Interpreting the Supreme Court's Decision: Law, Policy and Politics

1. Interpreting the Supreme Court's Decision: Law, Policy and Politics June 28, 2012

2. Interpreting the Ruling Bruce Brown Partner

3. Anti-Injunction Act Is it too soon to consider the case? No. The case is not barred by the Anti-Injunction Act. • This was an issues on the first day of oral arguments – the result is not a surprise.

4. Individual Mandate Is the individual mandate constitutional? Yes. Why is the individual mandate constitutional? It is a valid exercise of Congress’s taxing power It is NOT a valid exercise of Congress’s Commerce Clause Power.

5. Individual Mandate – Court Lineup Majority Roberts Ginsburg Breyer Sotomayor Kagan Dissent Alito Scalia Kennedy Thomas

6. Individual Mandate – Main Arguments • “The Federal Government does not have the power to order people to buy health insurance. Section 5000A would therefore be unconstitutional if read as a command. The Federal Government does have the power to impose a tax on those without health insurance. Section 5000A is therefore constitutional, because it can reasonable be read as a tax.” • Therefore: • The individual mandate is a valid exercise of Congress’s Taxing Power, per CJ Roberts, Ginsburg, Breyer, Sotomayor, Kagan. • The individual mandate is not a valid exercise of Congress’s Commerce Clause Power, per CJ Roberts, Kennedy, Scalia, Thomas and Alito.

7. Medicaid Expansion Has Congress overstepped its authority by conditioning all federal funding for Medicaid upon States’ agreement to expand eligibility for Medicaid? Yes, “by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion.”

8. Medicaid Expansion – Court Lineup Majority Roberts Breyer Kagan Alito Scalia Kennedy Thomas Dissent Ginsburg Sotomayor

9. Medicaid Expansion – Remedy for Unconstitutionality • Majority: Strike penalty that would take existing Medicaid funding away from states who choose not to participate • “Nothing in our opinion precludes Congress from offering funds under the Affordable Care Act to expand the availability of health care, and requiring that State accepting such funds comply with the conditions on their use.  What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding.”  • Dissent: Entire law should be stricken

10. Medicaid Expansion -- Severability • But, the unconstitutionality of the provision allowing HHS to penalize States does not require any other part of the law to be struck down. • “The Court today limits the financial pressure the Secretary may apply to induce States to accept the terms of the Medicaid expansion. As a practical matter, that means States may now choose to reject the expansion; that is the whole point. But that does not mean all or even any will. Some States may indeed decline to participate, either because they are unsure they will be able to afford their share of the new funding obligations, or because they are unwilling to commit the administrative resources necessary to support the expansion. Other States, however, may voluntarily sign up, finding the idea of expanding Medicaid coverage attractive, particularly given the level of federal funding the Act offers at the outset.”

11. Observations • Chief Justice Roberts’ joined a different majority with respect to 4 separate holdings (Taxing Clause, Commerce Clause, Medicaid Expansion, Medicaid Expansion Remedy). • To Chief Justice Roberts, statutes should be read to preserve its constitutionality. • Thus, with respect to the individual mandate: although the statute reads like a command (i.e., a mandate) – it says individuals “shall” purchase insurance, it also can be read as a tax, “[g]ranting the Act the full measure of deference owed to federal statutes.” • In addition, with respect to the Medicaid Expansion: the excessively coercive feature of the law could be cured by simply striking the penalty, not the entire law.

12. Long Term Constitutional Implications – Individual Mandate • Congress cannot regulate inactivity under the Commerce Clause without raising substantial constitutional concerns • Federal power still robust through other Constitutional provisions (taxing clause, spending clause). • Existing federal law that regulate inactivity are suspect (but are there any?)

13. Long Term Constitutional Implications – Medicaid Expansion • 7-2 vote may be most surprising feature of entire opinion; Kagan, Breyer, join CJ Roberts, Alito, Thomas, Scalia and Kennedy. This is a landslide. • Other laws that coerce States in similar ways are very suspect. • Constitutional safe harbor: Federal government may condition new funding upon States’ agreement to terms for that funding.

14. Policy and Political Impacts Cindy Gillespie Senior Managing Director

15. SCOTUS Uphold the ACA • The Supreme Court has decided, so now… • It’s Decision Time for: • States • Insurance Carriers • Employers • The U.S. Voter

16. Decision Time: States • Medicaid expansion • Medicaid expansion now an option, rather than a requirement • For some states, easy decision. • For other states, decision may not be forgone conclusion. • Budget impact • Provider impact • Uninsured impact States will make decision in the next few months.

17. Decision Time: States • 2014 Budgets • States are developing now • Medicaid Expansion? • 20 million adults • Contracts for new populations; increased Medicaid infrastructure • Most states moving to managed care for this new population and often for existing populations • Changes to State employee group health plans • Medicaid impact • Take up of insurance by employees • Mandates enforcement • Minimum Essential Health Benefits for small and non-group markets • 10 options • Decisions this year

18. Decision Time: States • Rapid decisions and action required on Exchanges • By November 16 of this year, States must: • Choose from 3 models: • State-based • Partnership • Federally-Facilitated • Prove legal authority for a state-based exchange • Provide a detailed blueprint to confirm operational readiness by January 1, 2014 • Only a handful of states on track to have a state-based exchange Estimates are that the exchanges in 40 or more states could start under federal operation or under partnership models.

19. Decision Time: Health Insurance Carriers • Exchange market – in or out? • Presence of federally-facilitated exchanges in most states can impact the decision • Most have been evaluating for months and can now pull the trigger • Medicaid market • How many states will choose to forgo the Medicaid expansion? • How will this impact the potential market?

