The Alan Katz Health Care Reform Blog

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Archive for January, 2011

Federal Judge Declares PPACA Unconstitutional

Posted by Alan on January 31, 2011

Federal District Court Judge Roger Vinson declared the Patient Protection and Affordable Care Act unconstitutional. The ruling in a suit brought by governors and attorneys general from 26 states is the most sweeping legal decision against President Barack Obama’s health care reform package. 

Specifically, Judge Vinson decision focused on the legislation’s requirement that all Americans obtain health care coverage (the individual mandate). He found the individual mandate violated the Commerce Clause (while in the same decision dismissing plaintiff’s claim the PPACA was unconstitutional because of the changes it makes to the Medicaid program

All of this was expected. What was a bit of suprise is that Judge Vinson went further stating:  “Because the individual mandate is unconstitutional and not severable, the entire act must be declared void.”  Compare this to the December decision by U.S. District Judge Henry Hudson who ruled in a suit brought by the state of Virginia that the individual mandate was unconstitutional. Judge Hudson, however, determined that those provisions of the health care reform law that did not depend on the individual mandate “are legal and can proceed.”

Reuters describes Judge Vinson as struggling with the decision to invalidate the entire law as he recognized the decision “will have indeterminable implications” – which is legalese for “this shakes things up a bit, doesn’t it?” In the end, however, as reported by the New York Times, he determined that the individual mandate “exceeds the regulatory powers granted to Congress under the Commerce Clause of the Constitution. Judge Vinson wrote that the provision could not be rescued by an associated clause in Article I that gives Congress broad authority to make laws ‘necessary and proper’ to carrying out its designated responsibilities.”

Significantly, Judge Vinson decided not to stop implementation of the PPACA from moving forward pending appeals. Nonetheless, one of the the lawyers for the states, David Rivkin, Jr., was quoted as declaring that “With regard to all parties, the statue is dead. The statute is as if it never was.”

Well, not really. If Judge Vinson had suspended or enjoined the law Mr. Rivkin would have something more than enthusiasm to stand upon. But by allowing work on implementing reform to move forward, this decision becomes part of a mix of several cases. With District Judges ruling to strike down part (and now all) of the Patient Protection and Affordable Care Act and others upholding the health care reform law the next step is for Appellate Courts to hear appeals of these decisions.

Eventually the question of whether the PPACA is constitutional or not will be determined by the U.S. Supreme Court. Which will be fascinating to watch. While Justices prize their independence, the fact is that they all have a point of view based on a mix of their understanding of the law and constitution, their personal experience, and their political ideologies – not in equal measure. While there may be surprises, what this could mean is that the fate of President Obama’s signature legislative accomplishment is in the hands of Justice Anthony Kennedy. The reason is that four of the Justices are expected to be skeptical of expanding the Commerce Clause while four are likely to be more comfortable with the idea. Justice Kennedy is viewed as a moderate and the swing vote on the Court as currently comprised.

In the meantime implementation of the PPACA by regulators, carriers and others will continue apace – as will legislative attempts in Congress and state legislatures to modify (or repeal) the law. All of which means that Judge Vinson’s declaration that the PPACA is unconstitutional is an interesting chapter in the history of reforming health care and health care coverage in America, but it’s only a chapter in a very long book.

Here’s a link to the text of Judge Vinson’s ruling striking down the health care reform law as unconstitutional.

For those who prefer to listen to their legal analysis, NPR offers a clear presentation of Judge Vinson’s decision.


Posted in Barack Obama, Health Care Reform, Healthcare Reform, Patient Protection and Affordable Care Act, PPACA | Tagged: , , | 7 Comments »

Moving Beyond Health Care Reform Repeal to Revision

Posted by Alan on January 27, 2011

During the 2010 election Republicans promised to “Repeal and Replace” the Patient Protection and Affordable Care Act. Having gained a majority in the House of Representatives they quickly passed a bill to do just that (joined by three Democrats). Having failed to gain a majority in the Senate the repeal process is all but over.

