Of the more than 30 lawsuits filed against the ACA by 26 states, business organizations and individuals, the Supreme Court has decided to hear appeals from Florida v. US, from the 11th Circuit in Atlanta, the only Federal Appeals Court to strike down the individual mandate as unconstitutional. The ruling arose from a case filed by the state of Florida and decided by a divided three-judge panel. The majority opinion held that the individual mandate overstepped Congressional authority to “regulate commerce” and “to lay and collect taxes.” The 11th Circuit isolated the individual mandate, severed it from the remainder of the ACA, and did not rule on any other provisions.

The Supreme Court is set to hear the case March 26-28, 2012 and deliver a decision by late June or early July, setting the stage for the final months of the 2012 presidential race. The Supreme Court will focus on four major issues – ruling on the constitutionality of the individual mandate, the legality of the Medicaid expansion, compliance with the Anti-Injunction Act, and the severability of the law.

  1. Individual Mandate
    The constitutionality of the individual mandate, the key provision of the ACA requiring individuals to buy health insurance, will be argued before the Court on March 27, 2012. The individual mandate provision has received the most attention from opponents of the ACA and was invalidated by the 11th Circuit Court of Appeals in August 2011. The Obama Administration contends that the individual mandate is a constitutional exercise of Congressional authority and should remain intact, while opponents assert that the individual mandate is unconstitutional because for the first time it forces citizens to purchase a product or face a penalty.
  2. Medicaid Expansion
    In addition to the individual mandate, the Court must also decide if Congress overstepped its authority regarding Medicaid expansion. Proponents of the ACA took steps in drafting the legislation to ensure that low-income families who were unable to afford insurance would not be unfairly penalized. To accomplish this goal, they altered the guidelines necessary to qualify for Medicaid, allowing more low-income families to receive health care through the program. Opponents of the ACA contend that this change is an unconstitutional overreach by the federal government into what is within a state’s right to determine. The Court will hear arguments on this issue on March 28, 2012 and must determine if Congress was entitled to expand the scope of Medicaid, an issue that initially was not expected to be addressed by the Court, since none of the appeals courts ruled against its constitutionality.
  3. Anti-Injunction Act issue
    The Court will also review whether or not the Anti-Injunction Act (AIA), a federal tax law requiring Americans to file a tax before they can challenge it in court, applies to the health law’s penalties for not purchasing health insurance. On March 26, 2012 the Court will hear arguments on the AIA and whether or not it makes challenges to the individual mandate premature until 2015, when the “penalty” for not purchasing insurance would first materialize. Neither the government nor the ACA are advancing AIA as it would delay a Supreme Court decision until 2015. As four appellate judges found the argument convincing, the Supreme Court appointed an attorney to argue this issue before the Court.
  4. Severability
    The Supreme Court will also review what happens to the remainder of the ACA if part of the law is invalidated. On March 28, 2012, the Court will hear arguments to consider whether the individual mandate provision may be severed from the rest of the statute, an issue that would become critical if the mandate is ruled unconstitutional. (Severability is legislative language that prevents the entirety of a bill from being stricken if a part of it is ruled unconstitutional.) The 11th Circuit Court of Appeals ruled in favor of severability when it struck down the mandate earlier this year, but both the Obama administration and ACA opponents argue that severability is not possible. The Obama administration argues that the provision is so intertwined with two other parts of the law—one forbidding insurers to turn away applicants, and the other barring them from taking account of pre-existing conditions—that if the mandate falls, those provisions must fall with it. Critics argue that the whole bill should fall if the individual mandate is ruled unconstitutional. Several outside groups including 36 Republican Senators and a group of over 100 economists have filed an amicus brief with the Court contending, among other things, that the ACA cannot remain financially sound without the individual mandate, and thus may not be separated from the legislation. The Court will hear arguments from a “friend of the court,” because both parties oppose the severability argument.

 

The opponents of the ACA, including most Republicans, want the law to be repealed because they contend that the individual mandate and expansion of the Medicaid program are unconstitutional. Opponents also claim that ACA will lead to increased taxes and will fail to improve the nation’s healthcare system, equating the legislation to a government takeover of healthcare.

Proponents of the law, including the Obama Administration, support the legislation, seeing it as a major legislative achievement. The drafters of the ACA intended it as a protection for ordinary Americans from the worst practices of the insurance industry, and believe it will increase quality across the healthcare system and drive down the rising costs in the health insurance industry.

The Supreme Court is expected to divide along ideological lines, with the four conservative justices voting against the constitutionality of the ACA and the four liberal justices upholding the law. Justice Anthony Kennedy, a moderate, will likely reprise his role as the swing vote.

Having agreed to hear a case regarding the constitutionality of ACA, the Supreme Court will have a long-term impact on the healthcare industry. There are a few possible decisions that the Supreme Court could reach if they rule on the merits of the ACA in this case.

