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Health Reforms Face Legal Battle

Regardless of the law’s ultimate fate, experts say strategic planning on issues, such as steps to try to moderate health care cost increases, should continue.

February 16, 2011
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Related Topics: Medical Benefits Law, Benefit Design and Communication, Health and Wellness, Compensation
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As the legal and congressional assault on the health reform law intensifies and uncertainty grows, employers should hold off on dramatic changes until the law's future is decided, benefit experts say.

Since the enactment of the Patient Protection and Affordable Care Act nearly 11 months ago, many employers have been following a two-part compliance strategy.

The first part has been to examine and then amend their health care plans to comply with mandated design changes, such as extending coverage to employees' adult children and eliminating lifetime dollar limits, that took effect in January for calendar-year plans.

The second part has been more strategic and longer term, involving provisions in the law that do not take effect until 2014 or later. The biggest decision involves a provision that will require employers with at least 50 employees to offer either qualified coverage or pay an annual fine of $2,000 per full-time employee.

That play-or-pay mandate has led employers, big and small, to analyze whether it makes more sense financially to terminate coverage and increase employees' salaries to partially offset the premiums they will have to pay for coverage through state exchanges that are to be established in 2014.

That planning and analysis, experts say, should continue even in the wake of a recent ruling by a federal judge in Pensacola, Florida, which struck down the law's individual mandate that requires most U.S. residents to enroll in a health care plan or pay a fine, starting in 2014. Judge Roger Vinson ruled that the requirement exceeded Congress' authority under the Constitution to regulate interstate commerce. His ruling invalidated the entire law.

Despite the judge's decision, experts say the legality of the health reform law and the individual mandate is far from settled.

“This is just one district court ruling and, in and of itself, it does not mean that much. It is subject to appeal and it is being appealed. There is a long way to go,” says Leslye Laderman, a principal with Buck Consultants in St. Louis.

“You don't have to think for more than a nanosecond” to know that this is not the end of the issue, says J. Michael Brewer, president of Lockton Benefit Group in Kansas City, Missouri.

Regardless of the law's ultimate fate, experts say strategic planning on issues, such as steps to try to moderate health care cost increases, should continue.

“No matter what happens, employers have to analyze how they are going to control costs. That does not change,” says Helen Darling, president of the National Business Group on Health in Washington.

“Regardless of what is happening, there should and will be a focus on cost management,” says Tracy Watts, a partner with Mercer in Washington.

Still, key strategic decisions for some—such as whether to offer coverage—should be deferred until the law's future is clear, experts say.

“The next wave of changes are in 2014, and some of those changes are significant. Employers are taking a wait-and-see attitude until there is more legal clarity,” says Michael Thompson, a principal with PricewaterhouseCoopers in New York. “While employers are evaluating options today, they are deferring any decisions until the dust settles,” Thompson says.

That dust could settle relatively soon.

This month, Virginia attorney general Kenneth T. Cuccinelli II says he would seek U.S. Supreme Court review of the constitutionality of the health reform law on an expedited basis.

“Currently, state governments and private businesses are being forced to expend enormous amounts of resources to prepare to implement a law that, in the end, may be declared unconstitutional,” Cuccinelli says in a written statement.

It isn't known whether the Supreme Court will grant an expedited review where it would hear challenges to the law before federal appeals courts hand down their decisions.

But even if it doesn't act on Cuccinelli's request, observers expect a Supreme Court ruling sometime during the 2011-12 term.

“It shouldn't take too long for the Supreme Court to take this up, perhaps sometime in 2012,” says Andy Anderson, a partner with the law firm Morgan, Lewis & Bockius in Chicago.

The courts, though, aren't the only battlefield for the law. This month, the U.S. Senate approved an amendment to a pending aviation bill to strip a politically unpopular provision from the reform law that will require employers to furnish 1099 statements when they do more than $600 in business with a corporate vendor starting in 2012. Small employers, in particular, have complained about the compliance burden of that requirement.

An amendment to that same bill by Senate minority leader Mitch McConnell, R-Kentucky, to repeal the entire law, though, was defeated. A similar repeal amendment has been approved in the House of Representatives, where Republicans have held a majority since the beginning of the new term.

In addition, GOP opponents have says that they will continue their effort to derail, if not kill, the health reform law. “We think this is just the beginning. This issue is still ahead of us,” McConnell says in a briefing after the vote on his repeal amendment.

Given the November elections in which Republicans regained control of the House and picked up six seats in the Senate, experts say the congressional assaults are not surprising.

“Elections have consequences. Republicans are flexing their muscles,” says Tom Lerche, Aon Hewitt Inc's national health care reform leader in Chicago.

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