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Health Insurance: Be Aggressive About Redesigning Plans

Originally published: 03.01.11 by Mike Coyne

It’s unlikely the Obama reform plan will be declared unconstitutional.

If you are currently renewing your company’s health-insurance program, you must be as angry and frustrated as I am. Over the last 10 or 15 years, Congress has more and more frequently passed legislation that is overly complex and detached from practical considerations. Never has this been truer than now, with respect to the health reform legislation passed in March 2010.

Since then, some health plans have been “grandfathered” based upon employer decisions that had to be made, and were made, before the meaning of grandfathering was ever known. The government has waived certain provisions of the new law (the annual and lifetime cap on benefits) with respect to some employers, but not for other employers. Nondiscrimination rules that will certainly affect how and to whom small employers provide health coverage have been postponed indefinitely, pending new issuance of regulations. Litigation is progressing that challenges the very constitutionality of the law. The new Republican-controlled Congress is threatening to withhold funding to enforce the new law. In the meantime, employers face rising health-insurance costs that demand action.

This month, we want to share with you answers to questions that many of our clients

are asking with regard to the law.

Should I be worried about keeping my plan grandfathered?

The primary advantage of a grandfathered plan is that it does not have to comply with the new nondiscrimination rules until it loses its grandfathered status. In order to stay grandfathered, however, the plan cannot make any significant changes to such things as deductibles, co-pays, the employee’s contribution to the cost, etc.

Grandfathering seemed to be a good decision immediately after the law was passed because it appeared that the nondiscrimination rules could substantially increase a small employer’s overall costs. Last year, we advised clients to balance the cost of complying with the nondiscrimination rules against the cost savings that could be gained by making changes to the health plan. Some employers were able to absorb rising health-insurance premiums without changing the health plan, but others were forced to make changes simply to control costs.

While this advice is still reasonable, we believe employers should be fairly aggressive about redesigning their health plans in 2011. First, we are hearing from colleagues in the insurance industry that there will likely be large proposed premium increases as insurers try to preserve their profits while being required to expand 80% of premium dollars on health care. Second, it is increasingly probable that the new nondiscrimination rules will not go into effect at least until 2012 or thereafter. If you can save substantial money by reconfiguring your health plan, you probably should do so.

Will the health plan be declared unconstitutional?

We believe that it is less likely than some people think that the conservative U.S. Supreme Court will declare the health-reform law unconstitutional. It is widely understood that the federal government has the right to regulate interstate commerce. The theory of those arguing that the law is unconstitutional is that the government can regulate “activity” but not “inactivity.” However, the Supreme Court has frequently ruled that the federal government has the power to enact rules that are “necessary and proper” to effectively enforce broader federal regulation than is otherwise permissible. Even conservative Justice Scalia has ruled in favor of the government on this basis in recent decisions. Our bet is that the constitutionality of the law will likely be upheld.

Can Congress really use the “power of the purse” to kill the legislation?

Well, not kill but certainly cripple. Congress has frequently withheld funding or placed limitations on appropriations to prevent the executive branch of government from enforcing regulations that it does not like but cannot change. For example, Congress has, on occasion, restricted the Internal Revenue Service from using any appropriated funds to enforce certain controversial regulations. This could certainly happen again, and we suspect it will.

Michael P. Coyne is a founding partner of the law firm, Waldheger Coyne, located in Cleveland, Ohio. For more information on the firm, visit: www.healthlaw.com or call 440-835-0600. 

About Mike Coyne

Mike Coyne

Michael P. Coyne is a founding partner of the law firm Waldheger Coyne, located in Cleveland, OH. For more information of the firm, visit: www.healthlaw.com or call 440.835.0600.

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