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The Affordable Care Act, the Supreme Court and Anesthesiologists – Just the Facts, Please

THE AFFORDABLE CARE ACT, THE SUPREME COURT AND ANESTHESIOLOGISTS-JUST THE FACTS, PLEASE

April 2, 2012

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SUMMARY

Following three days of oral argument, the Supreme Court is now deciding on the constitutionality of the Affordable Care Act. The seminal issue is whether Congress may require individuals to purchase health insurance or pay a penalty. If Congress overstepped its power in enacting the individual mandate, must the whole statute fail, or can that requirement be severed? We will learn the answers in June.

The United States Supreme Court allocated more time to oral argument on the constitutionality of the Affordable Care Act (ACA) last week than it had to any other case in the past 50 years.  Four distinct questions were before the Court during six hours of argument spread over three days.  In chronological order of consideration, these questions were:

  1. Does the 1867 Anti-Injunction Act, which bars pre-enforcement litigation over a tax, prevent the Court from hearing the challenge to the insurance mandate?
  2. Can Congress compel individuals to buy insurance or pay a penalty (the “individual mandate”)?
  3. Can the rest of the ACA survive if the individual mandate is struck down?
  4. Can Congress pressure states to expand Medicaid coverage by threatening to withhold funds?

The Individual Mandate

The room was packed and buzzing with excitement.  Some people clearly had slept outside last night.  Even some of the attorneys general from the challenger states had to stand in line to get in. – Professor Mark A. Hall, Esq., Impressions From Inside the Courtroom, American Health Lawyers Association blog “Supreme Court: ACA Challenge,” March 27, 2012.

The question of whether the individual mandate to buy health insurance is constitutional is of paramount importance because much of the financial scheme of the ACA depends on increasing the insured proportion of the population.  The outcome turns on the application of two clauses in the Constitution, (1) the Commerce Clause, which provides that Congress shall have the power “To regulate Commerce with foreign Nations, and among the several States, and within the Indian tribes,” and (2) the Necessary and Proper Clause, which enables Congress “to make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers….”  Without a basis in the Constitution, the mandate would be an impermissible infringement on individual liberty.

Does the individual mandate implicate “commerce,” i.e., regulate a market? The Court spent some time trying to define the market being regulated.  The 26 states, the National Federation of Independent Business (NFIB) and the two individuals that have asked the Supreme Court to invalidate the mandate took the position that it was the market for health insurance products and that a compulsory purchase of a private product such as an insurance policy was unprecedented. Analogies to burial insurance, gym memberships, mandatory mortgage insurance and even a food market in which individuals were, hypothetically, required to buy broccoli were all explored.  The Obama Administration, through Solicitor General Donald Verrilli, contended that the compelled-purchase examples were distinguishable in that everyone will at some point enter the market for healthcare services, in which “participation is often unpredictable and often involuntary.”  By choosing not to buy insurance, he argued, the uninsured would be making the economic decision to shift the cost of their healthcare to others.  Justice Anthony Kennedy, the critical potential swing vote, observed that the young adult who foregoes insurance nevertheless affects the insurance and health care markets as an “actuarial reality.”

Interestingly, the concept of the individual mandate first surfaced as a conservative alternative to liberal calls for government-sponsored universal health coverage.  In the late 1980s, economist Mark Pauly at the University of Pennsylvania proposed a system of tax credits to ensure that all Americans could purchase at least “catastrophic” coverage, coupled with a mandate requiring everyone to obtain such coverage at a minimum to avoid the problem of free riders.  Pauly’s proposal was developed further at the Heritage Foundation in the early 1990s and was incorporated into a Senate bill with 20 Republican co-sponsors.  The bill fell by the wayside as the Clinton health reform plan collapsed.  Bipartisan support for an individual mandate continued at least through the adoption of the healthcare reform legislation in Massachusetts in 2006.

Anti-Injunction Act

The Anti-Injunction Act would bar the Court from hearing challenges to the individual mandate only if the mandate were a “tax.”  Justice Ruth Bader Ginsburg pointed out that the litigation was not over the penalty for failure to buy insurance, but rather over the must-buy requirement.

There was considerable discussion over whether the statute is jurisdictional, or whether it can be waived by the Government to allow a lawsuit to proceed.

Neither side was seeking to have the constitutional question deferred until after the penalty or “tax” is first assessed in 2015.  The Court had asked a neutral expert litigator to brief the issue.  Although predicting the outcome of the case is dangerous, we can say that there did not appear to be much enthusiasm for applying the Anti-Injunction Act and postponing further deliberation until 2014 or later. 

Severability: Can the ACA Survive Without the Individual Mandate?

Can the rest of the ACA work if the individual mandate is struck down, i.e., “severed?”  Paul Clement, the former solicitor general representing the 26 states, argued that the Court would have to overturn the entire ACA.  Because of (1) the “mandatory issue” requirement, which prevents health plans from denying coverage to people with pre-existing conditions, and (2) the “community rating” provision, which limits the premiums that health plans may charge based on pre-existing conditions, insurance companies would go out of business if coverage were optional.  The phenomenon known as “adverse selection” would ensure that individuals would only buy insurance once they needed it.  The insurers would not be able to spread the economic risk among a large pool including healthy low-utilizers and rates would have to skyrocket for health plans to be able to cover the costs of care.  Thus the mandatory issue and community rating provisions would need to fall with the individual mandate.

