Feb 7, 2011

Coming Soon … PPACA in 3-D: Defunded, Delayed, Dismantled?

Posted by: Neal Stehly

America’s employers — large, mid-size and small — for nearly a year have shared a fundamental concern: no one really knows how health care reform ultimately will affect employer-sponsored health benefits.

“At the most basic level, employers don’t know if the Patient Protection and Affordable Care Act (PPACA) will bend the cost curve down … or up,” said Jim O’Connell, Ceridian's consultant on legislative and regulatory affairs in Washington, D.C. Health costs have been soaring for more than a decade, and it is possible that the health care reform law will actually accelerate these costs.

Adding to the uncertainty is Florida Federal Judge Roger Vinson’s declaration this week that the entire law is void because its core — the mandate that almost all Americans obtain health insurance — violates the Commerce Clause of the U.S. Constitution. The U.S. Supreme Court may eventually take up the issue, but many think that might be a year or two away.

One thing is certain, however: health care reform — in any form — will surely represent a compliance tsunami for employers.

“Plan mandates, including the age-26 coverage requirement, auto-enrollment, preventive care without cost-sharing, the definition of essential health benefits, employer 'play or pay', Forms 1099 and W-2 reporting and many other requirements, will all require volumes of clarifying regulations,” O’Connell said.

O’Connell said the employer compliance burden associated with new mandates, reporting requirements and additional taxes could prove in the near future to be just as great as FMLA, COBRA and ERISA combined.

For example, the new 40% excise tax on so-called “Cadillac” health plans, slated for 2018, will force employers to make dramatic changes in employee health benefits to avoid the burden of new taxes.

In his second State of the Union address, President Obama declared that he is open to adjusting the new health care reform law and its funding strategy because, as he put it, “anything can be improved.” As an example, he proclaimed his support for a repeal of the 1099 provision, a requirement that has been widely unpopular for creating an unnecessary paperwork burden for small businesses.

He also proposed a five-year freeze on domestic spending, promising to reduce excessive Medicare and Medicaid expenses to balance the costs of health care reform initiatives.

But he also urged legislators to “fix what needs fixing and move forward.”

All this comes at a time when employers thought Congress had finished making sweeping changes in our nation’s health care system. It now appears that, in reality, the March 23, 2010, White House signing ceremony marked the beginning, not the end, of health care reform.

Last month the Republican-controlled House voted to repeal PPACA, and 26 states are currently involved in lawsuits regarding the law's constitutionality that will likely reach the U.S. Supreme Court.

With a historic swing of 63 seats, the most dramatic change in the House of Representatives since 1948, Republicans seem determined to use their majority to change what they perceive to have been the catalyst for their Election Day victories: PPACA.

This week the Senate Democrats rejected the Republicans’ bid to repeal the law. Yet the repeal vote represents the beginning of a long process to amend PPACA and to forge a long-elusive bipartisan consensus.

So what should employers expect from the 112th Congress on health care reform?

“It’s becoming increasingly clear that PPACA opponents have a 3-D strategy: defund, delay, dismantle,” O’Connell said.


O’Connell said Republicans are likely to use their majority control of the House to attempt to cut the appropriations for agencies charged with implementing the most controversial parts of the health care reform law.

For example, the Fiscal Year 2012 appropriations bill for the Department of Health and Human Services (HHS) might contain a specific prohibition on the use of any appropriated funds to enforce new regulations directing the states to expand the Medicaid program.

“While this kind of ‘surgical repeal’ is attractive to conservative opponents of the new law, it runs a couple of risks,” O’Connell said. “One, it potentially sets up a budget confrontation between the executive and legislative branches of government that could lead to a government shutdown. Two, it risks suggesting to voters that Republicans have taken their eye off the main issue — jobs and the economy.”

Republicans likely will target controversial provisions and perhaps confront the administration over funding for such provisions. But it is not likely that Republicans will center their assault of PPACA on its budgetary aspects. 


Another Republican strategy for challenging PPACA, O’Connell said, might be to pass legislation delaying the effective dates of objectionable provisions. For example, Republicans might seek to postpone the 2014 effective date of the mandate on employers to provide affordable health coverage for their employees or pay steep penalties.

PPACA opponents might also propose to delay the 2014 effective date of the individual mandate until the U.S. Supreme Court reviews the lower court rulings.

“With unemployment still near 10% and state budgets under duress, it might even be possible to achieve a bipartisan consensus to delay PPACA provisions that might impact state costs, such as the sharp increase in Medicaid eligibility,” O’Connell said. 


Because many political observers believe health care reform was damaging for Democratic congressional candidates in 2010, Republicans will likely force separate votes on hot-button issues to tie Democrats more closely to those provisions.

“The PPACA mandate that all individuals must purchase health coverage starting in 2014 is perhaps the most controversial provision in the new law and the subject of pending constitutional challenges,” O’Connell said. "Expect amendments to be offered later in 2011 or 2012, in either the House or Senate, to strike the individual mandate from the law. And it’s possible that Democratic senators up for re-election in 2012 might feel pressure from constituents to support such legislation." Likewise, the employer “play or pay” mandate could be a target for legislative amendments “to alter, delay or eliminate it,” he said.

Republican opponents pushed first for an outright repeal of PPACA. “Because that legislation was rejected in the Senate, Republicans are likely to shift tactics to a piece-by-piece approach, hoping to remove key elements and force consideration of alternative ideas. It’s even remotely possible that one or more of these targeted amendments could also be approved by the Senate,” O’Connell said.

But for employers, whose main interests lie in compliance with the new law and in understanding how it might affect their employee health benefits, the re-opening of legislative action on health care reform deepens the uncertainty that they must live with.

“It means that health care reform could be reconsidered this year and perhaps even reconsidered after the 2012 elections, until at some point a bipartisan majority coalesces around a consensus approach that enjoys broad public support,” O’Connell said.

Employers can only hope that Washington will not wait too long to provide the regulatory certainty that’s long been missing from the nation’s health care policy.


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