Supreme Court May Undermine State Transparency Efforts

When it comes to health care, costs matter. This may seem obvious, but it’s remarkable how often this reality gets lost in the arguments of the day. Yet consider: depending on the market segment, the Affordable Care Act requires that 80%-to-85% of every premium dollar be spent on medical care. This means the more medical care costs, the more insurance policies cost. One might hope that higher health care prices also correlates with better medical outcomes. One might hope that was the case, but one would be wrong.

Over the years there have been several studies demonstrating this disconnect between medical costs and quality of care. A Health Affairs Blog post authored by Jonathan Skinner, David Goodman and Elliot Fisher in analyzing a recent report provides links to others done over the years. Then there’s a study by Castlight Health showing the cost of mammograms in Los Angeles ranging from $86-to-$954–the pricing disparity in other cities such as Dallas and New York were even greater.

Advocates assert that medical pricing transparency will lower insurance premiums by promoting competition among medical providers and allowing consumers to shop for the lowest cost quality care. Payers like large employers, insurers and the government, could also use this information to negotiate lower charges for health care services.

Yet America’s health care system is amazingly opaque when it comes to pricing. As Steven Brill reported in his Time Magazine cover story, so is the method providers use to set their prices.Cost effectiveness leaves the room when there’s little rhyme or reason for how physicians and hospitals set prices.

Key to effective pricing transparency is meaningful data and lots of it. As the National Association of Health Underwriters puts it, the need is for “current, accurate, unbiased and relevant data” available in “a format and process that is user-friendly.” Which is why 18 states have laws requiring self-insured companies and other payers to contribute patient claims data to a pricing database.

Some of these self-insured companies, however, are pushing back. They fear the costs of complying with differing state requirements. Liberty Mutual Insurance Company is one of those companies. They sued the state of Vermont claiming the state could not demand claims data from them because ERISA denies them the power to do so.

The Second Circuit Court of Appeals agreed with the company. The case, Gobeille v. Liberty Mutual Insurance Company (often referred to in the media as Liberty Mutual v. Gobielle) is now before the Supreme Court, which heard oral arguments on December 2, 2015. Tyler Vandeventer and Jason Ottomano provide specifics concerning the case and the arguments on Cornell University Law School’s Legal Information Institute site.

The Supreme Court’s decision in this case will have a significant impact on pricing transparency and, consequently, the affordability of health care coverage. Without claims data, cost comparisons simply aren’t possible. This isn’t the case of garbage in, garbage out. This is nothing in, nothing out.

The Court’s decision will also clarify how states can interact with self-funded plans under ERISA. This too could have far-reaching impacts.

There are many more high-profile cases before the Supreme Court than Gobeille v. Liberty Mutual. None of those, however, are likely to have a greater impact on transparency and the cost of health insurance.

No date for a decision in Gobielle v. Liberty Mutual has been set.

A version of this post appeared on my LinkedIn page.

Initial Response

It’s going to take some time to dive into the Supreme Court’s 5-4 decision on the constitutionality of provisions of the Patient Protection and Affordable Care Act. The opinion is now online for those who wish to wade through it. Here’s my initial take:

1. As noted in my first post today, the individual mandate isn’t much of a mandate, but the principle of a mandate could have brought down the entire health care reform package. It didn’t, but that doesn’t mean the individual mandate, as written, will have the impact supporters of the PPACA intend. The only thing that’s new today is that this provision of the law can now be described as a “tax.”

2. Chief Justice John Roberts makes clear that he believes an individual mandate would violate the Commerce Clause. However, because he interprets it as a tax, that observation is important, but doesn’t effect the outcome. The other four Justices in the majority (Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan), in a separate opinion, stated their belief an individual mandate is constitutional. However, in order to form a majority they’ve signed off on Chief Justice’s Robert’s interpretation. So while having four members of the Court interpret the Commerce Clause this way is significant to legal scholars and could impact the future, for now it’s immaterial.

