Wednesday, September 28, 2011


Hot on the heels of Monday’s news that the Obama administration had decided not to ask for a re-hearing of the Eleventh Circuit Court’s ruling that the individual mandate is unconstitutional, came today’s announcement that the Justice Department had asked the Supreme Court to hear the case.

Given that other Appeals Court decisions may also be forwarded to the Supreme Court, it is not certain which case or cases the Court will decide to hear. However, a request by the administration is almost sure to be granted.

While the rationale for the Justice Department decision cannot be known, it seems that the administration believes that it has a better than evens chance of prevailing.

The critical issue now is timing, with a hearing most likely in the spring, and a decision—in the middle of the presidential election campaign—in June 2012.


It may have looked like a non-event, but it was a significant one.

Monday September 26 was the last day on which the Obama administration could ask the Eleventh Circuit Court of Appeals to reconsider its three-judge panel’s ruling that the Affordable Care Act’s individual mandate was unconstitutional. The fact that the Justice Department took no action almost certainly means that its intent is to ask the Supreme Court to decide the issue.

The administration’s thinking was most likely dependent on three factors. First, given that the full Eleventh Circuit is considered even more conservative than the three-judge panel that struck down the mandate, the only advantage of a second hearing would have been to delay consideration by the Supreme Court. Against this was presumably factored the political risk of a further well-publicized rejection of the mandate providing additional ammunition for opponents of reform.  

Second, the administration may still be able to delay a Supreme Court decision either by filing its request for a hearing at the last possible moment in November, or even by asking for a filing extension—something that the Court might be willing to consider, given the potential impact of a decision in the middle of a presidential election.

Third, the administration may feel that the odds are somewhat in its favor. Although the current Supreme Court is usually regarded as having a conservative majority, the Justice Department will have analyzed prior decisions favoring federal powers by, for example, Chief Justice Roberts and Justice Alito. As a result, the administration may feel more confident of winning than many observers might expect.

Meanwhile, it’s unlikely that we will know more about timing until November, but the most likely—but by no means certain—schedule is for a hearing in early 2012 followed by a decision around the end of the 2011-2012 term in June 2012. Just in time for the election!   

Saturday, September 24, 2011


Several news reports this week indicate that the Community Living Assistance Services and Support program (CLASS Act), enacted last year in conjunction with the Affordable Care Act, may be about to succumb to political and financial pressures.

The CLASS Act was the brainchild of the late Senator Edward Kennedy, intended to help cover home care costs for the disabled and those with long-term care needs. Because it was designed as a voluntary enrollment insurance plan, it has generated concern that it would experience serious adverse selection problems as it attracted those most likely to need home care in subsequent years.

This week’s news focused on HHS’s explanation of reductions in CLASS development staffing, including the departure of the program actuary. An HHS announcement denied that the program was being abandoned, but included words that may sound CLASS’s death knell:   As we have said in the past, it is an open question whether the program will be implemented. A CLASS program will only be implemented if it is fiscally solvent, self-sustaining, and consistent with the statute.

Because premium collections would be much greater than expenditures in the initial years of the program (individuals must be enrolled for five years before they can claim benefits), CLASS was a major contributor to the CBO’s 2010 estimate of ten-year “savings” for the Affordable Care Act. The front-ended projected cash flow was estimated by the CBO as resulting in a $70 billion deficit reduction for the 2011-2020 decade. However, as critics pointed out, as insurance payments exceeded premiums in future years the planned program would eventually add to the deficit.

So, while HHS is denying that CLASS will be closed down, its insistence on fiscal solvency and self-sustainability indicates that the program is now on life support, and—in spite of its short-term positive cash flow—may not survive Congressional and administration deficit reduction efforts.

Monday, September 12, 2011


Kaiser Health News has an interesting piece in which it quotes the answers of six health care system “experts” to what happens if the Affordable Care Act’s individual mandate is found unconstitutional. (The GAO posed a similar question to a wider group earlier this year, and published its much more extensive findings in a February 25 letter to a Senate Appropriations subcommittee.)

It’s important to emphasize that KHN’s question was not what kind of coverage incentives should have been in the ACA, something that a number of the interviewees apparently didn’t understand, but what happens if the individual mandate is overturned.

In fact, if the mandate is thrown out, a couple of things are certain. First, many of those who would otherwise have acquired coverage will not do so as penalties for non-compliance are eliminated. Second, there will be an immediate jump in individual and small group premium rates, since the effects of the ACA provisions proscribing medical underwriting and pre-existing condition limitations will no longer be offset by an influx of new healthy insureds.

