On February 26, 2018, eighteen state attorneys general and two Republican governors filed suit in a Texas district court against the federal government over the constitutionality of the Affordable Care Act (“ACA”). While Texas v. United States is not the first serious legal challenge brought against the Obama administration’s signature healthcare law (see, e.g., King v. Burwell, 135 S. Ct. 2480 (2015); see also National Federation of Independent Business v. Sebelius, 567 U.S. 519 (2012)), it is the first in which the executive branch broke with tradition and declared that it would not defend the ACA in court. The case has certainly represented the most serious threat to the ACA since the GOP’s legislative efforts to repeal the healthcare law failed last summer. As it turns out, this threat should have been taken more seriously by industry analysts. On December 14, 2018, Judge Reed O’Connor of the U.S. District Court for the Northern District of Texas found that the ACA was unconstitutional.
His decision has rattled the markets, Democratic political leaders, advocacy groups, and the broader healthcare industry. One prominent Democratic senator remarked, “This is a five alarm fire – Republicans just blew up our healthcare system.” Senate Minority Leader Chuck Schumer (D-NY) called it an “awful ruling . . . [which, if not reversed] will be a disaster for tens of millions of American families, especially for people with pre-existing conditions.” After taking a closer look at this ruling, however, many legal experts have concluded that it is not nearly as earth shattering as the headlines have made it appear.
First, Judge O’Connor’s ruling did not block enforcement of the ACA despite the fact that the plaintiffs had asked the court to issue a nationwide injunction on the federal government from implementing, regulating, or enforcing the ACA. Since the judge declined, all of the existing provisions of the ACA with which employers, fully insured plans, and self-funded plans must comply are still in effect. This decision has no effect whatsoever on plan design, on cost containment, on employee incentives, or on regulatory compliance. A quick check of Healthcare.gov post-ruling revealed that federal officials have even added this reassuring message: “Court’s decision does not affect 2019 enrollment coverage.”
Second, a spokeswoman for the California attorney general has already confirmed that the sixteen states (and D.C.) that stepped in to defend the ACA will appeal this district court ruling to the United States Court of Appeals for the Fifth Circuit in New Orleans, Louisiana. That means there is a chance that this decision could be overturned before the case reaches the Supreme Court. That possibility brings me to my third point; that legal scholars across the ideological spectrum have found the legal arguments made by the plaintiffs in this case to be remarkably unpersuasive. To understand why, let us break down the court’s opinion (which sided with those arguments).
Judge O’Connor’s opinion has two major elements. First, he contends that since Congress reduced the ACA’s individual mandate penalty to $0, the mandate to purchase insurance must be invalidated. Then, he argues that since the individual mandate is essential to and inseverable from the remainder of the ACA, the entire 2,000 page healthcare law must be struck down. This issue of “severability,” or whether one provision of a law can be severed without invalidating the entire law, is key. Prior to addressing severability, however, Judge O’Connor explains his constitutional analysis for finding that the individual mandate is no longer fairly readable as an exercise of Congress’s tax power.
Regarding his first contention, that the individual mandate could not be saved from the ACA, Judge O’Connor has made a rather compelling case. When the ACA was passed in 2010, the bill contained a requirement that all Americans purchase health insurance or pay a penalty. In 2012, the Supreme Court ruled that this requirement, known as the individual mandate, was a legitimate exercise of Congress’s constitutional authority to tax. See NFIB v. Sebelius (2012). In late 2017, in the Tax Cuts and Jobs Act (“TCJA”), Congress zeroed out the penalty associated with the tax, meaning the individual mandate can no longer reasonably be considered a tax. As such, the constitutional foundation identified by the majority of the Supreme Court, on which the individual mandate was based, was invalidated (recall that the majority in NFIB v. Sebelius also declined to sustain the individual mandate’s constitutionality under the Commerce Clause).
With respect to Judge O’Connor’s second contention, that the entire ACA must fall, many legal experts strongly disagree. Nothing in the original 2010 bill spoke to the severability of the individual mandate. Typically, when lawmakers neglect to include a severability clause in a bill, courts look to discern the intent of Congress when considering whether finding a particular provision of a law unconstitutional would require the elimination of the entire law. In NFIB v. Sebelius, the majority never addressed severability with respect to the individual mandate since the Court upheld the requirement. Four dissenting justices concluded that the individual mandate was unconstitutional and that Congress intended the entire ACA to be invalidated without the individual mandate.