3. The four Justices dissenting from the majority opinion (Antonin Scalia, Anthony Kennedy, Clarence Thomas, and Samuel Alito) would have found the entire PPACA unconstitutional. Chief Justice Roberts often sides with this group of colleagues. He made history by parting ways with his more conservative colleagues. Justices might have lifetime tenure on the Court, but it still took courage for the Chief Justice to make this decision.

4. Politically, this decision is a two-edged sword for both presidential candidates. The Administration’s key domestic accomplishment has been upheld. The Administration can now move forward to implement the health care reform package without the cloud of court decisions making their work meaningless. But the President’s key domestic accomplishment is also one of his greatest liabilities in the upcoming election. The PPACA remains unpopular. Many Americans (including four Supreme Court Justices) believes it’s an unwarranted expansion of federal power at the expense of personal liberty. This decision will only flame the passions of those who take this view, meaning they’ll be going to the polls in November with one goal in mind: elect a President and Congress that will repeal the PPACA. Will supporters of the bill be as motivated and engaged? Not likely.

5. Just because the PPACA is constitutional does not mean we’ve seen the final version of the law. Congress will amend health care reform. Agencies (both federal and state) will interpret it. The PPACA is complicated and open to significant interpretation. The upcoming election will determine how much the law will change, not that it will be changing.

6. The PPACA accomplishes a lot of good things: increases access to coverage, provides some useful and meaningful consumer protections, takes the first steps needed to begin constraining health care costs, and more. The PPACA also botches a lot of important things: it will not make coverage more affordable, it doesn’t go far enough to constrain escalating health care costs, and more. Lawmakers owe it to their constituents to revisit the law and make some substantial changes. This doesn’t mean Democrats have to follow the GOP’s demand to repeal the law nor does it mean Republicans have to cave to the administration. But both sides need to recognize that the PPACA is the law of the land. Barring a GOP super-majority in the Senate come 2013, the PPACA is not going away. So responsible leaders will try to make it the best law possible.

7. The Court majority made clear an individual mandate is not justified by the Commerce Clause or the Necessary and Proper Clauses of the Constitution. This will have an impact on other social welfare efforts Congress might consider. Needing to fund expansion of the safety net through taxes is a tough political and practical challenge.

8. However, there were four votes to uphold the PPACA under the Commerce Clause. Which underscores the importance of this November election. Presidents appoint Supreme Court Justices. All of the Justices four of the Justices upholding the law under the Commerce Clause were appointed by Democrats. All four of the Justices voting seeking to overturn the law were appointed by Republicans. The Chief Justice shows that not every appointment votes in the way one would expect based on the party of their appointing President. And two of the liberal Justices joined with conservatives and agreed that the Medicaid expansion included in the PPACA was unconstitutional. But the fact is, the appointments of Republican Presidents tend to be more conservative; those appointed by Democrats tend to be more liberal. At least one, and maybe more, vacancies will open on the Supreme Court in the next four years. Who is President matters.

9. The Supreme’s decision on the Medicaid provision of the health care reform law will be interesting. In essence, a 7-2 majority said the law went too far in threatening to withhold Medicaid funding to states who refuse to expand Medicaid eligibility to those at up to 133% of the federal poverty level. They ruled the federal government can withhold the additional funding promised in the PPACA to pay for this expansion, but they can’t take all Medicaid funding away from non-participating states. Put another way: states have the ability to opt out of the Medicaid expansion. Given the importance of this expansion to reduce the uninsured, this is an issue President Obama and his allies in Congress will need to address. As noted above, the health care reform debate is far from over.

10. While watching the news about the decision, an ad by Concerned Women for America with a vicious (and somewhat inaccurate) attack on the PPACA aired on CNN. The upcoming election will be about the economy, but health care reform will be a major factor as well.

7. People who predict what the Supreme Court is going to do and how they are going to do it are making wild guesses. Pundits take another blow.

So, I don’t pretend to have any special insight on the meaning of the Court’s decision today. But my mother misses these posts so I thought I’d return to the keyboard again. I’ll try to write a more thoughtful piece later today or in the next few days. In the meantime, please let me know your thoughts on all this.

