Monday, July 2, 2012

More Perspectives on Health Care Reform

Last week we heard the Supreme Court’s decision on the Affordable Care Act (ACA). I admit to being one of the more than 800,000 people following the SCOTUSblog live coverage of the justices reading their opinions and the follow-up commentary by politicians and pundits.  SCOTUSblog did a phenomenal job of posting accurate information in real time, and I highly recommend this site to anyone interested in the Supreme Court.

In April 2012, right after the arguments before the Supreme Court in the ACA case, I posted on my many perspectives on health care reform – attorney, former benefit plan administrator, corporate executive, consumer, and conservative. All those perspectives came into play again this week as I followed the coverage of the Supreme Court decision.

1. Limits on the Commerce Clause; No Limits on Taxes – Does the “Tax” Label Matter?

In my earlier post, I said that as a conservative I wanted the Commerce Clause to be limited.  Well, five justices of the Supreme Court limited it.  But the ACA survives anyway under the taxing power of Congress.

I always believed that Congress could have passed health care reform using its taxing power, but in 2009-2010 the President Obama and the Democrats in Congress specifically said the ACA’s penalty for not purchasing health insurance was not a tax.  Turns out it was.

This weekend, I argued with supporters of the ACA whether this mischaracterization of the penalty as "not a tax" matters. The President’s supporters claim that, because both the House and Senate properly passed the statute and the President duly signed it into law, it doesn’t matter what label was put on the penalty. But I firmly believe – as do other conservatives I have talked to – that some Democrats who voted for the ACA would not have done so if the penalty had been labeled a tax. In my opinion, labels do matter, because they impact the political process.

2. Uniform Benefit Plan Laws Unlikely

I said in my April post that as a benefit plan administrator, I believe uniform national laws are a huge simplifier for multi-state employers. Although the ACA is a national law, the Supreme Court decision does nothing to help businesses with simplicity.

I have listened to what benefit plan consultants like Aon Hewitt  and Towers Watson are telling their clients about compliance with the ACA. They say that, although the Supreme Court’s decision does mean that employers need to move forward with compliance, the devil will be in the regulatory details.  This 2,700 page act has already spawned more than 12,000 pages of regulations, and reams more regulations will be published before we really know what the law entails.

And different states and different employers will choose different paths to compliance.  Some states will expand Medicaid, others will not.  Some will develop their own healthcare exchanges, others will not.

Some employers will continue to offer group healthcare insurance, others will work with healthcare exchanges in states that adopt the exchanges, and some employers will decide that paying penalties is less costly than providing insurance to their employees. Also, some employers may decide to re-structure their workforces to reduce the number of full-time employees who must be covered.

Change in the employee benefit arena will continue for many years to come, and plan administrators will be dealing with the upheaval for at least a decade.

3. Equitable Taxation of Health Care Expenditures and De-Linking Health Care from Employment

The Supreme Court decision, of course, did nothing to fix the inequities between employer-provided healthcare insurance (premiums paid with pre-tax dollars, and employer contributions not taxed) and individual healthcare insurance (all costs paid with after-tax dollars).  I remain of the opinion that healthcare insurance should be totally separated from employment, and there is no movement in that direction. But at the very least, the tax treatment of employer-provided and individually purchased insurance should be the same.

Republicans have said their version of healthcare reform -- after Obamacare is repealed -- would equalize tax treatment of healthcare insurance.  Whether they will get the opportunity to repeal the ACA and pass  their own legislation won’t be determined until after the November election.

4. Tax Increases Coming; Premium Increases Also Likely

As a result of the ACA, higher income taxpayers face additional taxes, quite apart from the debate over whether the Bush tax rate decreases should be extended.

The Medicare tax on salary and self-employment earnings on individuals making more than $200,000 and couples making more than $250,000 in salary and/or self-employment income will pay an extra .9% above the 1.45% we all pay now.

In addition, starting in 2013, individuals making more than $200,000 in adjusted gross income and couples making more than $250,000 will be hit with an additional 3.8% "Medicare contribution tax."

Furthermore, everyone’s flexible spending account deductions for healthcare expenditures will be limited to $2,500 per year, limiting a very popular tax shield.

As a result of these changes, expect a flurry of tax-planning activity before January 1, 2013, arrives.

In addition to these tax increases, it is still likely that health care expenses in the form of premiums and medical products and services will consume an ever greater percentage of family and government budgets. Contrary to President Obama’s promise, the ACA does not adequately bend the cost curve. In my opinion, individuals will need to take more responsibility for their life choices and health care decisions before health care costs can be controlled.

5. It’s Still Not Over 

Many more lawsuits will be fought before we know the full ramifications of the ACA -- already litigation is pending over religious exemptions from contraceptives. Other mandated benefit issues will arise, as will disputes over eligibility for subsidies, state and federal arguments over Medicaid, what providers of medical services and devices should be paid, and a host of other issues.

And I still believe, as I did in April when I wrote my earlier post, that there will be amendments to the ACA before it goes into effect, or when the consequences of the act become too onerous.  The 2,700 pages enacted in March 2010 will not remain inviolate, no matter what happens in the November election.

What do you think? 

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