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Exploring the implications of health care reform
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The U.S. Supreme Court has upheld the constitutionality of key portions of the Patient Protection and Affordable Care Act, finding it to be a permissible exercise of congressional power to impose a tax. The legal complexity of the act makes it nearly impossible to say with precision what the health care landscape will look like in the decade ahead. In the previous two columns, we examined Supreme Court history and jurisprudence, and the Court’s opinion that validated the act. We now take a look at what the new health care reform will mean, from a practical standpoint, for our health care system.
Individual mandate and insurance
The individual mandate is central to the act, and it requires all individuals to carry health insurance. No one can opt out of the scheme. The mandate was found unconstitutional under the Commerce Clause, but the Court found support for it, under Congress’ authority to tax the public. Individuals must carry health insurance, and health insurers must sell coverage to everybody regardless of health status. Also, people in the same age group will pay the same premium regardless of health status. Finally, companies with a full-time workforce of greater than 50 must offer affordable health insurance to their employees.
Beginning in 2014, individuals must file proof of health care coverage with their tax returns. Failure to show proof of insurance will be punishable by a fine that can be 2.5% of adjusted gross income. Employers who fail to offer health insurance will face fines as well. Complex waivers and grandfather clauses provide short-term exemptions, but the long-term implications are clear. The type of insurance, deductible, employee share of the premium, delivery of care and nature of care delivered will be set by federal regulations. These decisions will shift to 159 new federal agencies that will exert control over almost one-sixth of the economy, with extraordinary discretionary power delegated to the Secretary of the Department of Health and Human Services. A new federal regulatory body will decide what medical interventions will be paid for, vs. those denied, based on government measures of effectiveness.
B. Sonny Bal
Lawrence H. Brenner
Corporate response
Smaller U.S. companies with 200 or fewer employees will probably be most affected by the act. Most employers had already made efforts to reduce health benefit costs, shifting towards high-deductible, account-based consumer-directed plans, and wellness programs that alert employees to health risks. Overall health benefit costs for U.S. corporations increased by 6.1% in 2011, down from 6.9% a year earlier, and are projected to increase by 5.7% in 2012. Inflationary pressures on corporate health care benefit expenses were thus subsiding, even before the act became law.
Some evidence suggests that 6% of companies with 500 or more employees planned to drop their health plans once state-run health insurance exchanges become operational in 2014. Among smaller companies, about 20% said they would drop their health plans. Business consultant McKinsey & Co. projected an overall 30% rate of corporate drop-out of employer health care coverage. If so, this will be a profound cultural shift for Americans who are accustomed to employer-financed health care. Once state-based insurance exchanges are available, it is hard to see why companies, especially those with fewer employees, should offer health plans.
What about Medicaid?
The act, as set forth by Congress, was designed to expand Medicaid to another 30 million to 40 million citizens. But the Court restricted this goal, by holding that it was unconstitutional for the federal government to coerce states, through financial carrots and sticks, to expand Medicaid coverage. Thus, states may have some flexibility not to expand their Medicaid programs, without paying the financial penalties called for by the law.
While individual states can opt out of federal Medicaid expansion, and some Republican governors have made helpful noises already, the financial inducement may prove too compelling to resist. Federal funding contributes about $1.33 for every dollar a state spends on Medicaid, giving many states the reason to expand their Medicaid coverage, effectively subsidizing it off their more fiscally prudent neighbors.
After 2 years, the act allows Americans with an annual income less than 133% of the federal poverty level – $30,657 for a family of four in most states – to sign up for Medicaid. The federal government will pay the entire cost for Medicaid expansion for 3 years, gradually trimming the subsidies to 90% by 2020. That compares with the 50% to 83% the federal government pays today, and every state has found it beneficial to participate in Medicaid. True, the costs of financing recurring trillion-dollar-plus annual budget deficits and a multitrillion-dollar national debt could sober Congress’ mind about supporting Medicaid in the future. If so, states may face ever greater financial burdens from expanded health care coverage.
Making it work financially
Every entitlement, from the government or otherwise, must be paid for somehow. More than half of the costs related to the act are supposed to come from Medicare cost-cutting. According to the non-partisan Congressional Budget Office (CBO), $523 billion of the act’s first 10-year cost will be paid for by reduced spending on Medicare enrollees. In addition, there are new taxes on drugs and medical devices such as wheelchairs, orthopedic implants, pacemakers and other items that are used by Medicare enrollees. Even as some Medicare enrollees will see their benefits trimmed, and others may lose their plans entirely, physician payments will probably be cut as well.