Senate Majority Leader Harry Reid has said he would not bring the “Repealing the Job-Killing Health Care Law Act”to the Senate floor for a vote. In response Republican Senators have promised to offer amendments repealing what they see as unpopular provisions of the law. In both the House and Senate GOP lawmakers are targeting the PPACA’s requirement that all Americans obtain health insurance coverage, malpractice reform, taxes imposed on health insurance carriers and others, denying federal subsidies (including tax deductions) for health plans that cover abortions, and permit the sale of health insurance across state lines. While Republicans know these amendments will fail, forcing Democrats up for election in 2012 to cast several votes defending President Barack Obama’s health care legislation has significant potential political benefits.

But two can play this game. So if Republicans force a vote on their measures, Democrats will require GOP Senators to vote on legislation concerning more popular elements of the PPACA. These include closing the Medicare prescription benefit donut hole, eliminating pre-existing condition exclusions for children, and allowing children to remain on their parent’s health plan up to age 26.

Then there’s the coming Republican effort to defund the PPACA. (Which creates an enjoyably ironic situation. Many in both parties, but especially Republicans, argued Democrats were arrogant to pass health care reform in the face of polls showing the public opposed their legislation. How will they respond to a Kaiser Family Foundation and Harvard School of Public Health showing 62 percent of respondents opposed cutting off funds needed to implement the PPACA?)

What all this means is that we’re in for two years of political showmanship concerning health care reform. But that doesn’t mean meaningful changes to PPACA won’t be forthcoming. President Obama declared his willingness to sign a medical malpractice reform bill. Of course there’s tort reform and then there’s tort reform. Health and Human Services Secretary Kathleen Sebelius has committed to providing “what the parameters of medical malpractice reform might be” during a hearing of the Senate Health, Education, Labor and Pensions Committee Hearing. Whether there is enough common grounds with GOP proposals to deal with medical malpractice remains uncertain until then. Meanwhile, 60 Senators have signed onto a bill to repeal the the 1099 reporting provisions contained in the health care reform law. Down the road there will be efforts to gain bi-partisan support for changes to more difficult provisions of the new reform law, including medical loss ratio requirements and the exchanges.

Yes we’ll all be subjected to the sound and fury signifying only political posturing and one-upmanship. But there will also be acts of quiet negotiation aimed at what President Obama in his State of the Union speech called “improving” the Patient Protection and Affordable Care Act. And as Politico Post describes the reaction of this language by Julie Barnes, director of health policy at the Bipartisan Policy Center, this could well be “a signal that bipartisan cooperation on health reform tweaks is on the horizon.”

One can only hope.

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Patient Protection and Affordable Care Act, Politics, PPACA | Tagged: , , , , | 3 Comments »

When Public Policy Meets Reality

Posted by Alan on January 20, 2011

A short (less humorous) version of an old joke goes: an engineer, a priest and an economist are stranded on a desert island with just a can of beans. They’ll starve if they can’t open the can. The engineer proposes a solution involving situating the can among rocks in such a way as to heat the can to the point of exploding. The priest suggests praying for divine intervention. The economist’s approach: “assume a can opener.”

Replace “economist” with “public policy expert” and you get a nice metaphor for why any massive reform is an arena where unrealistic expectations intermingles with unintended consequence. This dynamic doesn’t mean big problems don’t require big solutions, but it does imply that the assumptions and predictions of “experts” – especially those detached from what would generally be regarded as the “real world” – are unlikely to work out as well as hoped.

The Patient Protection and Affordable Care Act is no exception to this phenomena. The health care reform law is chock full of the favorite “concepts” proposed by academics over the past few decades. Exchanges. Standardized plans. Modified community ratings. On-and-on. Some of these ideas were the favorite of Democrats; some were originally proposed by Republicans. Most all of them are based on theories about how the real world should work, with the emphasis on “should.”

A case in point. One of the better provisions of the PPACA is aimed at creating a standardized approach to presenting the benefits included – or excluded – by a medical insurance policy. Standard terms and descriptions must be used by carriers beginning in 2012 so consumers can easily make apple-to-apple comparisons between policies. The PPACA lays out the requirements of these Summary of Coverage forms (e.g., they can be no more than four pages long). Developing the template and permissible language, however, is left up to the Department of Health and Human Services in consultation with the National Association of Insurance Commissioners.

