Clarity at last

Declaring it was not his job to protect Americans from the consequences of their political choices, Chief Justice John Roberts cast his lot with the U.S. Supreme Court's liberal wing and voted to uphold most of the healthcare reform law.

“Members of this court are vested with the authority to interpret the law; we possess neither the expertise nor the prerogative to make policy judgments,” Roberts wrote. “Those decisions are entrusted to our nation's elected leaders, who can be thrown out of office if the people disagree with them.”

The outcome finally clears the way for a wave of implementation goals in the Patient Protection and Affordable Care Act, whose effects will ripple across the nation's $2.7 trillion healthcare industry for years to come.

All 50 states will see the establishment of a public insurance exchange, up to 32 million more Americans are projected to receive coverage, and every hospital and doctor in the nation will face financial penalties if they fail to meet goals for quality of care and patient safety. Under the individual mandate, which threatened to sink the law before the Supreme Court upheld it, virtually every American will be required to obtain health insurance or face penalties on their income taxes after 2014.

The most immediate question in many minds was whether the one aspect of the court's ruling that went against the Obama administration's wishes—striking down the huge financial penalties for states that don't expand their Medicaid programs—will affect insurance coverage estimates.

The court's decision left providers wondering which states would choose to opt out of the Medicaid expansion, which could work against the reform law's stated goal of using the joint federal-state program to cover low-income uninsured Americans. Twenty-six state governments sued to stop the law, though experts noted that citizens in states that opt out will still pay federal taxes to support the expanded Medicaid program elsewhere.

Despite that uncertainty, healthcare players cheered the results of the high court's six opinions on June 28. The opinions spanned 193 pages, upholding the individual insurance mandate while reflecting a deeply fractured court.

Many observers predicted the outcome, but few foresaw the unusual legal route to the critical decision to toss aside the Obama administration's claim that the mandate was an extension of Congress' power to regulate commerce—but then declare it legal anyway, as a tax on the uninsured in a 5-4 vote.

The court also upheld the ability of states to receive enhanced federal funds to expand their eligibility criteria for Medicaid. But a 7-2 majority of the court struck down the corollary provision in the law that sought to allow HHS to cut off all federal Medicaid funding for failing to expand the program to cover the uninsured. States typically receive about 10% of their entire revenue for the year from federal Medicaid grants.

The highly anticipated ruling triggered a cascade of reaction across the country, with hospital groups and insurers praising the decision for bringing stability and certainty and Republican leaders vowing to turn the November elections into a referendum on the law.

“I sure am glad to have the ruling and be on the other side of all that anticipation, but we still have a lot of work to do,” said Richard Umbdenstock, president and CEO of the American Hospital Association, which supported the law. “We are among the first ones to say it's not a perfect bill, and we will look for opportunities to help improve it or address those subjects that weren't dealt with in the bill.”

Healthcare industry experts said many providers and payers are well on their way to achieving the many objectives set out in the law, including reducing preventable readmissions, coordinating primary and acute care, encouraging preventive services, accepting bundled and value-based payments and managing population health.

Hugh Greene, CEO of three-hospital Baptist Health in Jacksonville, Fla., said he has spoken frequently of the need for those kinds of delivery-system reforms even in a state such as Florida, which was the lead state plaintiff in the Supreme Court case to strike down the law.

“The two fundamental drivers of reform—the number of uninsured and costs rising dramatically—would not have gone away if the law was struck down,” Greene said. “I'm also not naive, this is not the final decision. There is a sense that this could go back into the political process as well, and the possibility that repeal of the law could occur. But this is a positive development that gives us clarity going forward.”

The 906-page reform law famously passed both houses of Congress in late 2009 and early 2010 without a single Republican vote in favor of the final bill, and the Supreme Court's 5-4 ruling upholding the mandate landed with a presidential election four months away.

Minutes after the decision was announced, Republican officials vowed to turn the November elections into a referendum on the law and scheduled plans for a House vote to repeal the law July 11.

“The decision today really indicates we have entered an age in which the government—Washington—will be controlling healthcare, unless something changes,” Republican House Majority Leader Eric Cantor said at a news conference after the decision.

Despite the tenor of such political rhetoric, Iowa Health System President and CEO Bill Leaver said many Republicans actually support the healthcare delivery reforms embodied in the law, even if they don't say so when the media are nearby.

That's why Leaver doubted that Congress would try to undo all the manifold provisions in the law that are intended to make the delivery system more efficient and accountable to patients.

“I would think they would not try to do much about the ACO-type provisions, because really, that's their only option right now to try to reduce Medicare spending,” Leaver said, referring to the law's push for Medicare accountable care organizations.

Iowa Health owns Trinity Regional Medical Center, Fort Dodge, Iowa, which is participating in one of the CMS' 32 Medicare Pioneer ACOs. The Des Moines-based system has also announced plans to form an ACO with Wellmark Blue Cross and Blue Shield of Iowa. Scores of systems around the country are doing the same.

Insurers, meanwhile, pledged to start an immediate lobbying campaign to make adjustments to the law to prevent higher premiums from undoing coverage projections.

Karen Ignagni, president and CEO of America's Health Insurance Plans, said provisions in the law that have received little attention so far—such as a tax on commercial premiums and the requirement that young beneficiaries can pay only three times less than the oldest—could raise insurance costs by up to 15%, according to some analyses. “The court settled the issue of whether we will have universal coverage,” Ignagni said. “Now the question is, will people buy insurance?”

