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Health Care Reform Memo:
July 2, 2012

Deloitte Center for Health Solutions publication

The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.

My take: the Supreme Court and the fate of the ACA

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

I waded through the U.S. Supreme Court’s opinions twice this weekend—59 pages of the majority opinion scribed by Chief Justice John Roberts, Justice Ruth Bader Ginsburg’s 61-page concurring opinion co-signed by Justices Sonia Sotomayor, Stephen Breyer, and Elena Kagan; the 65-page dissenting opinion by Justices Antonin Scalia, Anthony Kennedy, Clarence Thomas, and Samuel Alito; and the two-page post script by Justice Thomas punctuating his view of the applicability of the Commerce Clause in the proceedings.

For the moment, the uncertainty about the fate of the law is settled: its implementation is now the focus. And no doubt, it will be a featured topic in the remaining 17 weeks of campaign 2012.

By a 5:4 vote, in National Federation of Independent Business, et al. v. Sebelius, the Court settled, for the time being, the four issues it reviewed:

  • The Court held that the mandate violates the Commerce Clause. However, the individual mandate was upheld as within Congress’ power to lay and collect taxes.
  • The Anti-Injunction Act of 1867 (AIA) is not applicable because Congress intended the “shared responsibility” requirement as a penalty.
  • Since the mandate was upheld by the majority, the issue of its severability from the rest of the law is moot.
  • The federal government is limited in its power over the states as it pertains to the Affordable Care Act’s (ACA) expansion of Medicaid coverage: states must be allowed to opt into expansion, and the federal government cannot withhold funds for other Medicaid programs as a way of coercing states to expand.

When passed in March 2010, my reviews of ACA led me to conclude its impact boils down to four big bets:

  • Will the mandate successfully attract individuals into the insurance market in sufficient numbers to stabilize the market and reduce costs overall?
  • Will the employer “pay or play” provision lead employers to jettison employee benefits coverage once state health insurance exchanges (HIX) offer viable options for affordable coverage?
  • Will states be able to comply with the law’s numerous requirements, especially management of HIXs, expanded Medicaid enrollment, and the costs of their employee health coverage?
  • And will the consolidation of physicians, hospitals, and post-acute providers vis-à-vis clinically integrated systems of care capable of assuming performance risk with government and private payers result in lower overall costs?

Since most of the provisions of the law have yet to be implemented, it’s too soon to know these answers. But with the Court’s ruling Thursday, I’ve added three others:

  1. If the “shared responsibility payment,” aka individual mandate, was upheld based on the majority opinion that it fell within Congressional authority to impose taxes, might the AIA be applied in 2014 to seek its dismissal? Might it be a basis for repeal under reconciliation if a Republican majority in the Senate and the House pass legislation that is not vetoed by the president? Will we see a do-over? The AIA precludes any court from considering the imposition of a federal tax prior to its enforcement: it applies only to taxes and not to other sanctions/penalties in the federal tax code. Justices Roberts, Ginsburg, Sotomayor, Breyer, and Kagan concluded the mandate was not intended by Congress to be treated as a tax and therefore the AIA did not bar consideration of the case. In the dissenting opinion, Justices Scalia, Kennedy, Thomas, and Alito referenced the AIA in characterizing the inconsistency of the government’s case—that the mandate was a penalty, not a tax for purposes of the law but upheld based on Congress taxing authority in the majority opinion. So the majority opinion that the penalty “may” be treated as a tax opens possibilities it will be revisited in future debate. If treated as a tax, under reconciliation, a 51 vote in the Senate could result in changes to the penalties and taxes in ACA. So this could get more complicated down the line.
  2. What happens to the Medicaid expansion? How will the states play? In many ways, the most significant of the Court’s rulings was its determination that the ACA’s Medicaid expansion provision violated the principle of federalism in the Constitution and was coercive. Prior to ACA, states were required to provide Medicaid coverage to pregnant women, children, the elderly, families with dependent children, and individuals with disabilities. ACA expanded the eligibility to include childless adults under 65 years of age with household incomes up to 133 percent of the federal poverty level (FPL, $30,657 for a family of four). And, it funded 100 percent of the states’ expanded coverage costs for the first three years, then incrementally less ending at 90 percent in 2020. In the majority opinion, states are given the option of expanding their Medicaid program and the U.S. Department of Health and Human Services (HHS) is precluded from penalizing non-participants by withholding funding for other programs. And ironically, the possibility exists that an individual with income under 100 percent of FPL and eligible for a subsidy to buy insurance might find themselves ineligible because their state had passed on expansion.
  3. Is the health care market unique? The majority dismissed the applicability of the Commerce and Necessary and Proper Clauses based on the premise that the decision not to buy insurance impacted the entire health care market and the legal surmise that use of the market was universal regardless of a person’s insurance status. The dissenting view was that the mandate exceeds the limits of government power and concluded the mandate was a penalty, not a tax and therefore subject to the Commerce Clause. The “hanging chad” issue: is health care unique? The court decided that the individual mandate exceeded Congress authority to regulate inactivity as commerce. Do individuals who choose not to purchase health insurance do so willfully? Is inactivity governed by the Commerce Clause—the basis for its dismissal in the courts deliberation—or is it a willful act? Heady questions that will no doubt be revisited by policymakers and health services researchers in coming months.

