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Birmingham Bar Association Bulletin Winter 2015

Health Care Reform together a nationwide state-initiated mandatory system of liability car insurance. However, following the lead of Massachusetts’s health care reform law passed in 2006 proved to be more daunting. In 1990, several states sought to expand access to health care coverage by imposing two market regulations: (1) a “guaranteed issue” requirement which bars insurers from denying coverage to any person because of his or her health, and (2) a “community rating” requirement which bars insurers from charging a person higher premiums because of their health. These measures were successful at expanding access to health insurance coverage. However, people chose to wait until they got sick to obtain insurance, resulting in an economic “death spiral” of higher premiums that forced people that were well to defer buying insurance, while making insurance available to people who were sick. The number of people insured declined and many insurance companies left the market. Massachusetts then added a third element to the market reforms of guaranteed issue and community rating. This element used tax credits to make health insurance “The denial of the incentive of tax credits to underwrite the costs of health insurance could unravel the health insurance reforms into a death spiral...” more affordable for some individuals and made buying health insurance mandatory, similar to mandatory car insurance. The combination of these three elements – insurance market regulations, a coverage mandate, and tax credits – made the Massachusetts health insurance system successful. Massachusetts was able to drastically reduce its uninsured rate to 2.6%, by far the lowest in the Nation. Other states were unable to follow the lead of Massachusetts in creating a health insurance reform system that worked. Federal Act Adds the Exchange The federal health care reform Act was modeled after Massachusetts health insurance reform laws. However, the Act created a fourth element that is the subject of litigation in the King case. The Act required states to create an Exchange. An exchange is basically a marketplace that allows people to make an apples to apples comparison of insurance plans available in their state and allows qualified individuals to obtain a tax credit, to make it more affordable. The Act gave each state the opportunity to establish an Exchange and provided initial funding to establish the state Exchange. If states chose not to create an Exchange, then the federal government stepped in to establish, as the legislation ambiguously called it, “such Exchange.” Tax credits would only be available to individuals who purchased their health insurance using an Exchange. The principal issue posed in King is whether the tax credits apply to the federal government’s Exchange in states that declined to establish an Exchange. The denial of the incentive of tax credits to underwrite the costs of health insurance could unravel the health insurance reforms into a death spiral similar to those experienced in the States of Washington and New York. In Washington, the reforms included community rating and guaranteed coverage. Without a mandate to maximize participation, premium rates rose 78 percent and 17 of the state’s 19 insurers left the market. In New York, state law embraced community rating and guaranteed coverage, but did not mandate participation. This resulted in rates rising 40 percent and the largest insurer in the indemnity market leaving the state. The Exchange was designed to incentivize individuals investing in insurance premiums by offering a competitive market and premium costs reduced by tax credits for qualified individuals. The tax penalty for failing to purchase health insurance was enacted to enforce the mandate. This Massachusetts model for success with a national competitive market incentive and mandate is a critical and necessary part of the overall scheme for national health insurance reform. The lower court agreed that the Act was legal but for a different reason. The Fourth Circuit relied on the tradition that courts allow federal agencies tasked with the implementation of a law to “fill in the gaps” when there is ambiguity in the language of a federal law. The IRS had interpreted the Act’s tax credits to apply to all Exchanges: state and federal alike. Rather than relegating this pivotal power to determine the fate of the nation’s health insurance reform to a federal agency, the Supreme Court chose to step in to clear the way by expressly declaring legislative intent. In a well-reasoned analytical decision that explains the ambiguity of the wording of the statute within the context of the overall statutory scheme, the Court declared that it could not interpret a federal statute to negate its own stated purpose. WHAT’S NEXT FOR EMPLOYERS AND HEALTH PROFESSIONALS For employers, size matters. Effective in 2015, large employers with over 50 full-time employees (including full time equivalents) must offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents) Birmingham Bar Bulletin/ Winter 2015 13


Birmingham Bar Association Bulletin Winter 2015
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