Dr. Alan Muney, chief medical officer for Cigna Corp., said it still isn't clear whether the increase in healthy people who have to buy insurance will contribute enough to insurers' risk pools to offset the costs of having to offer care to older and sicker patients who are more likely to see their doctor or go to the hospital. That math was particularly uncertain in light of the court's ruling on Medicaid.

The law also forces insurers to limit the amount they spend on administrative overhead to 20% of what they collect for beneficiaries' healthcare and return any surpluses to consumers and businesses—a provision expected to cause rebates of about $1.1 billion by Aug. 1. But Muney said upholding the law's 80/20 medical-loss ratio is manageable.

“We need to lower the administrative costs of providing care, and we need to lower the cost of the care itself,” he said. “We need to provide care in the right amount at the right time. Right now there is too little, too late, and too much, too often very frequently. In a way, the MLR provisions are a workaround to what we are driving to anyway, which is higher value and lower cost.”

In its legal reasoning, the Supreme Court reached answers to the law's two main controversies in ways other federal circuit courts hadn't.

Most glaringly, the court struck down the sanction that faced any state that didn't agree to expand its Medicaid program, ruling such a bargain as tantamount to coercion. No other court, not even the District Court judge in Pensacola, Fla., who struck down the entire act and launched the case that went to Washington, found the Medicaid provisions unconstitutional.

With the insurance mandate, Roberts and the liberal-leaning justices upheld it on the grounds that it was an exercise of Congress' power to tax under the Constitution. Neither of the federal appeals courts in Cincinnati or Washington that ruled the mandate legal did so on those grounds.

But observers said that by ruling that way on the mandate, Roberts achieved two goals. First, he avoided a party-line split on a major national controversy, while also not granting the expansion of congressional power that many conservatives and libertarians have railed against.

“Even if Congress lacks the power to direct individuals to buy insurance, the only effect of the individual mandate is to raise taxes on those who do not do so, and thus the law may be upheld as a tax,” Roberts' wrote for the majority.

M. Miller Baker, a constitutional law and appellate court attorney with McDermott Will & Emery in Washington, said virtually no one could have foreseen Roberts' ruling.

“The shocker here is that there were five votes to sustain this on the taxing power,” Baker said. “Congress over and over went out of its way to say this is not a tax, and the president himself said it wasn't a tax. And now it's being upheld as a tax.”

Indeed, staunch reform law opponent Ken Cuccinelli, the attorney general of Virginia who filed his own unsuccessful court challenge, noted that as a political “silver lining” of the ruling.

“Those who support this law and who voted for it are now and forever on record for supporting this tax increase—a position they refused to admit when passing the bill,” Cuccinelli said in a written statement.

Cuccinelli also said the opinion represented the first time since the 1930s-era New Deal that the court had imposed any limit on congressional power under the Constitution's commerce clause.

Indeed, Roberts' opinion opened with a preamble describing a kind of deep national and institutional soul-searching that the healthcare law had provoked, framing the ruling's constitutional context in terms of the sweeping powers of states to police their citizens, as compared to the limited powers of the federal government enumerated in the Constitution.

Yet the decision reached a conclusion that is anathema to many proponents of individual liberties and limited federal powers: that the federal government has the power to cajole some people to buy a private product.

“Simply put, Congress may tax and spend,” Roberts wrote. “This grant gives the federal government considerable influence even in areas where it cannot directly regulate."

The irony is that Obama never wanted the insurance mandate in the first place.

He opposed it on the campaign trail in 2008, even though the bill he signed on March 23, 2010, included it as a financial offset to other provisions in the sprawling law.

Principally, the reform law forces insurance companies to offer policies to nearly anyone with little regard to timing, and it greatly limits the amount they can raise premiums on sick people—the provisions known as “guaranteed issue” and “community rating.”

For hospitals, the law also reduced growth in future Medicare rates by about $155 billion over 10 years.

The coverage mandate for virtually any American who wasn't in prison or religiously opposed to insurance is intended to shore up the insurers' risk pools while also decreasing the $43 billion in uncompensated costs that hospitals absorbed in 2008.

Even with the mandate's legality firmly established, industry officials say it's not clear that it makes up for the costs imposed by the law's other provisions.

“The cuts have started, and the coverage has yet to kick in,” Umbdenstock noted. “We've seen various analyses; some that say we come up short and some that say that by the end of the decade, hospitals make back more than that. I think, frankly, a decade is a long time.”

Congress estimated that about 4 million people are likely to pay the penalties rather than obtain insurance.

The “shared responsibility payment” increases in the first few years of the law, leveling out in 2016 at 2.5% of any household's income. However, the penalty is also set at no less than $695, and no more than the average annual insurance premium for six specific services such as prescription drugs and hospitalization.

Michael Dowling, president and CEO of North Shore-Long Island Jewish Health System, Great Neck, N.Y., said healthcare providers are working to reduce costs, eliminate inefficiencies and become more responsible for patient outcomes. The efforts didn't begin with the law, he said, and they will continue regardless of what happens in the November elections.

“I don't think we can allow the confusion to sway us,” Dowling said. “I think the people who are out there on the front lines delivering healthcare have to be the reformers.”

TAKEAWAY: The court delivers clarity by upholding reform and its mandate for individuals to buy health insurance, but raises some uncertainty with the law's Medicaid expansion.