The turtles that guard the entrances to the Supreme Court were intended by architect Cass Gilbert to convey the gravity of the high court’s decision-making. In many cultures, the turtle is a symbol of wisdom. I am not inclined to speculate on the motivations of the court: political pundits are already filtering their rulings through partisan lenses.

After studying the opinions on both sides, I am inclined to respect the respective views and consider their legal and constitutional deliberation a reflection of sober judgment. It’s also clear there’s a wide gap between sound-bite political discourse about health reform, and the depth and complexity of the fundamental issues the court considered.

Democracy is still a work in progress. This week, our process of government was on display. My list of questions is now longer: seven questions that frame the impact intended or otherwise of the ACA. Stay tuned.

Paul Keckely

Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions

Now that the Supreme Court ruled on the ACA, what are the likely impacts for businesses and governments? Learn from the Deloitte Center for Health Solutions about what may result from the Supreme Court ruling and explore your options for moving ahead with health care reform. Join the Deloitte Center for Health Solutions on July 2, 2:00 PM ET for the Dbriefs Webcast: Supreme Court rules on the Affordable Care Act. Archived recording will be available upon completion.

Implementation update

States get exchange funding

Friday, HHS has announced it will offer ten additional opportunities through 2014 to apply for HIX funding. To date, 34 states and the District of Columbia have received $850 million in exchange establishment grants.

Note: states must submit “blueprints” for their HIXs by November 16, 2012, applications for participation by January 1, 2013, and be fully operational by October 1, 2013.

OIG asks for increased documentation for IRS staffing increases

Earlier this year, the Internal Revenue Service (IRS) indicated it needed 1,278 full-time equivalents (FTEs) for fiscal year (FY) 2012 and 859 FTEs for FY2013 to manage its responsibilities in the 30 ACA provisions that impact the IRS.

According to the Treasury Inspector General for Tax Administration (TIGTA) report released last week, up to $350 million was available to the IRS for implementation costs out of the $1 billion provided under the ACA for FY2010 and FY2011. The IRS requested and was provided $20 million for FY2010 and more than $168 million for FY2011 included 582 FTEs and absorbed other costs associated with ACA implementation in its operating and budget.

The TIGTA analysis requested additional accountability from the IRS in managing its workforce requirements.

ACA implementation timeline: July 2012 through January 1, 2013

Given the Court’s ruling, the immediate requirements of the law include these deadlines:

Essential Health Benefits (Employers) Employers to distribute a uniform summary of benefits and coverage explanation prior to enrollment or re-enrollment. Applies to all individual and group health plans, regardless of whether they are grandfathered or not.
Effective September 23, 2012
Medicare Value-Based Purchasing (Hospitals) Establishes a hospital Value-Based Purchasing program (VBP) in Medicare. Offers financial incentives to hospitals to improve the quality of care. Hospital performance is required to be publicly reported.
Effective for payments for discharges occurring on or after October 1, 2012
Reducing Paperwork and Administrative Costs (Health insurance companies) Institutes a series of changes to standardize billing and requires health plans to begin adopting and implementing rules for the secure, confidential, electronic exchange of health information.
First regulation effective October 1, 2012
Medicare Provider Payment Changes
Adds a productivity adjustment to the market basket update for certain providers, resulting in lower rates than otherwise would have been paid.
Begins calendar, fiscal, or rate year 2012, as appropriate
Medicaid Payment Demonstration Projects (States) Creates new demonstration projects in Medicaid for up to eight states to pay bundled payments for episodes of care.
Effective January 1, 2012 through December 31, 2016
State Notification Regarding Exchanges In Effect (States) States indicate to the Secretary of HHS whether they will operate a health insurance exchange.
Effective January 1, 2013, blueprint  before November 16, 2012
Closing the Medicare Drug Coverage Gap (Drug Companies, CMS) Begins phasing-in federal subsidies for brand-name prescriptions filled in the Medicare Part D coverage gap (reducing coinsurance from 100% in 2010 to 25% in 2020, in addition to the 50% manufacturer brand-name discount).
Effective January 1, 2013
Medicare Bundled Payment Pilot Program (Hospitals, Physicians) Establishes a national Medicare pilot program to develop and evaluate making bundled payments for acute, inpatient hospital services, physician services, outpatient hospital services, and post-acute care services for an episode of care.
Effective January 1, 2013
Medicaid Coverage of Preventive Services
(States, Insurance Plans)
Provides a one percentage point increase in federal matching payments for preventive services in Medicaid for states that offer Medicaid coverage with no patient cost sharing for services recommended (rated A or B) by U.S. Preventive Services Task Force (USPSTF).
Effective January 1, 2013
Medicaid Payments for Primary Care
(Physicians, CMS)
Increases Medicaid payments for primary care services provided by primary care doctors to 100% of the Medicare payment rate for 2013 and 2014 (financed with 100% federal funding).
Effective January 1, 2013 through December 31, 2014
Itemized Deductions for Medical Expenses
Increases the threshold for the itemized deduction for unreimbursed medical expenses from 7.5% of adjusted gross income to 10% of adjusted gross income; waives the increase for individuals age 65 and older for tax years 2013 through 2016.
Effective January 1, 2013
Flexible Spending Account Limits
Limits the amount of contributions to a flexible spending account for medical expenses to $2,500 per year, increased annually by the cost of living adjustment.
Effective January 1, 2013
Medicare Tax Increase
Increases the Medicare Part A tax rate on wages by 0.9% (from 1.45% to 2.35%) on certain earnings and imposes a 3.8% assessment on unearned income for higher-income taxpayers.
Effective January 1, 2013
Employer Retiree Coverage Subsidy
Eliminates the tax-deduction for employers who receive Medicare Part D retiree drug subsidy payments.
Effective January 1, 2013
Tax on Medical Devices
(Device manufacturers)
Imposes an excise tax of 2.3% on the sale of any taxable medical device.
Effective January 1, 2013
Extension of CHIP
Extends authorization and funding for the Children’s
Health Insurance Program (CHIP) through 2015.
Effective fiscal year 2013