Judge O’Connor assumes that the intent of the 2010 Congress controls the severability analysis in the case before his court; an intent only discerned by a minority of the Supreme Court. Indeed, he spends most of his 55-page opinion attempting to discern the intent of the 2010 Congress on his own. In doing so, however, he ignores the intent of a later Congress that did speak to the issue of severability in the form a later legislative act. The 2017 Congress, in passing the TCJA, eliminated the individual mandate and preserved the rest of the ACA. This act presents strong evidence that Congress intended the ACA to function without the individual mandate. Judge O’Connor’s explanation for this fact is that the 2017 Congress was unable to repeal the individual mandate because of budget rules and it therefore had no intent with respect to the individual mandate’s severability.
By assuming Congress had no intent because it was shackled by complicated legislative rules, Judge O’Connor has drawn the ire of most of the legal community. If he had been so sure of his position, why would he neglect to issue a nationwide injunction on the ACA, as he could have done? True, throwing a wrench into the middle of the healthcare system, where $600 billion in federal funding and health insurance coverage for millions of Americans is on the line, would have been a drastic action; however, if Judge O’Connor truly believed Congress intended this, he could have blocked enforcement of the ACA across the country.
I could go on at length about the consequences if this ruling were to stand; the impact on employer-sponsored plans, the effect on those with pre-existing conditions, the potential loss of health insurance coverage for millions of individuals, and the end of the Medicaid expansion. Yet, based on the response from the legal community of which I am a part, my position is that this decision rests on very shaky ground. This decision also goes much further than even the Trump administration had wanted (it wanted to preserve protections in the law for people with pre-existing medical conditions). I fully expect this case to be reversed by the United States Court of Appeals for the Fifth Circuit and to eventually be declined by the Supreme Court.
In short, we should all hold our collective horses and conduct business as usual for the time being.
Working in the self-funded healthcare industry, it can be easy for us to develop tunnel vision and focus on cost containment and affordability at all costs, losing sight of other valid interests within and relating to the healthcare market. Quality of care is an obvious one – if not done properly, reductions in cost can come at the expense of quality (of course, this isn’t always the case in healthcare, a product which so often has a great deal of inefficiency built in). But there are other, less directly related interests which we should keep in mind when we zoom out and look at the broader system, for example in forming policy decisions. The healthcare market is an ecosystem, and like in any ecosystem, one organism becoming too powerful can ultimately be a bad thing for everyone. A super-predator in an isolated system can quickly hunt its own prey out of existence and starve.
CNBC published an article recently about a disease called nonalcoholic steatohepatitis, or “NASH.” It develops from nonalcoholic fatty liver disease, which has been estimated by the Center for Disease Analysis to impact 89 million Americans, and can lead to cirrhosis, cardiac and lung complications, liver cancer, and death. As a result of the obesity epidemic, particularly around the western world, the disease is becoming increasingly common, and the National Institute of Health now states that as many as 30 million Americans, or 12 percent of adults, have NASH. It’s estimated that by 2020 NASH will surpass hepatitis C as the leading cause of liver transplants in the United States, as increasingly younger Americans, now often in their 20s and 30s, are developing the disease.
As alarming as these numbers are, there is still no FDA approved treatment for NASH. Yet.
With a global market for a cure estimated at $35 billion (with a b) dollars, pharmaceutical companies are quite literally racing to get new drugs approved and onto the market. There are currently 55 NASH drugs in various stages of clinical trials according to BioMedtracker, so new treatments are clearly on the horizon.
That $35 billion pot of gold is the sole reason so many companies are sinking so much money into just having a shot at being first to market. The market may be months away from a cure, it may be a few years away – we’re not doctors or medical researchers – but what we can say with confidence is that whatever the timeline is, it would be much longer without that mammoth payoff as motivation. Manufacturers of new specialty drugs are allowed to charge, and regularly receive payment of, absolutely absurd prices. But in some cases, as appears to be the case with NASH, it is precisely because of this that we will soon have treatment for a disease which would otherwise continue taking lives unchecked.
This ability of manufacturers to charge and receive such high rates for new drugs has also given rise to an entire new sub-industry based around medical tourism and drug importation. In attempting to get patients access to new specialty drugs at a reduced cost to employers, numerous programs aimed at securing generic versions not yet available in the United States are enjoying success under several different models. These programs run the whole spectrum, from acting to facilitate shipment by a foreign pharmacy in Canada or Mexico to the American patient, or sending that patient to a border to cross over and pick up a drug themselves, all the way to a concierge service where a patient flies first class to the Caribbean, is put up in a hotel, and receives their treatment in a tropical paradise. The fact that this third option can actually still be significantly less expensive than the patient simply picking up the American version of a drug at the pharmacy down the street from his or her home is quite telling.