Catching Up on Health Care Reform

Hello. It’s been awhile. Hope you’re all well. To all who have inquired, my thanks for your concern, but all’s good. Hectic, but good. Lot’s going on (more on that later) and an awful lot of travel. I’ve had a chance to meet and talk with brokers in various parts of the country, including a few places I’ve never been before or haven’t been to for years: Boise, Omaha, Denver, Nashville. It’s been a great time to learn, recharge and stay a bit too busy to write any meaningful posts. While staying busy appears to be the new constant, I’ll try to find something worthy to share on a more regular basis. For now, however, let’s play some catch-up:

We’ll start with some (relatively) good news. One of the more popular elements of the Patient Protection and Affordable Care Act is the ability for children up to age 26 to remain on their parents’ medical insurance. The Department of Health and Human Services estimated 1.2 million young adults would take advantage of this opportunity. A story at Kaiser Health News indicates the actual number may be much higher: at least 600,000 young adults have already obtained coverage under their parents’ health plans. While most of the growth has apparently been in self-insured groups, fully insured plans are experiencing the same upsurge in membership. WellPoint, for example, reports adding 280,000 young adult dependents nationwide and the federal government added a similar number (although the article didn’t state what percentage of these were in fully-insured plans).

Of course, when it comes to health care reform every silver cloud has a gray lining. The Kaiser Health News article quotes Helen Darling, CEO of the National Business Group on Health, as noting “I don’t think anyone is eager to spend more money. This is not something employers would have done on their own.” She further cites the unfairness of asking employers to cover adult children who may be employed elsewhere. And businesses (and their employees) will pay a bit more due to this expansion of coverage to young adults – about one percent more according to estimates. And while its unclear how many of these individuals would not be able to obtain coverage elsewhere, but the general thinking is that a large majority of these young adults would be uninsured or underinsured, but for this provision of the PPACA.

Next let’s pause to note how rate regulation can be big business for consumer groups. In some states, regulators must approve health plan rate increases before they take effect. In others carriers may need to file their rate changes with regulators, but so long as the rate increases are actuarially sound they move forward. California, where rate increases tend to generate national news, is in the latter camp. The state’s Insurance Commissioner, Dave Jones would like to change that. (Actually he’d like to put health insurance companies out-of-business by implementing a single-payer system, but that’s another matter). However, he and others are pushing to change that. Assembly Bill 52, authored by Assemblymen Mike Feuer and Jared Huffman. This legislation would give the Department of Insurance (which regulates insurers in the state) and the Department of Managed Care (which regulates HMOs) to reject rate or benefit changes the agencies determine to be “excessive, inadequate, or unfairly discriminatory.”

In the findings section of the bill (which are the “whereas” clauses justifying the bill), the legislation cites rising premiums and the need for the state to “have the authority to minimize families’ loss of health insurance coverage as a result of steeply rising premiums costs” are among the problems the bill is intended to address. The solution: give politicians and bureaucrats the power to reject rate increases. No need, apparently, to address the underlying cost of medical care. The assumption seems to be that the way to reduce health care spending is to clamp down on premiums. This, of course, is like saying that the way to attack rising gas prices is to limit what gas stations can charge at the pump. One might conclude that, to be charitable, the legislation is addressing only a part of the problem.

Not only does AB 52 give medical care providers a free pass, it is likely to result in a windfall for the consumers groups supporting its passage. Politico Pulse notes that AB 52 requires insurance companies to pay for costs incurred by groups representing consumers at rate hearings. For groups like Consumer Watchdog this can represent a substantial amount of income. The Politico Pulse post reports that “Under a similar California provision for property and auto insurance, Consumer Watchdog has recouped approximately $7 million in legal fees since 2003”

Then there’s the 4th Circuit Court of Appeals hearing on two Virginia law suits seeking to have the Patient Protection and Affordable Care Act declared unconstitutional. A ruling from the three judge panel is expected in July. Much has been made of the fact that two of these three Appeals Court Judges were appointed by President Barack Obama – and the third by President Bill Clinton. While those so inclined are likely to consider this a conspiracy of cable news worthy dissection ad nauseum, it’s important not to make too big a deal about this.