Sources: Kaiser Family Foundation, Deloitte Center for Health Solutions ACA Timeline,

Legislative update

Supreme Court to hear hospital case against HHS DSH rate miscalculation

Monday, June 25, the Supreme Court announced that it would hear a case in which 18 hospitals sued HHS over disproportionate-share (DSH) payments that the hospitals say they are owed because the Centers for Medicare & Medicaid Services (CMS) miscalculated the formula between 1993 and 1996. If the court sides with the plaintiffs, the providers would be able to go back to the Provider Reimbursement Review Board to contest rates, even though they filed their suit more than ten years after the alleged miscalculations occurred and after the deadline for appeals had passed.

Industry news

Reactions to Supreme Court rulings from industry trade groups

“[Thursday’s] historic decision lifts a heavy burden from millions of Americans who need access to health coverage. The promise of coverage can now become a reality. The decision means that hospitals now have much-needed clarity to continue on their path toward transformation...Now that the Supreme Court has made its decision, hospitals will continue their efforts to improve the law for patients, families and communities.”—American Hospital Association (AHA)

“Health plans will continue to work with policymakers on both sides of the aisle to make coverage more affordable, give families and employers peace of mind, and promote choice and competition. Health plans also will continue to lead efforts to reform the payment and delivery system to promote prevention and wellness, help patients and physicians manage chronic disease, and reward quality care.—America’s Health Insurance Plans (AHIP)

“We respect the Court’s decision and recognize that there will be ongoing policy discussions about the future of health care in America, and about the impact of today’s decision on the health care law. We will work with Congress and the Administration on a bipartisan basis to address these important issues and will continue to advocate for an environment that fosters medical innovation and access to new medicines.—Pharmaceutical Research and Manufacturers of America (PhRMA)

“BIO will continue to work with relevant federal and state agencies to ensure implementation of the law in a manner that helps enable the U.S. biotech community’s continued development of lifesaving cures and other medical breakthroughs while expanding patient access to these critical cures, medicines and innovations. We will work to ensure that biotech researchers can continue to address the diseases of today while conducting the research and investment required to develop the advanced medicines and cures of tomorrow.”—Biotechnology Industry Organization (BIO)

“The AAMC is extremely pleased that the Supreme Court has upheld virtually all of the Affordable Care Act (ACA). This law is an important step toward an improved health care system that gives all Americans access to the care they need when they need it. However, we are closely examining the court’s ruling as it relates to the Medicaid expansion.”—Association of American Medical Colleges (AAMC)

“The [AMA] has long supported health insurance coverage for all, and we are pleased that this decision means millions of Americans can look forward to the coverage they need to get healthy and stay healthy. The AMA remains committed to working on behalf of America's physicians and patients to ensure the law continues to be implemented in ways that support and incentivize better health outcomes and improve the nation's health care system.”—American Medical Association (AMA)

“AdvaMed supported goals of health care reform consistent with our long-held principles. We have consistently opposed the $29 billion medical device tax because of its damaging effects on economic competitiveness, jobs and the research and development needed to find tomorrow’s treatments and cures...We will continue to work with policymakers on both sides of the aisle to [repeal the device tax].”—Advanced Medical Technology Association (AdvaMed)