Ask most policy experts and they’ll argue that standardizing these benefits will empower consumers to make informed decisions concerning the appropriate health care coverage that best fit their needs. Some will even be willing to state that this provision is another reason why brokers will be less necessary in the future. By making it simple to understand and compare policies, the expertise brokers provide will be less necessary.

In theory.

The reality appears to be something else.

While finding that consumers considered the initial version to be appealing and well received, a study by Consumers Union showed the Summary of Benefits “could lead [consumers] to select a plan that was not in their best interest.” The reason is because of:

  • Significant participant difficulty with cost-sharing concepts (allowed amount, coinsurance, benefit limits, deductibles, etc.)
  • Significant participant difficulty with covered service definitions (understanding what was included in specific service categories, like preventive care)

In other words, while the information was presented clearly, consumers lacked the expertise to use this information effectively.

Consumers Union, which publishes Consumer Reports, used focus groups to explore the effectiveness of the draft version of the standardized summaries. One of the study’s observations is that “shopping for health insurance was an aversive task, fraught with anxiety for many respondents. They were afraid of making a costly mistake if they chose the wrong plan. Even respondents with good health insurance literacy skills lacked the confidence to choose a plan, reflecting a concern that it would expose them to potential financial liabilities.”

I made a similar point in yesterday’s post: “health insurance is complicated, expensive, rarely shopped for, very personal and extremely critical to one’s health and financial security. This is not a purchase to be made lightly. Consequently, consumers and small businesses want an expert to help them make the right choice.”  But it’s nice to have this observation borne out in independent research.

Providing information in a user-friendly, clear and understandable way is very hard. And I believe standardizing the presentation of policy information is a worthy goal.

Where I part company with some policy experts, however, is when they assume that consumers are likely to be able to use this information effectively. Some may, but many will not.

Nor is this likely to change by simply improving the form. People shop for health insurance coverage maybe once a year or three times a decade. They’re not going to get good at it. In the torrent of information we all face, for most people spending the time necessary to become savvy about the ins-and-outs of health insurance just doesn’t rank very high.

That’s one of the reasons why the academics who create what they view as a transparent and agent-free health insurance market are doomed to disappointment. In an ideal, hypothetical world you can assume full understanding of clearly set forth information – heck, you can assume a can opener on a desert island. But once that theory comes in contact with reality, consumers want, need and deserve independent expertise from qualified professionals both before and after the sale.

Assumptions are fine, but reality is what counts.

Posted in Health Care Reform, Healthcare Reform, Insurance Agents, Patient Protection and Affordable Care Act, PPACA | Tagged: , , | 13 Comments »

Exchanges Need Brokers

Posted by Alan on January 19, 2011

I’m at the National Congress on Health Insurance Reform meeting in Washington, DC. One of the speakers today was Shawn Nowicki of HealthPass and the Northeast Business Group on Health. They run an exchange for small businesses in the greater New York City area.

Mr. Nowicki offered some real-world, practical advice to policy makers at the state and federal level responsible for establishing exchanges under the Patient Protection and Affordable Care Act and what it takes to make them successful. Given the great concern expressed by some of those offering comments on this blog about whether brokers will have a role in these exchanges, I thought readers might appreciate hearing Mr Nowiki’s thoughts on the subject.

Mr. Nowicki made clear involving brokers is critical to the success of an exchange – not just when it comes to selling health plans within the exchange, but “throughout the process.”  He noted that brokers drive the individual and small group market. Employers and consumers, he noted, have a personal relationship with their broker and trust them (implying brokers are more trusted than the exchange, the government, or carriers – an observation I think most objective observers would agree with).

Mr. Nowicki implicitly acknowledged that if brokers are excluded from exchanges, many small groups won’t even consider them. He went on to urge those who dismiss the importance and value of brokers to “reconsider their rhetoric.”

