Industry the November 2012 issue


This is the future of the healthcare debate, no matter who wins the White House or controls Congress.
By Scott Sinder

When this column hits your desk, we will be in the final throes of the Presidential election year’s numerology season, with the number 270 looming as the final electoral vote goalpost. Regardless of who wins on November 6, however, the winner will have to confront some dark numerological realities:

  • $16 trillion—The current size of the federal debt (with a $13.6 trillion GDP)
  • $1.3 trillion—The projected 2012 federal deficit
  • $1.2 trillion—The cost of maintaining the Bush tax rates over the next 10 years
  • $1.2 trillion—The amount that would be saved if sequestration moves forward.

Without any congressional action, the Bush tax rates will expire, and the sequestration rules, which require across-the-board cuts in specified programs, including defense, will take effect in 2013. The consensus among economists is that the country will immediately plunge into a deep recession.

Although discussion of these issues will commence in a lame-duck session of Congress, few expect any final resolution before the new Congress gets to work in January. Regardless of who is sworn in as president, certain healthcare numbers will come to the fore:

  • $1 trillion—The Congressional Budget Office’s projection of the 10-year cost of the Patient Protection and Affordable Care Act exchange subsidies for individuals
  • $1 trillion—CBO’s projected cost of expanding Medicaid
  • $73 billion—CBO’s projected state contribution to the Medicaid expansion
  • $289 billion—CBO’s projected savings on the Medicaid expansion based on estimates of states that will refuse to participate in the expansion
  • 48.6 million—The current number of uninsured Americans
  • 30 million—CBO’s projected number of uninsured Americans in 2016.

Enacting the new law will be very expensive, and it’s not projected to cure the coverage accessibility issue as much as initially promised. Regardless of who is elected president, the new costs imposed by the healthcare law will not stay out of the fray. If President Obama is reelected, he may need to redress four fundamental flaws:

  • The Doughnut Hole—By virtue of the Supreme Court’s decision in the healthcare law, states can opt to forego expansion of their Medicaid programs and still keep their current programs in place. Several states, including Texas and Florida, already have said they intend to do just that. As a result, millions of lower-income Americans will not be eligible for Medicaid or for insurance exchange support.
  • Preferential Treatment For Non-Citizens—To add insult to injury on the Medicaid front, legal residents who are not citizens will be eligible for exchange subsidies down to 0% of the poverty line, while U.S. citizens are not eligible for the subsidies unless they make at least 100% of the federal poverty line amount. This privilege was included in the law because non-Americans are not eligible for Medicaid. We might have the perverse result that better-paid, lower-income non-citizens will be eligible for exchange subsidies when an identically situated citizen will not be entitled either to Medicaid or to exchange subsidies.
  • The Subsidy Gap—The healthcare law appears to allow the payment of exchange subsidies only for coverage purchased through a state-created exchange. If a state refuses to establish an exchange and the federal government does so instead, the law does not appear to allow the payment of these subsidies. In an apparent effort to solve this problem, the Department of Health and Human Services is promoting federal “partnership” exchanges under which a state would invite the federal government to establish its exchange. There is a good argument that payment of subsidies on the partnership exchanges is statutorily permissible. But the IRS decision to allow payment of the subsidies for federally created non-partnership exchanges is sure to draw legal challenges.
  • The Subsidy/Mandate Issue—The law requires HHS to establish a single federal “benchmark” plan to be offered on all exchanges. Each state is required to pay the subsidy associated with the premium for any state-imposed mandate that is not included in this benchmark plan. There will be 55 separate benchmarks, and each state plan will likely include all of that state’s current mandate requirements. This could increase the projected subsidy costs dramatically.

For those taking (or re-taking) office next year, the debate will center on the mounting fiscal issues of the day: the debt, the deficit, expiring Bush tax rates, sequestration, etc. If the numbers mean anything come January, though, healthcare won’t be excluded from the party.

Scott Sinder Chief Legal Officer, The Council & Partner, Steptoe & Johnson LLP Read More

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