Health care industry weighs in — or not — on Supreme Court case

Kaiser Health NewsMarch 22, 2012 

WASHINGTON — Before the raucous legislative battle to pass the health care law in 2010, there was a quieter but significant process that brought health industry players to the negotiating table. Insurers, hospitals and drug makers all cut deals to help shape what would become the Patient Protection and Affordable Care Act.

Now, as the Supreme Court awaits arguments next week in one of the most closely watched cases in years, the deals are threatened along with the law, and the industry groups are deploying different strategies as they seek to defend their interests before the court.

Insurers have chosen not to defend the massive dividend for their industry that many think makes the law most vulnerable. The "individual mandate" requires almost everybody to buy health insurance or pay a fine, a major concession the lobby got at the bargaining table. But insurers aren't taking a stand on whether the mandate is an unconstitutional abuse of federal power, as the law's opponents contend.

"I don't think the public or the courts recognize our industry for its constitutional expertise," said Karen Ignagni, the chief executive of America's Health Insurance Plans, an industry lobby.

Insurers do express strong views on what the court should do if the mandate is tossed out. Their memo to the justices joins more than 130 other briefs, the largest number of "friend of the court" briefs ever filed for a Supreme Court case.

Hospitals, the law's most energetic health-industry defender, urge the court to uphold the entire health overhaul act. Drug makers just want the legal case and resulting uncertainty to be over.

The American Medical Association, the largest doctor lobby, supports the law and is working to influence rules for insurance exchanges and other components. But, like the largest drug trade group, it's filed no briefs with the court.

"There have been ample statements on all sides of the issues," said Dr. Peter Carmel, the association's president.

If the mandate disappears, insurers have the most to lose, analysts said.

"If that gets ruled unconstitutional, I think people worry about the profitability of managed care," said Rouven Wool-Lewis, a health-services analyst for T. Rowe Price, a Baltimore money-management company.

Insurers worry that the court might block the mandate but uphold a separate requirement that they accept all members at a uniform price regardless of pre-existing illnesses, a situation Wool-Lewis likened to "signing up for fire insurance while your house is on fire."

Under that scenario, insurers could find themselves with sick new members but without much of the expected money to pay for their care.

"That's the most important thing here — the linkage" between the mandate and insurers' obligation to sell policies to all comers, Ignagni said. "The American people want reforms to work, and without that link it's going to be impossible to make that happen."

As evidence, insurers point to states — such as New York, New Jersey and Washington — that required plans to expand coverage without sign-up mandates. The result, they say, was skyrocketing premiums and a plunge in the number of people who could afford to buy insurance on their own. Some, however, argue that federal subsidies distributed through health-insurance exchanges for lower-income workers would promote coverage even in the mandate's absence.

Hospitals were early proponents of the Affordable Care Act, not least because of the promise of billions in additional spending. But they, too, are concerned that the court will outlaw the individual mandate while upholding provisions that would put them at financial risk, such as a reduction in payments to those treating a high proportion of charity cases.

"Those are cuts that the hospitals accepted in anticipation of increased coverage" via the mandate, said Melinda Hatton, the general counsel for the American Hospital Association. Those parts of the law should survive or disappear along with the mandate, she said.

The court also will hear arguments against the act's Medicaid expansion, another huge source of new revenue, not only for hospitals but also for insurers, which have expanded their Medicaid managed-care business substantially. States contend that the expansion is unconstitutionally "coercive," an argument that hospitals sharply dispute.

The insurance lobby is just as silent on the constitutionality of the Medicaid expansion as it is on the constitutionality of the mandate. Some say both positions are tactical nods to the act's Republican opponents. But insurers may not want the mandate or the entire act overturned any more than hospitals do.

"I do not believe from the conversations I've had that anybody in the insurance industry wants this law thrown out in its entirety," said Robert Laszewski, a veteran health policy consultant and former insurance executive. "The notion that we might have to do this all over again is not a notion that anybody in the industry is going to look forward to."

In any event, Peter Costa, who follows managed-care stocks for Wells Fargo, thinks that the stakes for the health-care industry are lower in the Supreme Court deliberations than they are in the November elections.

"We believe the biggest risk is around defunding health reform and not repealing it" if Republicans gain control of the Senate or the White House, Costa wrote in a report to clients.

Another possible outcome of court deliberations is delay. The justices could rule that the mandate can't be challenged until it goes into effect in 2014. On that issue, at least, the industry seems to be in broad agreement with the opinion of the Pharmaceutical Research and Manufacturers of America, a trade group.

"We think the court should take the opportunity to see the legal issues resolved," PhRMA spokesman Matt Bennett said. "Uncertainty in the law is bad for patients, providers and the entire health care sector."

(Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communication organization not affiliated with Kaiser Permanente.)

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