Ultimately the states will determine what role brokers play in the exchanges – and results will vary. Some states, like California, have already taken steps that appear to be anti-agent. Both Democratic and Republican lawmakers around the country too often have express the belief  that exchanges will be a panacea allowing consumers and small businesses to buy coverage simply and easily without an “intermediary” (or a counselor and advocate, as I would describe our role). Which means no matter how pro-business a state’s reputation, brokers need to bring to the attention of those creating and defining the exchanges the insights of people such as Mr. Nowicki.

As I’ve discussed in the past, buying health insurance is different than buying a book or airline ticket. Put simply, health insurance is complicated, expensive, rarely shopped for, very personal and extremely critical to one’s health and financial security. This is not a purchase to be made lightly. Consequently, consumers and small businesses want an expert to help them make the right choice. This is especially true for business owners who are not just making a choice for their own families, but for the families of their employees as well.

As Mr. Nowicki noted, however, brokers are important not only at the time of sale, but after the purchase as well. Exchanges may standardize some aspects of the market, but their very existence is an added layer of complexity. When a problem arises, who is an employer to call? The carrier? The exchange? What happens when, as it inevitably will, the carrier and the exchange each point the finger of blame for that problem at the other.

Today, brokers help level the playing field between consumers and the more powerful carriers. In the future their expertise and experience will help level the playing field between consumers and the more powerful exchanges.

States will take varying views on the role brokers should play in the exchange. As Mr. Nowicki made clear, the toll – and consequences – could be high for hose who minimize that role.

Posted in Health Care Reform, Healthcare Reform, Patient Protection and Affordable Care Act, PPACA | Tagged: , | 6 Comments »

The Health Care Reform Kabuki Theater 2011 Style

Posted by Alan on January 17, 2011

Republicans are expected to put repealing the Patient Protection and Affordable Care Act to a vote on Wednesday. Proving yet again that Kabuki is alive and well in Washington, D.C. Which makes what is about to unfold in Congress relatively straightforward to predict with a reasonable degree of confidence.

For those who like their metaphors precise, Kabuki is a highly stylized and classical type of Japanese dance-drama. The plays, usually in five acts and sometimes lasting all day, traditionally start slowly and gain speed throughout the presentation. Characters and story lines are well-known and understood by audience – and the actors. Politics shares a lot with Kabuki and the debate over health care reform is no exception. The actual players may come and go after each election, but their roles and the story line are well understood by participants, the media and the public.

Here’s how the first three acts of the health care reform dance in Congress is likely to play out over the next several months.

Act 1: The Vote to Repeal:
Republicans are planning to bring HR 2, the “The Repealing the Job-Killing Health-Care Law Act” to the floor on Wednesday, January 19th at 10:00 am eastern time (for those wanting to TiVo C-SPAN). The debate will (hopefully) be more substantive and civil than one might have expected before the tragedy in Tucson, but there will still be a good number of outrageous claims made by both sides. After all, everyone knows the PPACA will not be repealed so this is a purely political gesture.  Republicans are fulfilling a campaign promise many of them made in the mid-term elections. Both sides will take the opportunity to throw red meat to their base (do Democrats throw blue meat?), sound bites will prevail, and pundits will be in punditry heaven.

This round will go to the Republicans. Democrats will score some hits, accusing GOP lawmakers of being in the pocket of the insurance companies, seeking to do away with those elements of the PPACA which are popular (guarantee issue, no pre-existing conditions, etc.), and more. Republicans will score their points, too, but their real win will come from the make-up of the majority that will pass the repeal bill. Republicans will be able to brag that the vote to repeal health care reform was more bipartisan than the vote to pass health care reform. And brag they will. The vote may not be very bipartisan, but it only takes one Democrat opposing their leadership to make the vote on HR 2 more bipartisan than the votes on HR 3590 and HR 4872  (the two bills that together make up the PPACA). The bipartisanship of repeal is a sound bite too sweet to ignore – it undercuts the punches scored by the other side while elevating the GOP’s hits. What’s not to like?

