Last week, health reform legislation proposed by President Obama two years ago, was contested in the U.S. Supreme Court.
Certain aspects of the legislation have been challenged in the federal courts; with detractors attempting to challenge the scope of the law or even declare some parts of it unconstitutional. The United States Supreme Court heard arguments on certain aspects of these cases, including the constitutionality of the individual mandate and expansion of Medicaid in 26 states. Both these provisions are scheduled to be implemented in 2014.
According to the individual mandate provision, which will be effective 2014 onward, all individuals will have to purchase a minimum level of health insurance coverage or pay a financial penalty.
Those debating against the law propose that the individual mandate is unconstitutional and thus a violation of the fundamental rights of Americans. A three-day session was conducted in the Supreme Court debating the provisions of the law. The final ruling is expected in July.
Uncertainties surround the Court verdict regarding the legislation. In the buildup to the event, there is a lot of speculation about the final outcome.
The legislation may either be revoked or upheld in its entirety. There are chances that the individual mandate and other controversial provisions are omitted or the legislation passed with minor changes.
Each of these outcomes will affect the insurance companies in varying degrees. In the event of the individual mandate being declared unconstitutional or repealed without corresponding changes to other provisions of health reform legislation players will face the risk of adverse selection.
Provisions which require revision include the guaranteed issue and renewal requirements, prohibition on pre-existing condition exclusions, and rating restrictions. If, however, the required provisions are left unchanged, insurers will see an increase in medical claims. Should the Court throw out the bill, insurers will lose the opportunity to serve the targeted 32 million uninsured Americans.
If the entire law is passed without any amendments and subsequently implemented, then insurers will have to shell out a huge sum to align their business with the changed landscape.
In yet another scenario, where Congress is also considering additional health care reform measures, the effects of the regulations are difficult to predict. Also, it is hard to predict whether any other federal or state proposals will ultimately become law.
Such laws and rules may force carriers to materially change the way they transact their business. This will in turn restrict revenue and enrollment growth for certain products and market segments, restrict premium growth rates, adversely change the nature of their contracted network relationships, increase medical and administrative costs and capital requirements, expose them to an increased risk of liability or put them at a risk of a loss of business.
The sector will not be spared even if most of the provisions of the Reform are held back. The health insurance sector will continue to be under tight observation and scrutiny. Some new rules will definitely come into effect to rein the exorbitant rise in health care costs, due to unfair practices adopted by many of the insurance companies over the past several years.
Opponents to the legislation claim that the clauses concerning Medicaid expansion will create a burden on the states, in violation of the Congress’s power as per the Spending Clause and the Tenth Amendment.
Morever, the forthcoming November Presidential election will see Congress muddling with its own makeover.
To sum it all up, the U.S. health insurance market is in a state of flux and the situation will improve only after the final regulations fall in place.
Meanwhile the carriers – UnitedHealth Group Inc. (UNH), Aetna Inc. (AET), CIGNA Corp. (CI), WellPoint Inc. (WLP) and Humana Inc. (HUM) are been busy with strategy makeovers to reshape and restructure their business.
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