Other types of cost-containment efforts take aim at getting the amounts a plan has to actually pay for these drugs under control. Again, these programs vary greatly and can take the form of exclusions for certain specialty drugs, exclusions for all specialty drugs, or unique cost-sharing structures where copayment amounts change based on whether payment might be available from another source or based on the particular drug. Seemingly recognizing the impossibility of an individual without insurance paying for these drugs out of pocket, manufacturers implement assistance programs to help cover patient copayments, or offer discounts or rebates for those who pay completely out of pocket. Other programs aim to identify when these programs might be available and steer that monetary benefit back toward the health plan.
The fact that all these different approaches are necessary illustrates an important principle which is often overlooked – the profit incentive to develop new drugs and therapies. America is a global leader in developing new therapies, and is by far the biggest healthcare spender per capita and arguably guilty of the greatest waste. Can the former continue to be true without the latter? If not, to what extent are we willing to sacrifice innovation and the development of new therapies for those few with no remedies available for their illnesses, in order to ensure that the masses can receive vital routine care in an affordable way?
Food for thought.
Self-Funding – So Many Toys in the Sandbox
Not to criticize our industry, in the least, but if we are being honest, we should all agree that it takes thousands of “parts” to make this “car” run, so to speak. This fact has its positives. An industry chock full of numerous stakeholders does lead to incredible innovation, teamwork, healthy competition, creative solutions, and the general strength that comes with an industry steeped in camaraderie. Likewise, this reality of many stakeholders can also create confusion and distraction unless we are paying close attention and working to block out the noise. The typical self-funded case will likely have a list of stakeholders that include (in no particular order & I am sure to leave something / someone out):
In short – there are many, many toys in this sandbox of self-funding.
So…. How About, Back to Basics?
As discussed, there are an incredible number of stakeholders in the self-funding sandbox. To reiterate, this is not necessarily a bad thing, but it can steer us away from the fundamental basics and core needs of our industry, which can lead us astray from the root goal. What is that goal? In short, most self-funded plan sponsors are going to tell you that they entered into the self-funded space for two reasons: (1) to bring the costs associated with their health plan down; and (2) to have the creative control needed to deliver top-notch health benefits to their employees and their families.
Not to take away from the importance of the newest healthcare-related iPhone app, or the newest, innovative methodology behind case management, but sometimes it is important to step back and focus on the basics of this complex, self-funded system. Whether from the outside looking in, or deeply involved in the self-funded industry, all viewers should agree that this industry – this system – is definitely a complex one, as noted by the copious bullet points listed above. To wade through the complex and try to identify the key roots of a successful self-funded case is not only a noble pursuit but should be a point of pride for all in this space. With the roots in place, all of the other, more complex solutions can fall into place and will do so with a much higher likelihood of success.
While like minds might rightly differ on the key elements that lead us toward the goals discussed above, I would list out the five most important roots that push the goals of driving down costs while delivering great benefits as follows:
The All Powerful and Governing Document
Without a plan document, what is a self-funded plan, truly? It is a nebulous financial instrument, or bizarre oral contract slightly memorialized by HR emails and broker notes that exists without clear guidance or application. Yet this plan is still subject to incredible responsibility and liability. Needless to say, not only is having a plan document a good idea (if not required, depending on how you read the law) but it is an even better idea to have a well-written and understandable plan document. As discussed above, many plan sponsors become enamored with new and innovative solutions, ranging from specialty Rx cost control to a medical tourism program filled with plan member incentives. These are wonderful solutions that may yield outstanding results – but what if the plan document does not properly support and outline the specialty Rx program? What if the plan document fails to provide clear instruction to the plan member on how he/she can take advantage of the beneficial medical tourism program? Not only does the plan sponsor run the risk of implementing benefit structures that may cause legal problems, since they are not outlined in the plan document, but the plan sponsor will most surely lose out on gaining the benefit of these innovative solutions. Not to mention paying claims outside the terms of the plan’s stop-loss policy. Without a well-written and understandable plan document, the it is pointless to pursue more complex solutions and the goals of cost containment and rich benefits will surely never be met.
