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Healthcare Reform: Businesses Ask, "What Now?"

Businesses of all sizes must take note of new healthcare requirements that will change coverage and payment policies.

Monique Wassenaar Silverio (September 2010)
(page 2 of 3)
The Legal Battle
The gloves are off, and the first state to legally challenge healthcare reform has been given the green light to continue its case in federal court.

On August 2, U.S. District Judge Henry Hudson ruled that Virginia may proceed with its case against the Obama Administration's healthcare law. The ruling responds to a motion filed by the U.S. Department of Justice to dismiss the state's lawsuit.

The state argues that the requirement for its residents to have health insurance violates the Constitution's Commerce Clause and Tax Clause, which allow the federal government to regulate commerce between the states.

The ruling is the first in what may be years of litigation over the question of whether or not Congress has the power to regulate - and tax - a citizen's decision not to buy health insurance.

According to Hudson, "The congressional enactment under review, the Minimum Essential Coverage Provision, literally forges new ground and extends [the Constitution's] Commerce Clause powers beyond its current high water mark."

Earlier this year, the Virginia General Assembly passed legislation exempting state residents from the federal coverage mandate. In his decision, Hudson wrote that Virginia's attorney general has the right to defend that state law.

The case is scheduled to begin on October 18, only two weeks before the November 2 congressional elections. The healthcare battle is expected to be a major issue in those campaigns.

Virginia's lawsuit, filed soon after President Obama signed health reform into law, is one of several arguing that the federal government is seizing power in an unprecedented way. Some 19 other states are part of a similar lawsuit in Florida, but Virginia's is the first to go before a federal judge.

Legal analysts say there is a good possibility that the matter will reach the Supreme Court, but most say there is only a slim chance that the states will prevail.

Grandfathering Health Plans
Early on in the debate over healthcare reform, the Obama Administration claimed that those who wished could keep their current healthcare coverage, and businesses sighed with relief. But in June, the Department of Health and Human Services, the Labor Department, and the Treasury proposed new regulations that would limit how much plans can modify their coverage and still be grandfathered. The grandfather rule would let employers and insurers make routine changes to plans. However, if companies significantly cut benefits or increase out-of-pocket spending for consumers, they can lose their exemption.

For example, businesses would not be able to change carriers, increase co-pays and deductibles, or raise employees' percentage of cost-sharing by more than a set amount without losing grandfathered status. Once they lose this status, their plans are considered new, and they will have to offer more stringent patient protections. The result? More expensive plans for employers and employees alike. According to the National Federation of Independent Business (NFIB), small companies will be especially hard hit if faced with expected sharp increases in insurance premiums.

"These rules limit flexibility and severely restrict the last line of defense for an employer before making the difficult decision of having to employ the nuclear option: dropping coverage all together," said Susan Eckerly, NFIB Senior Vice President of Federal Public Policy. "This is another heartbreaking and discouraging outcome from this new healthcare law."

The government estimates that while 70 percent of small-business plans will remain grandfathered in 2011, that number will drop to 34 percent in 2013.

About 176 million Americans have employer-sponsored insurance. Currently, the grandfathering limits are at the proposal stage, and the government is seeking public comments through mid-August. However, experts say they are unlikely to change substantially before a final decision is rendered.
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