What happens next? The political finger-pointing is likely to be nicely balanced. Republicans will blame the ACA for the increase in rates. Democrats will blame Republicans for fighting the one provision of the ACA most likely to hold down premiums.

While proposals like restoring pre-existing condition exclusions or imposing penalties on late enrollees or extending the time between open enrollment periods could help mitigate the problem, neither party will hurry to push for solutions. Democrats will be unwilling to renege on their promises to eliminate all forms of medical underwriting, while Republicans will be just as unwilling to do anything that might make the ACA effective. And with the two chambers of Congress in opposing hands, an impasse seems more likely than not.

Is there room for a compromise? Given politicians’ propensity for buck passing, perhaps giving states authority to change open enrollment periods or to allow pre-existing condition exclusions after 2014 might find bipartisan support. State governors and insurance commissioners might welcome the opportunity to leave their mark on federal legislation, or at least to take credit for limiting premium increases.

One thing seems sure: overturning the mandate while leaving all other ACA provisions unchanged would provide a huge accelerant for the individual and small group insurance death spiral.

Thursday, September 8, 2011


The Obama administration won a pair of modest victories today when the Fourth Circuit Court of Appeals in Richmond, Virginia, threw out a lower court ruling that the Affordable Care Act was unconstitutional.

The first decision by the Fourth Circuit provided only a small—and anticipated—win for the Administration, although it was an embarrassment for one of the most outspoken foes of the ACA, Virginia’s Attorney General Ken Cuccinelli. The Court rejected Virginia’s case on the grounds of lack of standing, stating that the ACA imposed no specific obligation on the Commonwealth itself, shooting down Cuccinelli’s argument that a Virginia statute protected its citizens against the ACA’s individual mandate clause.

In the second decision, the Court ruled that Liberty University’s case against the ACA had come too soon, and that it could not be brought until the law was in effect. This somewhat unexpected ruling reflected the Court’s interpretation of the individual mandate’s penalties as taxes, which under federal law cannot be legally challenged until they are in force.

The Fourth Circuit panel was the first group of three judges appointed solely by Democratic presidents to hear cases on the ACA’s constitutionality. It also was the first to characterize the mandate penalties as taxes, an interpretation that Administration lawyers have argued, and that would fit Congress’s authority under the Constitution.

Aside from the tax interpretation issue, today’s rulings don’t mean very much for ACA supporters or opponents. Neither ruling examined the merits of the ACA, and with opposing decisions from two other appeals court panels, the constitutionality argument is almost certainly going to the Supreme Court. The major question is when; the Administration may be able to delay a high court decision by appealing the prior Eleventh Circuit appeals panel ruling to the full court of sixteen judges, but this could result in another ruling against the ACA, and still leave the Supreme Court to rule before the 2012 election..

Tuesday, September 6, 2011


For those of us with a touching faith in the ability of competition to control health care costs, a dispute in Pennsylvania provides a sobering warning, and a reminder of the power of near-monopoly in health care.

Pittsburgh-based Highmark Incorporated, the regional Blue Cross and Blue Shield parent, announced in June its intent to acquire the West Penn Allegheny Health System, a five-hospital system that is the second largest in Western Pennsylvania. The acquisition, which would depend on regulatory approval, would presumably give Highmark more control over hospital costs and help in limiting premium increases, as well as recapitalize a hospital group with serious financial problems.

What happened next is instructional but depressing. The University of Pittsburgh Medical Center, the region’s largest hospital group, announced that it would end its in-network relationship with Highmark as soon as its present agreement expires next year. The result would be a potential tripling of rates to Highmark for services at UPMC’s twenty hospitals as Highmark is forced to pay “retail” prices.

Testifying that the Highmark deal with West Penn Allegheny Health System would make Highmark a direct competitor, UPMC’s President made the issue very clear to a state legislative committee: “[this was] an inevitable decision dictated by the realities of competition.”

What lessons can be learned from this? First and most obvious is that major hospital groups are increasingly in control of the health care marketplace (UPMC has an extensive physician network and—ironically— also operates its own insurance plan) and will be ruthless in protecting their position.  Second, as a result of the first, it’s going to be very difficult for insurers to control the costs of care through the acquisition of providers—as UnitedHealth and others are attempting—unless the acquiree is dominant in its area.

There are implications for the move to ACOs, also. Encouraging tighter associations between physicians and hospitals may make for better coordination of care, but it will also lead to increasing numbers of medical center “fortresses,”  for which there is little or no competition—and no chance of future competition—and in which physicians and hospitals have the same interest: to maximize their joint billings.