First, courtrooms are not like the floor of Congress: partisan leanings have far less influence there. Second, as the Associated Press article points out, there are 14 judges on the court. Which of them hear a particular appeal is randomly determined by a computer program. There’s nothing sinister about the three judges selected for these appeals being appointed by Democrats, it’s just the way things turned out. No black helicopters are involved. Third, whatever this panel decides will be appealed by whichever side loses. The appeal could go to a hearing before all 14 Appeals Judges in the 4th Circuit or it could go straight to the Supreme Court. Finally, even if the appeals remain at the circuit level for another round, the final decision will be made by the Supreme Court. Everything going on in the lower courts (and there’s a lot of other suits out there needing to go through their appropriate Circuit Courts), is simply prelude. Yes, what the appeals court decide influences the Supreme Court Justices, but in a matter of this magnitude, far less than one might imagine. What happens at the District and Circuit levels is not unimportant, but it’s far from definitive.

While we’re playing catch-up: my previous post noted that Congress was likely to repeal the 1099 provision in the health care reform law. They did and the President Obama signed the law removing the tax reporting requirement from the PPACA. The PPACA no longer impacts 1099 reporting. I know you already knew that, but I wanted to close the loop on this issue. It’s now closed – and repealed.

Finally, a note about broker commissions and the medical loss ratio calculations required by the health care reform law. Where we last left our heroes, the National Association of Insurance Commissioners was debating whether to endorse bi-partisan legislation (HR 1206) that would remove broker compensation from the MLR formula used to determine a health plan’s spending on claims and health quality initiatives. The NAIC task force dealing with this issue wants time to review data being pulled together by the National Association of Health Underwriters, carrier filings and elsewhere.  Pulling together all this information, much of which has never been gathered before and is not maintained in a centralized data base, took a bit longer than initially anticipated. According to Politico Pulse, however,  the task force no”now believes it has all the data it will be able to get.” Which means the task force’s final report on broker commissions and the MLR calculation is now expected by May 27th.

Stay tuned.

And thanks again for staying tuned to this blog.  I look forward to continuing the dialogue with all of you.

Health Care Reform on Judicial Fast Track

The wheels of justice, as the cliché goes, grinds slowly. Given the complexity of the Patient Protection and Affordable Care Act this poses a bit of a problem. Federal District Court judges are reaching contrarian conclusions concerning the constitutionality of the PPACA. Everyone knows the validity of the health care reform law will be decided by the U.S. Supreme Court. In the meantime, however, should states continue to implement the law or hold off on complying? The sooner the Supreme Court weighs in the sooner federal and state regulators (let alone carriers, employers, brokers, and consumers) will know what’s what.

Remember the law suit filed by 26 states (and the National Federation of Independent Businesses) in Florida? That’s the one in which U.S. District Judge Roger Vinson decided that the PPACA’s requirement that individuals obtain health care coverage or pay a penalty/tax/fine/whatever was unconstitutional. In making his decision Judge Vinson stated the law’s violation of the Commerce Clause made the entire Act unconstitutional, but he declined to issue an injunction to stop implementation of the health care reform law. Some states used the the Judge’s ruling to stop work on implementing the law; others did not.

This is the suit likely to move things to the Supreme Court the fastest. Because in an attempt to bring some clarity to the situation, the Justice Department asked Judge Vinson to clarify whether he intended to halt the law – at least in the 26 states party to the suit. They got their answer from Judge Vinson in a response that, when you weed out the criticism of the Justice Department, comes down to yes, he did mean to halt implementation of the law, but he would stay his ruling (which means he’d delay making it effective) so long as the federal government appealed his decision on an expedited basis.