“…as an organization we have continued our mission of providing information and support to state regulators so that they may best serve their consumers and their markets. We will continue to work to give regulators the tools they need to ensure a stable health insurance marketplace in the states. Where the ACA provides states with latitude, regulators will continue to work with insurers, consumer groups and the public to provide the best regulatory framework going forward.”—National Association of Insurance Commissioners (NAIC)

“The major impact on the states from this ruling is that states now have more flexibility with their Medicaid programs. Looking ahead, [we are] encouraged that the court addressed the issue of federal coercion…It will be interesting to watch in the years ahead whether other federal programs that tie state implementation with large funding grants will be deemed unconstitutionally coercive.”—National Conference on State Legislatures (NCSL)

FDA approves diet drug

Wednesday, the U.S. Food and Drug Administration (FDA) approved (18-4) a new weight loss drug—the first in more than a decade. Lorcaserin will be marketed under the name Belviq and will be distributed by Eisai Pharmaceuticals.

Note: the FDA has been cautious about diet drug approvals due to concerns about side effects.


"The federal government does not have the power to order people to buy health insurance...The federal government does have the power to impose a tax on those without health insurance."

Chief Justice John Roberts, Majority Opinion, June 28, 2012

“The provision challenged under the Constitution is either a penalty or else a tax. Of course in many cases what was a regulatory mandate enforced by a penalty could have been imposed as a tax upon permissible action; or what was imposed as a tax upon permissible action could have been a regulatory mandate enforced by a penalty. But we know of no case, and the Government cites none, in which the imposition was, for constitutional purposes, both.”

Justices Scalia, Thomas, Kennedy, and Alito, Dissenting Opinion, June 28, 2012

“Thursday was destined to be an historic day for American liberty, and it was, though the new precedent is grim. The remarkable decision upholding the Affordable Care Act is shot through with confusion—the mandate that's really a tax, except when it isn't, and the government whose powers are limited and enumerated, except when they aren't.”

Wall Street Journal editorial, “The Roberts Rules,” June 28, 2012

Fact file

  • Spending on ACA implementation to date: $13.7 billion—31 percent ($4.2 billion) directly to state and local governments. (Source: Christine Vestal, The Pew Charitable Trusts, “What Happens to Health Law Money Already in State Coffers?” June 25, 2012)
  • Spending on ACA implementation since oral arguments ended March 28: $2.7 billion including $306.5 million to CO-OPs, $772 million to 81 organizations on June 15 after $122.6 million for a batch of innovation grants on May 8 through the Center for Medicare & Medicaid Innovation’s Innovation Challenge, $728 million in health center funding to 398 health centers on May 1, and six states received $181 million in grants announced in mid-May. (Source: Politico, “HHS pushes out cash ahead of ruling,” June 23, 2012)
  • Exchange update: two states have exchanges already (Utah and Massachusetts); 36 received federal planning grant money; 14 did not receive grants; one (Arkansas) state has indicated it will set up a partnership exchange with the federal government. (Source: HHS, June 2012)
  • Age of Supreme Court Justices: range from 52 years (Justice Kagan) to 79 (Justice Ginsburg); average age: 66.2. (Source:
  • Medicaid expansion: targeted for 17 million between 2014-2016 at a cost of $930 billion (2014-2022); states with the highest proportionate impact: LA, AR, SC, WV, FL. (Sources: Kaiser Family Foundation, Urban Institute)
  • Number of times the five conservatives on the Court have sided with liberals in 5-4 decisions since 2005: 30—Kennedy: 25, Thomas: 2, Scalia: 2, Roberts: 1. (Source: The New York Times, “Siding With the Liberal Wing,” June 28, 2012)
  • New taxes in ACA to fund: 21 totaling $675.3 billion over ten years. Biggest: additional 0.9 percent payroll tax on wages and self-employment income and 3.8 percent on dividends, capital gains, and other investment income on for taxpayers earning over $200,000 (singles) or $250,000 (married): $317.7 billion, “Cadillac tax” on high cost health plans: $111 billion, and an annual tax on insurance providers: $101.7 billion. (Source: House Committee on Ways and Means, “Supreme Court's Health Law Decision Leaves in Place 21 Tax Hikes Costing Taxpayers More Than $675 Billion,” June 28, 2012)
National health reform: What now?




National health reform: What now?

National health reform is here. The health reform bills (HR3590 and HR4872) are now law and will trigger sweeping changes and disruptions – some rather quickly and some over many years. The industry is asking, “What now?” At Deloitte, we continue to explore and debate the key questions facing the industry, and we look forward to helping our clients find and implement the right answers for their organizations. To learn more, visit today.

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