After passing the House, HR 2 will head over to the Senate where it may never be brought to a vote. The debate over repeal will quickly descend to playground rhetoric. Republicans will attack Democrats for playing keep-away on a vote. Given the numerous times the GOP manipulated Senate rules in the past couple of years, Democrats will use the “I’m rubber, you’re glue” defense and accuse Republicans of being hypocritical. If HR 2 does come up for a vote – or if there’s a debate over whether to bring the bill to the Senate floor – it will be because Democrats determine the political upside of doing so outweighs the political downside.

Regardless, Republicans know they cannot repeal the PPACA. Their goal in this Act is to make the effort and they’ll succeed in that regard.

Act 2: Picking Low Hanging Fruit
President Barack Obama has identified elements of the Patient Protection and Affordable Care Act that needs tweaking. So have Democratic and Republican members of Congress. Their lists have significant overlap. Both, for example, recognize the need to do away with the requirement that businesses submit 1099s to the IRS to any entity providing them products and services worth $600.

Given the realities of modern-day politics I’m not saying that these easy changes will come easily. The Senate was unable to repeal the 1099 provisions of the PPACA last November. Maybe given the public’s hunger for civility and cooperation the parties will come together on some of these no-brainer changes to the health care reform law. But that might be wishful thinking.

At the end of the day (or more likely a few weeks) Congress will make have made these amendments to the PPACA all but a certainty of passing. What will be interesting is whether the combatants decide to pass these widely supported modifications on a stand-alone basis, as a single, limited package or if as part of legislation seeking more controversial changes. Again, the decision will be based on how each interprets the politics of the situation, but my guess is that we could see most of this low hanging fruit pass relatively quickly; Republicans because an important part of their base (the business community) wants these changes done quickly and Democrats to demonstrate their commitment to civility and cooperation.

Act 3: Picking a Fight
Then it gets interesting. Republicans will vote to deny funding for some provisions of the Patient Protection and Affordable Care Act. They’ll push bills in the House to eliminate key elements of the bill (the individual mandate for sure, the exchanges and the medical loss ratio provisions possibly). Senate Democrats may push for the public option provision eliminated from the PPACA near the end of the process that produced the new law. (The public option refers to establishing a government-run health plan aimed at competing with private carriers).

These controversial changes to the PPACA will be based on both ideology and politics (as is to be expected when talking about government). Some proposals will reflect the strong beliefs of one party or the other. The parties do have valid and substantive disagreements. The parties see the role of government differently. Given the same reform they expect different outcomes. They have different approaches to problem solving. As a result much of the debate over controversial changes to health care reform will be substantive.

But not all of it. Many of the amendments, budget cuts, investigatory hearings will be politically driven. President Obama is up for re-election in 2012 as is every member of the House and one-third of the Senate. Republicans know the results of the 2010 election were more the result of centrist voters abandoning Democrats as opposed to their embracing Republicans. The GOP is on probation. They need to define themselves over the next two years in a way that earns them another term – and perhaps the White House.

That this is easier said than done may be true, but that’s a topic for a different blog. What matters in the context of health care reform is that the PPACA matters to voters. The public (and media) pays attention to health care reform. Political points can no doubt be scored by efforts to reform the nation’s transportation system, but road building lacks the appeal (or cable news attention) that health care reform gets. (This is unfortunate and I’m not condoning it, but it’s important to recognize this fact). And politicians, like actors, are expert at playing to the crowd.

Kabuki theater is highly stylized with dramatic costumes and make-up. Politics may lack the accoutrements, but it’s no less stylized. Let the curtain rise!

Posted in Barack Obama, Health Care Reform, Healthcare Reform, Patient Protection and Affordable Care Act, Politics, PPACA | Tagged: , , , , | 2 Comments »

Adapt or Die: Health Care Reform’s Tag Line

Posted by Alan on January 16, 2011

There’s a movie coming in April called “Hanna.” Looks like a mashup of the Bourne Identify, Ender’s Game, and Blade Runner. Or maybe not. What caught my eye when I saw the ad for this movie in the Los Angeles Times Sunday was it’s tag line: “Adapt or Die.”