20. Decision Time: Employers • Small employers • Exchange market • public or private exchanges? • SHOP or drop? • Large employers • Budget impacts • 9 million more buying through their employers • But net decrease in employer coverage over time

21. Decision Time: U.S. Voter

22. Decision Time: U.S. Voter • Presidential election • Core question of 2012: What do we want the federal government to look like and what do we want it to do? • Congressional elections will matter too • House • Senate ACA now part of election year decision on the role of the federal government 2012 Election leads to tax and entitlement reform in Washington, DC.

23. The Federal Government must move toward a January 2014 start States, businesses, and the health industry must make some decisions now… While recognizing that the elections and 2013 tax and entitlement reform will bring more changes But the Fight Over ACA’s Future is Far From Over…

24. EMPLOYER IMPACT Ann Murray Partner

25. Employer Impact • Employers must continue to bring group health plans into compliance • Health exchange and “Pay or Play” become a reality • Defined contribution arrangements may increase in popularity • Some industries will experience significant changes

26. Key Requirements That Already Apply • No lifetime or annual (phased-in) benefit limits • No pre-existing condition exclusions for under age 19 • Child coverage to age 26 • Preventive care mandates (no co-pays) • Patient protections (OB/GYN, emergency services) • New claims and appeals requirements • Non-prescribed OTC medicines not reimbursable through FSAs/HRAs/HSAs/MSAs

27. Key Requirements That Already Apply • Employer wellness grants • Form W-2 reporting • Small employer health insurance credit • No rescission of coverage • Retiree reinsurance program is available • Annual health plan fees

28. Key Requirements Due Soon • Summary of Benefits – Late 2012 • Women’s preventive health care services – Late 2012 • 60-day advance notice of changes – Late 2012 • FSA limit of $2,500 – 2013 • Nondiscrimination rules for insured plans – pending (2013?) • Automatic enrollment for employers with 200 full-time equivalent employees – pensing (2014?) • 90-day maximum waiting period – 2014

29. Health Exchanges As An Option • Smaller employers to consider SHOP • Other employers weigh the cost of providing group health plan vs. “pay or play” penalty • Employers to focus on “affordability”

30. Defined Contribution Arrangements Will employers opt for a flat payment and send employees to the Exchange? Advantages: • simplifies administration • predictable employer costs Disadvantages: • monetary (“pay or play”) penalties to employer • more risk/responsibility on employee

31. Significantly Impacted Industries • how will the “pay or play” penalties affect employer decisions? • will those with large low-paid or part-time workforce (e.g. retail, hotels, restaurants) push for exemptions? • will employers move toward more part-timers?

32. ACA Ruling: Impact on Markets Ipsita Smolinski Senior Strategic Advisor and Independent Consultant

33. Health Reform Upheld • Uneven Market Reaction Today • Markets Like Certainty…But We Don’t Have That! • Election around the corner • 1- Deficit Reduction • 2- Tax Reform • 3- Entitlement Reform • 4- Post-Acute Payment Reform

34. Winners & Losers • Positive • Hospitals • Commercial plans (individual and small group market) • Medicaid plans • Medicare Advantage • Biopharma • Generics • Negative • Medical device • Neutral • Post acute providers (home health, IRF, SNF, hospice, LTCH)

35. Outlook • Integrated care is here to stay • ACOs • VBP • Bundled payments • Private sector already taking the lead… • Expect consolidation to continue • Hospitals buying physician groups, post-acute players, other hospitals/clinics • Plans buying clinics, IT, PBMs, behavioral health • DVA for Healthcare Partners

36. Many Sectors Unaffected • PBMs • Diagnostics • HCIT • Dialysis …This will change in the post-election landscape

37. Grant & Contract Considerations Phillip Seckman Partner

38. Considerations on the Path Forward • With the certainty afforded by the Court’s decision, likely that there will be more entrants in the exchange and other markets • Very important for contractors to be diligent in timely implementing and continuously updating compliance programs • As significant new regulatory structures are promulgated • In light of the FCA enhancements under PPACA • Close attention should be given to the need for continued appropriations, particularly in light of so-called automatic renewal • Contracts with base and option years • Grants

39. Continuing Litigation • Likely that there will be continued litigation • State grants and compliance with state procurement rules • Bid protests • Administrative Procedures Act • Provides contractors with an option to contest regulatory provisions viewed as beyond the delegated authority of a particular agency • Another path for resisting over broad regulatory action and likely also will be used by opponents of the law

40. Presenters Bruce Brown Cindy Gillespie Partner – Atlanta Senior Managing Director – Washington, DC Litigation Public Policy and Regulatory Affairs Tel: 404.527.8390 Tel: 202.496.7684 Email: bbrown@mckennalong.com Email: cdgillespie@mckennalong.com Ann Murray Phillip Seckman Partner – Atlanta Partner – Denver Employee Benefits and Executive Compensation Government Contracts Tel: 404.527.4940 Tel: 303.634.4338 Email: amurray@mckennalong.com Email: pseckman@mckennalong.com Ipsita Smolinski Senior Strategic Advisor & Independent Consultant – Washington, DC Government Contracts Tel: 202.496.7591 Email: ismolinski@mckennalong.com

41. Quick Takes with Rep. Price and Rep. DeGette • Call with Congressman Tom Price (R-GA) • Friday, June 29 • 10:00am -10:30am EDT • Dial in: 1-800-259-2693 • Confirmation Code: 5820648 • Title: Supreme Court • Call with Congresswoman Diana DeGette (D-CO) • Friday, June 29 • 10:30am – 10:45am EDT • Dial in: 1-800-533-9703 • Confirmation Code: 3447013 • Title: Representative DeGette