  • The first is what the Obama administration and most Democrats hope for – a decision to uphold the law in its entirety. A decision along these lines would likely put an end to the continuous lawsuits being brought against ACA, but repeal efforts are likely to linger in Congress, depending on the level of Republican control.
  • The second possibility is the striking of the individual mandate or Medicaid expansion provisions of the healthcare law, but the upholding of the remainder. As there is no severability clause in ACA, the Supreme Court would need to go against historic precedent to produce this outcome.
  • The final scenario, and the one which most Republicans desire, is the complete repeal of ACA. This would likely occur if the individual mandate or Medicaid expansion was deemed unconstitutional, and the justices determined that the lack of a severability clause in the bill language necessitated the collapse of the legislation as a whole.

The Court may also rule that the Anti-Injunction Act bars any challenge to the ACA until 2015 when the “tax” goes into effect. If the Court were to decide in this manner, the political and legal landscape surrounding the ACA will continue to be contentious and volatile over the next several years.

2012 Presidential Election

There is plenty at stake for the healthcare industry in the 2012 elections. With an election that could dramatically shift the power of both the executive and legislative branches and the Supreme Court set to rule on the constitutionality of ACA, whatever the result – there is the potential to reshape the healthcare sector for years to come.

As of now, the result of the upcoming 2012 presidential election is very uncertain. History would predict that the sluggish economic recovery and low approval ratings for President Obama would make it easy for the opposing party to capitalize. However, the Republicans are struggling to find a universally popular presidential candidate and Congressional approval ratings are at historically low levels (some polls showing just 9 percent approval rating). These issues combined have kept the 2012 election difficult to predict.

There are five likely scenarios that could unfold in the 2012 elections and have long-lasting implications for the ACA and the healthcare industry more generally.

  1. Republican Control
    If Republicans maintain their control of the House and gain control of the Senate and the Presidency, giving them complete control of the legislative and executive branches, the repeal of the ACA is a very real possibility.
  2. Obama vs. Republican Congress
    The second possibility would be one of wholly divided government, in which the Republicans maintain control of the House and gain control of the Senate but Obama is re-elected for a second term. While congressional legislation to repeal ACA would likely pass in this situation, President Obama would surely veto any such bill. Having secured a second term, Obama would be politically insulated, allowing him to move farther right or left as necessary to achieve his goals. This political reality may allow some room for compromise between a Republican Congress and the President, although gridlock will almost certainly continue to be the normal state of affairs in Washington.
  3. The Status Quo
    A third scenario arises if the status quo is maintained with a divided legislature. This could arise out in a few ways - Democrats may retain the Senate and Republicans keep the House, or Republicans may retake the Senate and Democrats may takeover the House. In either of these situations, we are likely to see many of the same fights reappear that played out during 2011. Under these circumstances the Republican-controlled chamber will continue to pass legislation repealing the ACA, and it will be defeated by the Democrat-controlled chamber.
  4. Democratic Control
    The final and most unlikely scenario is a Democratic sweep of the House, Senate, and Presidency. This outcome would essentially guarantee that ACA would not be repealed by Congress, and it is likely that implementation of the provisions of the bill would move forward with less legislative interference.

The most likely legislative branch to change hands is the Senate. Here Democrats currently hold 51 seats to the Republicans’ 47, with two Independents caucusing with the Democrats. This year, 33 Senate seats are up for re-election, 21 of which are currently held by Democrats, 10 by Republicans, and two by Independents. According to The Cook Political Report, one seat currently held by retiring Senator Kent Conrad (D-ND) is likely to be taken by Republicans. In addition, Cook has ranked nine seats as ‘toss-ups,’ seven held by Democrats.

The Democrat held seats are in Nebraska (Bill Nelson - running for reelection), New Mexico (Bingaman - retiring), Virginia (Webb - retiring), Hawaii (Akaka - retiring), Missouri (McCaskill - running for re-election), Montana (Tester—running for re-election), and Wisconsin (Kohl - retiring). Of these seats, Republicans only need to win four (while losing none of their vulnerable members) to recapture the Senate. However, Democrats have two potential pickups as well, Massachusetts (Brown - running for re-election) and Nevada (Heller - running for re-election).

The House, on the other hand, is also a tossup this year. Although the healthy majority currently held by the Republicans, 242 to 193, would require a significant Democratic surge to retake control, the current unpopularity of Congress is weighing heavily on Congressional Democrats and Republicans.

The elections in November can significantly alter the political landscape, or they may lead to the parties sharing power much the same as they do now. Ultimately, 2012 will be a year in which the fate of the ACA will become much more certain. The elections and the Supreme Court decision will have significant long-term effects on the future of the healthcare industry. As implementation of ACA, repeal efforts in Congress, the Supreme Court suits, and the budgetary environment all continue to settle, health care will continue to be a dynamic and exciting field.



This article was authored by Jason Gromley and Peggy Tighe, J.D. of Strategic Health Care in Washington, D.C. They can be reached at 202-266-2600 or Jason.gromley@shcare.net and peggy.tighe@shcare.net

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