A report from Medicare actuaries attests that under the act, Medicare fees to doctors are required to decrease by 30% in the next 3 years; falling to below Medicaid levels by 2019. By 2050, Medicare fees are projected to be one-half of what the private sector pays, and by 2080, they will be one-third. If valid, these projections will have profound implications for orthopedic surgeon manpower, especially in specialties that depend on Medicare fees, such as arthroplasty and spine surgery. However, the government’s commitment to saving costs by cutting fees may waver. Current federal law, for example, is supposed to limit Medicare fee increases to doctors to no more than the rate of growth of national income. But for several years now, Congress has voted to prevent these cuts from taking place. The government may continue to kick the proverbial can down the road for a while longer.
Other new taxes will be imposed to collect revenue to offset the costs of health care reform. The act imposes new taxes on health insurance premiums for families of employees of small businesses, excise taxes on expensive “Cadillac” health plans, taxes on the sales of real estate, tanning salons and the like. Health care premiums will increase, particularly on the lower risk pool, i.e., young individuals will have to pay higher premiums to ensure coverage for all segments of the population. The CBO had initially predicted a lowering of overall health care costs from the act, but has since backtracked. Total health care costs may, in fact, go up. Health care demand is expected to increase, and the supply of physicians into the future remains uncertain. Patients may wait longer for care, and some medical care will have to be delivered by non-physicians.
While President Obama promised that his health care plan would bring national budget deficits under control, the track record of the federal government in terms of predicting health care costs is dismal. For example, the House Ways and Means Committee predicted in 1967 that the new Medicare program, launched in the previous year, would cost about $12 billion in 1990. That number was off by about 10-fold, and actual Medicare spending stood at $110 billion in 1990.
Now, the CBO estimates that the act will cost about $938 billion over 10 years, and it will reduce the federal deficit by $138 billion during that time. Other projections show a one-time cost of at least $2 trillion around 2014, when various provisions of the act materialize. What actually happens to these numbers after a decade or so is an entirely speculative game. Even if the CBO is correct in projecting cost savings of $138 billion during a decade, it is worth remembering that annual U.S. budget deficits have been running at least 10-fold higher. By the government’s own numbers, the cost savings, if any, will be virtually imperceptible, assuming the financial projections are credible.
Upcoming election and uncertainty
If the president is re-elected, implementation of the act will undoubtedly continue. If he loses the election, the winner will have a difficult time repealing the act unless the Republicans can win 60 seats in the Senate. In that sense, the debate over health care remains far from over. Republicans have vowed to fight against the act, which they view as an unaffordable infringement on the rights of individuals. The presumptive Republican presidential nominee has promised to undo the act if elected. But, history suggests that once a government gains a new power, it is reluctant to cede that power back to the people. The act gives our central government an unprecedented amount of power and control over health care, and over matters that relate to health care. Already some prominent Republicans have begun expressing doubt about the wisdom of repealing the act.
Collateral legal impact
The Court’s ruling upholding the act is considered one of the most significant in decades in terms of its legal impact. While conservatives may lament the Court’s decision, the outcome may also restrain Congress in the longer term. The restriction of the Medicaid expansion could limit the federal government’s authority to administer other federally financed state programs. The commerce clause ruling reshaped the constitutional structure, supporting conservative minds who had insisted that Congress’s power to regulate interstate commerce must have sharply defined limits. New challenges to federal laws on commerce clause grounds are likely to follow. At least Congress will not readily find support in the Commerce clause to compel citizens to eat broccoli, as some jurists had argued before the Court during oral deliberations.
A key value in the Court’s ruling is in helping us understand the role of an enlightened citizenry in choosing its government and its future. In the Court’s opinion, Chief Justice of the United States, John Roberts, remarked that the decision offers no endorsement of the law’s wisdom, and that letting it survive reflects “a general reticence to invalidate the acts of the nation’s elected leaders.” Importantly, he added: “It is not our job to protect the people from the consequences of their political choices.” These are profound and cautionary words that should alert the citizenry of the enormous civic burden that comes with the freedom to choose our leaders. In so many words, the highest Court in the nation made it clear that it will not protect the people from themselves.
What do you think of the act and the Supreme Court’s opinion? Discuss with your colleagues at www.OrthoMind.com.
For more information:
- B. Sonny Bal, MD, JD, MBA, is an associate professor of hip and knee replacement in the department of orthopedic surgery, University of Missouri School of Medicine.
- Lawrence H. Brenner, JD, is on the faculties of orthopedics at Yale University and the University of Southern California, and practices in Chapel Hill, N.C. Address all correspondence to Brenner at lb@lawrencebrennerlaw.com.