The Department complied and the 11th U.S. Circuit Court of Appeals has put a hearing of Judge Vinson’s decision on a fast track. For a case of this magnitude, the Court set a short timetable. Lawyers for the Obama Administration must file its first briefs by April 4th. The states will have until May 4th to make their case. Federal attorneys will have until May 18th to respond to the states’ filing.

Usually appeals of this nature are heard by a panel of three Circuit Court judges. The losing party may then appeal the case to the all the judges in the Circuit (referred to as an “en banc” hearing). Some of the states involved in the suit have are seeking to skip the panel and have all 10 judges in the Circuit consider the case. This approach would more quickly get the case to the Supreme Court. In any event, oral arguments before the 11th Circuit will likely occur this summer. Given the importance of their decision, a decision by the Court could take a few months.

This is not the only case moving through the system concerning the constitutionality of the PPACA. And even with this expedited timetable the odds are the Supreme Court will announce its decision in the midst of the 2012 elections. Which means there’s plenty of time for Congress to modify the law, for other suits to address non-Commerce Clause issues, and for health care reform to dominate the presidential campaign and the fight for Congress. Which means the Supreme Court’s decision will not be the end of America’s health care reform process, regardless of what they rule it will only be the start of the next round of America’s health care reform process.

Federal District Court Declares PPACA’s Individual Mandate Unconstitutional

A federal district judge in Virginia found the Patient Protection and Affordable Care Act unconstitutional today.

The ruling by Judge Henry Hudson makes the count at the district court level 2-to-1 in favor of the new health care reform law’s constitutionality. Another Judge in Virginia and one in Michigan ruled in favor of the legislation’s requirement that individuals obtain health coverage beginning in 2014. There are nearly two dozen legal challenges to the PPACA and no doubt others will go against the law as well, while others side with the Obama Administration.

In making his decision, Judge Hudson concurred with the arguments put forward by Virginia Attorney General Kenneth Cuccinelli. The core of his this argument is that while the federal government has the power and authority to regulate interstate commerce, whether or not to buy health insurance coverage is a local decision and beyond the reach of the federal government. The Washington Post offers a quote from the 42-page ruling that makes this position clear: “Neither the Supreme Court nor any federal circuit court of appeals has extended Commerce Clause powers to compel an individual to enter the stream of commerce by purchasing a commodity in the private market.”

In claiming the individual mandate was unconstitutional, Judge Hudson specifically stated that “portions of the law that do not rest on the requirement that individuals obtain insurance are legal and can proceed,” according to the Washington Post. Officials in the Obama Administration concede that, if the Supreme Court were to find the individual mandate requirement the goal of President Barack Obama’s health care reform law would be crippled. Politico.com, reports that these officials concede “the lack of a mandate would cut the number of uninsured people who would get coverage in half and threaten the ban on denying coverage [to] people with pre-existing conditions.” Medicaid expansion, the creation of state-run insurance exchanges and the medical loss ratio requirements would not be impacted, however.

The ruling by Judge Hudson was not unexpected as he was very skeptical of the law during a hearing in October. Nor did Judge Hudson stay implementation of the law, which means implementation of even those PPACA provisions tied to the individual mandate may continue until a decision on the laws constitutionality is made by the Supreme Court. 

With various judges deciding differently the constitutionality of the law will need to be determined by the Supreme Court. The new Virginia decision, the others in which a federal district court judge has ruled, and a decision yet to come on a suit filed by 20 states against the PPACA in a Florida court, will need to work their way through the judicial system before the issue reaches the Supreme Court. Attorney General Cuccinelli has requested that his suit bypass the Fourth Court of Appeals (which would normally hear an appeal from a Virginia federal court) and go directly to the Supreme Court. To accept this request, the Washington Post notes that the Supreme Court would have to decide that the case “held extreme public importance” and immediate intervention was required.

Whether Attorney General Cuccinelli’s request is accepted or not, the Supreme Court is expected to rule on the constitutionality of the Patient Protection and Affordable Care Act prior to 2014.