The Heart & The Brain
Every employer plan sponsor should have a benefits committee in place, whether the committee is made up of 3 people or 15 people. Too many employers rely solely on the expertise of their consultant and “pass the buck,” so to speak, when it comes to truly understanding the ins and outs of their self-funded plan. Not to say that relying on a consultant is a bad thing – that’s why they exist! However, as any expert will tell you, the expert’s job is always easier when he/she is advising an educated consumer. An educated plan sponsor, backed by a benefits committee full of diverse knowledge and expertise, and advised by an industry expert consultant, is already leaps and bounds ahead of the rest when it comes to the ability to choose and implement solutions that will lead to cost savings and rich benefits. Not to mention, the committee can share the labor burdens associated with running a self-funded health plan. Like, working together to finalize that plan document!
Additionally, a benefits committee increases the chances of a plan successfully implementing a complex solution. Let’s use an out-of-network, reference-based pricing solution as a singular example. Such an innovative and disruptive program does not stand a chance if there is not employee / member buy in and understanding. There will likely be balance billing and “scary” situations which will lead plan members to bring the noise, so to speak, directly to HR. This noise can quickly cause enough pain that the plan sponsor will choose to abandon an otherwise legitimate and beneficial program. But. What if a savvy, vested, and educated benefits committee existed, at the employer, plan sponsor level? Imagine the education and communication opportunities that could exist – imagine the opportunities to work with the plan members, ask critical questions of the vendor, and course correct when needed.
A benefits committee, whether small or large, will move a plan closer to its goals of containing costs and delivering rich benefits, every time.
Likewise, it takes the industry expert consultant to advise this bought in committee and bring them the solutions and ideas that they may not be aware of, that they can then interpret and execute, on their own terms.
To repeat: the vested benefits committee plus the expert consultant = reduced plan costs and the implementation of solutions to drive rich benefit delivery.
A sophisticated plan sponsor, governed by a benefits committee and advised by an expert consultant, should next seek a true partner in its third-party administrator. Plan sponsors can sometimes fall victim to regionalism or sticker attraction (seeking out the lowest administrative fee), which may not always lead to the best payor partner for that particular plan. Instead, plan sponsors and their consultants should begin by clearly understanding and defining their own needs and their own goals. They must do this first before trying to find the right payor partner.
Is the plan focused on a strong network? An in-house dialysis solution? Is a domestic call center presence important? What about reporting capabilities? What does the account management model look like and how involved will they be with enrollment meetings and finalizing the plan document? Will the payor listen to the plan’s recommendations and needs regarding stop-loss? The list goes on.
Needless to say, combining a thoughtful benefits committee, with an expert consultant, and a true partner-oriented payor, will allow for a plan to truly innovate and successfully put solutions in place that will meet the plan’s goals.
The Money at The End of The Chain
In thinking on the goals of driving costs down while delivering great benefits, there is one area that provides a clear “win.” Subrogation and recovery efforts.
Why is this the case? In efforts to contain costs, many plans go straight to the overly advertised, upfront, disruptive solutions that may drive costs down before costs are incurred. Many of these solutions have merit and bear fruit! But plan sponsors should not lose sight of the big recovery win that is available through a robust subrogation and recovery platform. Especially now, where copious opportunities exist to seek the recovery of plan dollars on so many fronts. Traditionally, most plans would focus their recovery efforts on the routine motor vehicle accident – the benchmark example of third-party liability. Anymore though, alongside these benchmark MVAs, plans should be considering other sources of third-party liability, such as torts, product recalls, and class actions. The list, and opportunities, go on.
Additionally, whether governed by ERISA or state law, or a combination of both, all self-funded plans are bound by some level of fiduciary duty. Instead of quoting federal or state law, the gist is this: plan fiduciaries must behave prudently with plan assets, which includes how the fiduciaries spend plan assets, don’t spend plan assets, or get plan assets back!
To this end, it is easy for a plan sponsor to focus on asset expenditure and upfront plan savings, while forgetting about recovering dollars from a third party. This is understandable! Upfront expenses and upfront plan savings are exactly that, “upfront!” But, the concept of chasing around a third party, sometimes for years, in an effort to return plan funds back to the plan – well, it is easy to see how this concept can fall by the wayside and become easily forgotten. Yet, maximizing recovery efforts should be just as important to a plan fiduciary as the more routine, upfront savings and expenses that usually take priority. Seeking to assure that subrogation and recovery efforts are maximized is an important obligation of every plan fiduciary. Not to mention, returning plan assets into the plan’s coffers means costs can be kept down and the plan can reinvest those dollars in other areas that might lead to that richer, more robust health plan.