With roller-coaster stock markets, downgrades of US government debt and Capitol Hill gridlock over deficit reduction, healthcare reform hasn’t gotten much attention recently.

But two new developments late last week reminded us that the Patient Protection & Affordable Care Act (PPACA) remains one of the nation’s most controversial—and complicated—policy issues.

First, the U.S. Court of Appeals for the 11th Circuit in Atlanta on Friday ruled unconstitutional the “Individual Mandate” section of the 2010 healthcare reform law.

Also on August 12 the Internal Revenue Service (IRS) proposed new rules clarifying the “affordability” test for the minimum essential coverage employers must offer full-time employees starting in 2014.

This HR Policy Blog will explore the Appeals Court ruling; next week we’ll look at the IRS notice and its implications for employers. Read more.

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Healthcare Reform: Forgotten But Not Gone

Thu Aug 18, 2011

With roller-coaster stock markets, downgrades of US government debt and Capitol Hill gridlock over deficit reduction, healthcare reform hasn’t gotten much attention recently.

But two new developments late last week reminded us that the Patient Protection & Affordable Care Act (PPACA) remains one of the nation’s most controversial—and complicated—policy issues.

First, the U.S. Court of Appeals for the 11th Circuit in Atlanta on Friday ruled unconstitutional the “Individual Mandate” section of the 2010 healthcare reform law.

Also on August 12 the Internal Revenue Service (IRS) proposed new rules clarifying the “affordability” test for the minimum essential coverage employers must offer full-time employees starting in 2014.

This HR Policy Blog will explore the Appeals Court ruling; next week we’ll look at the IRS notice and its implications for employers.

The PPACA Individual Mandate provision requires all Americans, beginning in 2014, to purchase health insurance coverage or else face a stiff federal penalty. Immediately after President Obama signed the bill into law on March 28, 2010 the National Federation of Independent Business (NFIB) and 26 states filed suit in federal court challenging the constitutionality of the mandate.

The plaintiffs argued that in mandating that citizens purchase health insurance, Congress exceeded its authority to regulate interstate commerce under the Commerce Clause of the U.S. Constitution.

While the U.S. Court of Appeals for the 6th Circuit in Cleveland previously upheld the individual mandate as passing Constitutional muster, the Atlanta-based federal court held the opposite—again by a narrow 2 to 1 majority.

The judges wrote that the mandate was “a wholly novel and potentially unbounded assertion of congressional authority.” In disagreeing with the position of the Obama administration, the court said that “what Congress cannot do…is mandate that individuals enter into contracts with private insurance companies for purchase of an expensive product from the time they are born until the time they die.”

The conflicting federal court rulings set the stage for a final decision by the U.S. Supreme Court, probably sometime next year.

Why did supporters of the original legislation, including the President, decide to put this hotly contested provision into the healthcare reform law? In two words, “Adverse Selection.”

One of the key provisions of the new law that enjoys almost universal support is its ban on pre-existing condition exclusions—for children under age 19 now and for everyone starting in 2014. Since insurance companies could no longer refuse to cover existing conditions, lawmakers were concerned that without a coverage mandate people might wait until they were sick before applying for health insurance, i.e., adverse selection.

In addition, it was thought that requiring Americans to buy coverage would expand existing risk pools and thus reduce health insurance premiums by bringing into coverage millions of presently uninsured younger and healthier individuals. And some employer organizations favored individual responsibility provisions as a way to limit potential cost-shifting to private insurance.

No one can predict what the Supreme Court of the United States will decide next year. But we can map two diametrically opposite scenarios: On one hand,, the Supreme Court could uphold the mandate and allow the PPACA to be implemented as anticipated, including the employer mandates and the state-based insurance exchanges.

On the other hand, the Supreme Court could concur with the 11th Circuit Court and strike down the individual mandate. For the PPACA, declaring the individual mandate unconstitutional would be like removing the bottom card in a House of Cards. Chaos for healthcare reform. Indeed, even the state health insurance exchanges would be in doubt, since far fewer applicants would be expected to seek insurance coverage.

Compounding the uncertainty, a divided US Congress would be unlikely to reach agreement on a bipartisan substitute for the individual mandate section of the law, leaving lawmakers no alternative but to postpone most PPACA effective dates well past 2014.

Last week’s ruling by the US Court of Appeals was a stark reminder for employers that amid all the recent economic and political uncertainty healthcare reform uncertainty continues unabated. While PPACA rests on shaky legal ground and federal judges argue over its constitutionality, employers must focus on finding ways to manage rising health costs and meet new compliance responsibilities.