It is worth noting that the ACA opponents have challenged the statute in more than two dozen federal lawsuits and lost most of them.  Only one federal district court, in Florida, declared the entire statute unconstitutional.  The Court of Appeals for the Eleventh Circuit, in Atlanta, also held the mandate unconstitutional but refused to invalidate the rest of the ACA.

Verrilli argued that the mandate was severable, as did H. Bartow Farr III, a private litigator appointed by the Supreme Court as amicus curiae.  Farr cited a Congressional Budget Office study showing that ACA premium subsidies would encourage a significant number of individuals to buy coverage and thus temper the effects of adverse selection.  Medicare Part B is an example of a successful system – from the beneficiaries’ and the government’s point of view, if not in the eyes of physicians staring down the barrel of the SGR formula – in which nearly all eligible persons participate even though it is voluntary, because it is affordable.  The entire ACA should not be dismantled because even on a voluntary basis, it will “still open the insurance market to millions of people and lower premiums for millions.”

Medicaid Expansion

The 26 states claim that the ACA’s expansion of the Medicaid program unfairly coerces their participation.  The expansion arguably violates the sovereignty of the states by effectively requiring them to spend more of their own money to cover more individuals or else forfeit all of the federal Medicaid money they now receive.

A new Medicaid eligibility category for individuals with incomes at or below 133% of the federal poverty level would expand Medicaid by 11.2 million adults.  Most, but not all, of the costs added by the ACA would be borne by the federal government.  Medicaid enrollment is expected to increase by 27 percent by 2019, but average state spending will increase by only 1.4 percent.  (Washington Post, March 28, 2012, p. A18)  The argument is that the sheer scope of the program and the funds already received would make it impossible for the states to “just say no” and opt out of Medicaid altogether.

This question was scheduled for the sixth and final hour of argument over the three days.  In the view of many legal experts, the coercion theory was the weakest challenge to the ACA.  If the Court ultimately rules that the ACA is unconstitutional, the decision will probably not be based on its expansion of the Medicaid program. 

The Potential Impact of Declaring the ACA Unconstitutional

The nine Justices met behind closed doors on Friday, March 30, and in all likelihood reached a tentative set of decisions on the ACA.  Positions may change, however, during the drafting of written opinions and before the final ruling is announced in late June.  Some of the Justices’ views are clear already, but very few observers express confidence that they know how Chief Justice John Roberts and Justice Kennedy will vote.

If the Court holds the mandate unconstitutional and also non-severable, and the ACA falls in toto, it will be the first time since the New Deal that the Court has struck down a major domestic program proposed by the President and passed by the Congress.

If that happens, the Independent Payment Advisory Board (IPAB) created by the ACA will also meet its end.  Anesthesiologists and other physicians will no longer need to fear fee-slashing by the unelected, unaccountable IPAB (see Alert dated March 12, 2012).

The 30 million Americans lacking insurance who are projected to obtain coverage under the ACA will remain uninsured.  We will still have an uninsured population of at least 50 million and the concomitant familiar problems, including constrained preventive care and cost-shifting to others.  According to Solicitor General Verrilli’s brief, “uninsured people consume $43 billion a year worth of emergency-room and other health care for which they do not pay, costs that are shifted to insurers and that raise insured families' average premiums by more than $1,000 a year.”  (Critics of the law dispute these numbers.)

Groups that have benefited from ACA changes that are already effective, such as young adults who can remain on their parent’s health plan until age 26, may lose some members, but it is impossible to know how many health plans would exercise their right to revert to their previous policies.

If the individual mandate is severed and thrown out by itself, we are likely to experience the same sudden sharp increases in health insurance premiums and perhaps the demise of some health plans and further consolidation of others.  The health insurance industry shakeout would be far less severe if the ACA’s restrictions on pre-existing condition exclusions and special underwriting were invalidated along with the individual mandate.  The health insurance exchanges that every state is required to have in place by January 1, 2014 will probably counter the tendency toward contraction of the market; many more people are expected to be willing and able to afford insurance than is the case today, mitigating to some extent the adverse selection effect.

If the Medicaid expansion goes forward, the proportion of Medicaid patients in most anesthesiology and pain practices will likely increase.  Lower than market Medicaid rates could become a larger issue.

The quality improvement and value-based purchasing initiatives codified in the ACA will survive in any event.  These endeavors have a strong foothold in the private sector already and, at least as important, bipartisan support.

Many columnists and analysts have speculated on the possible political impact on the November elections of a decision either way.  We are not going to join them.  Instead we will wait with great interest for the announcement of the Court’s decision in June, and, if developments warrant, keep you posted along the way.

With best wishes.

Tony Mira
President and CEO