I don’t know how well “Adapt or Die” describes the movie, but it certainly describes the reality facing stakeholders in America’s health care system. And it would have whether or not the Patient Protection and Affordable Care Act has passed or not. Lawmakers and regulators at the state and federal levels are far from done with their revisions, tweaks and changes to the PPACA.

Nonetheless one thing is for certain: the status quo (the health care reform system as we knew way back when — a year ago) is going to change dramatically. Even if the PPACA were to be thrown out as unconstitutional (a very unlikely outcome), the way we were is gone. Republicans recognized this when they changed their battle cry from “Repeal Obamacare” to the mantra “Repeal and Replace.” No one wants to go back to the “old” system. Republican driven health care reform would be different than what Democrats passed, but it would still require stakeholders to adapt to a changed world. Republicans support exchanges. They support requiring carriers to accept all applicants without underwriting. They want medical malpractice reform, but their cost containment ideas go far beyond reducing the volume of law suits.

Even more significant, the American people don’t want to go back to the way things were. They like the idea of increasing the portability of coverage, eliminating pre-existing condition exclusions. Many support increased government oversight of premiums and regulating carriers use of rescission and the like.

The result is that everyone involved in the system will need to adapt:

  • Carriers will have less flexibility when it comes to setting rates, underwriting, and benefit designs. They may face new competitors – some with an unfair advantage created by skewed playing fields. As the “old” ways of competing are limited, the importance of offering providing strong value and superior service will become a more important differentiator. Which means carriers will have to do more with less – provide more and better services while spending less to provide those services.
  • Brokers need to develop a business model that accommodates reduced and more transparent compensation. I’ve been warning for several years that, even without the PPACA, commissions based as a percentage of premium – premiums that were rising at the accelerated rate of medical inflation as opposed to general inflation – was unsustainable. The PPACA means this transition to a new compensation model will come more quickly, but it was coming nonetheless. At the same time brokers will need to powerfully communicate and demonstrate their value, which means a greater emphasis on post-sale service, services that no government bureaucrats can deliver. Add to this the reality that agencies will need to diversify their offerings and brokers are in for a tumultuous time of adaptation.
  • Providers today are in an enviable position: they set the demand while simultaneously providing the supply. OK, enviable might be overly stating it, but they are in a favorable position – for now – enabled by the dominance of a fee-for-service payment structure. So long as as doctors and hospitals are paid for doing more rather than less, regardless of the outcomes, they will be tempted to do more, a temptation that will be even stronger given the reality that law suits are not often brought because providers provide too much care. The PPACA contains demonstration projects, pilot programs and other elements aimed at encouraging a greater focus on the outcome of medical care, as opposed to the volume of care, patients receive. The reform law also encourages the creation of a more integrated care system, changing the way providers practice and the relationship between doctors and facilities.
  • Employers were one of the loudest voices calling for change. Health insurance costs were devouring resources and profits, eroding their competitiveness, and distracting executives’ attention from their core missions. If health care reform, as passed, actually reduced health care coverage costs employers might be rejoicing. But the PPACA all but guarantees higher premiums while also imposing greater regulatory burdens on businesses large-and-small. The exchanges might offer a refuge for some businesses, especially very small businesses, but if history is any indication they will be far from the panacea their advocates (which include both Democrats and Republicans) promise.

There are other stakeholders: pharmaceutical companies, state and local governments, and consumers to name a few more. But you get the idea. America’s health care system needed to change. Consequently, those impacted by America’s health care system would need to adapt. This doesn’t excuse or justify the elements of the PPACA that do more harm than good.

As Congress takes up health care reform yet again, it’s important to keep what’s happening in perspective. Some modification of the new health care reform law is inevitable. Lawmakers,  regulators or the courts may dramatically alter the PPACA. Regardless of whether the revisions are large or small, the one certainty is that we’ve passed the point of no return: the status quo is history. Which means we all will need to adapt or, if not die, at least move on.

Posted in Health Care Reform, Healthcare Reform, Patient Protection and Affordable Care Act, PPACA | 11 Comments »