As the presidential election quickly approaches, you may have noticed the uptick in changes to health care-related laws and regulations. Not only have Congress and the court system continued to deconstruct the Affordable Care Act (“ACA”), but agencies have also released guidance aimed at increasing price transparency for health care across the board. Regardless of whether you sponsor a group health plan, participate in the health care industry as a provider, provide services to plans and providers, or are simply an individual seeking health insurance, the recent changes to health care regulations may impact you or your business.
Constitutionality of the ACA Challenged Once Again
As many remember, the ACA was originally challenged in the courts due to the alleged unconstitutionality of the infamous “individual mandate.” Generally, the individual mandate requires that individuals either obtain health coverage or pay a penalty. The mandate was originally challenged based on the idea that the federal government was acting outside the scope of its designated powers. In the famous Sebelius case heard in 2012, the U.S. Supreme Court found that although Congress’s general commerce powers do not give Congress authority for the individual mandate, the mandate is constitutional based on Congress’s taxing power. The 5-4 decision held that the individual mandate penalty was a valid “tax” permitted to be imposed by Congress. As a result, the ACA survived.
However, when the Tax Cuts and Jobs Act passed in 2017, another opportunity arose to challenge the legality of the ACA. The Tax Cuts and Jobs Act reduced the ACA’s individual mandate penalty to $0, causing the constitutionality of the individual mandate and the ACA as a whole to be called into question. In 2018, a federal district court in Texas struck down the ACA as unconstitutional because the individual mandate no longer served as a method for raising revenue. The federal district court further found that the ACA did not contain a severability clause, and that the individual mandate was an “essential” component of the ACA. The court reasoned that the ACA was unconstitutional where the mandate does not bring in revenue. Furthermore, since the mandate is a keystone component of the law and cannot be severed from the law as a whole, the court held that the entirety of the ACA must fall.
In December of 2019, a Fifth Circuit Court of Appeals 3-judge panel reviewed the federal district court’s decision and finally issued its own decision on the matter. The Fifth Circuit Court of Appeals ruled in favor of the federal district court’s opinion that the individual mandate is no longer constitutional since it does not bring in any revenue for the federal government. However, the Fifth Circuit remanded the case back to the federal district court for further discussion and determination as to the severability issue, calling into question whether the ACA can in fact stand alone without the individual mandate. In other words, the federal district court must now take a closer look at whether the individual mandate is truly an essential component of the law, or whether the ACA can legally be implemented without the individual mandate in place.
During the first week of January 2020, the House of Representatives and a group of twenty-one state attorneys general and governors joined together and made a request to the U.S. Supreme Court relating to the future and viability of the ACA. The group petitioned the U.S. Supreme Court to address three issues: (1) the group requested that a decision be rendered on whether the plaintiffs have standing to challenge the individual mandate; (2) the group requested that the constitutionality of the mandate be reaffirmed immediately; and (3) the group requested that the Supreme Court provide guidance on the viability of the ACA should the individual mandate be struck down as unconstitutional (in other words, the group wants the Supreme Court to rule on the severability issue). The Supreme Court will have a private conference on February 21st to determine whether the case will be heard this term (and, accordingly, issue a decision by the end of June). If not heard this term, the constitutionality of the ACA will remain in limbo throughout the 2020 presidential election.
It is unclear how the uncertainty surrounding the ACA’s constitutionality will impact decision making by individuals, businesses, and even insurance companies. If the ACA remains in limbo for too long, the marketplace, funding mechanisms, and individual coverage options will be called into question by many. Given the significance of the district court and Fifth Circuit decision, the case will likely find its way to the U.S. Supreme Court, forcing the U.S. Supreme Court to once again rule on the constitutionality of the ACA. Until then, employers must continue to comply with ACA market reforms, including the employer mandate and reporting requirements.
Budget Bill Repeals Cadillac Tax, Health Insurance Tax and Medical Device Tax
In late December, Congress used a spending deal (the “Further Consolidated Appropriations Act of 2020”) to fully repeal three ACA taxes that have been hot button issues since the ACA’s passage. First, after two effective date delays, the long-feared Cadillac Tax has been eliminated from the ACA effective in 2020. The Cadillac Tax would have imposed a 40% excise tax on high-cost employer-sponsored coverage, penalizing employers with plans whose premiums exceed a certain threshold. The tax would have applied not only to employers’ and employees’ share of health care coverage, but also to health savings account, flexible spending account, and health reimbursement arrangement contributions. Notably, the premium threshold for “high cost” coverage was low enough that many employers would have been affected.
Second, the budget bill repealed the Health Insurance Tax, which imposed a tax on entities providing health insurance, including policies for individual and small groups, insured employer plans, Marketplace plans, and Medicare and Medicaid. The Health Insurance Tax has been in effect on a rolling basis, imposed some years and not others. Finally, Congress repealed the Medical Device Tax starting in 2020, which originally imposed a 2.3% excise tax on the value of certain medical devices from 2013 through 2015, and was later suspended effective January 1, 2016 through December 31, 2019.
Although the repeals will come as a relief to many, it will be interesting to see how the repeals will impact the ACA’s funding, given that the taxes were originally incorporated into the ACA to cover the significant costs associated with the expansion of health care reform. The three taxes alone were projected to bring in a combined $375 billion.
Trump Administration Moves to Increase Health Care Price Transparency
Pursuant to President Trump’s Executive Order on Improving Price and Quality Transparency, the Trump Administration, through the Centers for Medicare and Medicaid Services and the Department of Health and Human Services, released a set of proposed regulations known as the “Transparency in Coverage” proposed rule in mid-November of 2019. The proposed rule would require health insurance issuers and health plans, including employer-sponsored group health plans, to inform participants, beneficiaries, and enrollees about price and cost-sharing information. Most health plans will be required to establish an online tool available to all participants that includes estimates of cost-sharing liability for all covered healthcare items and services, allowing participants to shop and compare costs between providers. The proposed rule would also require health insurance issuers and health plans to publish to the public all negotiated rates for in-network providers, as well as allowed amounts paid for out-of-network providers.
The same week that the Transparency in Coverage proposed rule was released, the Centers for Medicare and Medicaid and the Department of Health and Human Services released a final rule governing price transparency for hospitals (the “Calendar Year 2020 Outpatient Prospective Payment System & Ambulatory Surgical Center Price Transparency Requirements for Hospitals to Make Standard Charges Public”). Under the final rule, hospitals will be required to publish their standard charges online in a machine-readable format, including all rates they negotiate with third party payers. Hospitals will also be required to publish to the public any payer-specific negotiated rates, the amount the hospital is willing to accept in cash from a patient for an item or service, and the minimum and maximum negotiated charges for 300 common shoppable services. The final rule on hospital pricing is set to take effect on January 1, 2021, after hospitals requested more time to implement the requirements under the rule.
The push towards price transparency is desired by most individual consumers who have been more and more frequently subject to balance-billing and other surprise medical bills. However, hospital systems have threatened to challenge the price transparency rules, and push back on the added governance of employers that sponsor group health plans will likely ensue.
Supreme Court Agrees to Hear Case on ACA Risk Corridor Program
Finally, the U.S. Supreme Court has decided to hear arguments this term regarding the ACA risk corridor program. Health insurance companies have sued the federal government for failure to make risk corridor payments promised under the ACA, alleging they are owed reimbursements totaling up to $12.3 billion.
As a refresher, the ACA created a “risk corridor” program designed to lessen the impact of financial losses sustained during the first three years that the ACA marketplace was in effect. The program permitted insurance companies on the Exchange to enter a risk corridor, under which insurance companies with losses would be reimbursed and insurance companies with gains would contribute part of their profits. In exchange, the insurance companies were to keep premiums on the marketplace “affordable.” Federal agencies publicly stated that any insurance companies not reimbursed for losses through profit contributions by other companies in the risk corridor program would be reimbursed by the federal government.
Throughout the entirety of the risk corridor program, almost all the insurance companies in the program sustained significant losses, likely due to the fact that many individuals were electing to pay the individual mandate penalty as opposed to purchasing a plan on the Exchange. The federal government has stated it has no duty to reimburse the insurance companies; rather, the profits within the risk corridor program are the only funds that may be used to reimburse the participating insurance companies for any sustained losses.
As a result, insurance companies allege the federal government engaged in a “bait and switch” tactic, using the promise of reimbursement as a mechanism for convincing insurance companies to participate in the Exchange and keep premiums low, but retracting that promise once it was clear the losses to the insurance companies were significant. The funds were allegedly promised by the federal government for the years 2014, 2015, and 2016, but the federal government contends they were never legally bound to funding reimbursements not covered by contributions to the risk corridor program. The lower courts have determined that the federal government has no further financial obligation to the insurance companies. The U.S. Supreme Court began hearing arguments on December 10, 2019.