1. HUMAN CAPITAL PRACTICE
ALERT:
HEALTH CARE REFORM BILL
June 2012 www.willis.com
WAITING FOR THE SUPREME COURT DECISION
— WHAT WILL IT DO?
The Supreme Court heard oral arguments in March on several Constitutional issues
regarding the Patient Protection and Affordable Care Act (PPACA) and is expected to issue
its opinion this month. We think that the timing is right to discuss the potential decision,
what the outcome might be and the possible fallout as the expected release date approaches.
BACKGROUND
The Supreme Court will consider several issues that federal courts have ruled on in the two
years since the passage of PPACA, including:
n Does the individual mandate exceed Congressional authority to regulate interstate
commerce, or is it an essential part of a broader regulatory scheme?
n Can Congress forge national solutions to national problems despite individual origins?
n Are insurance reforms, such as guaranteed issue and the prohibition of any preexisting
condition exclusion, Constitutional?
n Is the penalty (as labeled in PPACA) for not complying with the individual mandate a
tax (with broad Congressional authority to levy such taxes) or a penalty (which is far
more limited under the Constitution)?
n If the individual mandate is overturned, what part of the rest of PPACA, if any, must also
be invalidated, or must the entire Act be overturned as well?
n Do any individuals or employers even have the right to challenge the law?
n Is the case ripe for review since no one has yet been forced to pay a penalty?
The Court asked that the advocates discuss four topics:
n Is the issue reviewable at this point?
n Is the individual mandate an appropriate exercise of the Commerce Clause of the
Constitution?
n If the individual mandate is unconstitutional, how much, if any, of the rest of PPACA can
remain (i.e., is the one unconstitutional provision “severable” from the rest of the Act)?
n Is the Medicaid expansion an unconstitutional burden on the states? (Since this is of
less concern to employers we will not examine those arguments here.)
IS PPACA RIPE FOR REVIEW?
The Court seemed to have little concern regarding this question. The proponents of PPACA
had argued that under the Anti-Injunction Act, any tax levied by Congress would have to be
assessed before the validity of the tax could be challenged. PPACA’s requirement that
everyone have health insurance coverage would be enforced by the collection of the penalty.
The proponent appointed by the Court to advance this argument asserted that the penalty
should be deemed a tax since it is to be assessed and collected by the IRS. He argued further
that because the penalty was in fact a tax (despite being called a penalty by Congress), the

2. terms of the Anti-Injunction Act applied – (http://www.lifehealthpro. com/2010/06/30/consultants-
meaning that it could not be challenged before individuals-game-mass-health-insurance). Many
it was actually assessed. The Justices all commentators have pointed out that we all can see that for
seemed skeptical that something specifically insurance to work in other markets, such as auto and housing, we
labeled a penalty was really a tax just because can’t wait until after the event to pay premiums.
it was collected by the IRS. In lower court
decisions, justices had pointed out that PPACA proponents say that health insurance is different from
Congress knew how to designate something as those other markets because we know that we are all going to need
a tax. In fact, PPACA itself includes many new health care at some point. Therefore, PPACA includes the
taxes. The Solicitor General (arguing on behalf individual mandate that requires all individuals to have coverage
of the federal government) agreed that the or pay a penalty. The opponents of PPACA immediately objected to
case was not premature because the penalty such a penalty as a violation of the U.S. Constitution because,
was not really a tax (although that would instead of regulating commerce, it forces people to enter
undermine its core argument, as Justice Alito commerce. The proponents’ view is that since everyone will
implied in his questions). eventually get sick or injured, and since no one can be refused
treatment (because of federal law), the individual mandate is
Because of the Court’s skepticism, many simply regulating the means to finance care (via insurance) as
observers think it unlikely that the Court opposed to forcing participation in commerce. They point to the
would choose not to rule on the other Commerce Clause (which permits Congress to regulate commerce
substantive issues based on this distinction. between the states and to enact laws necessary and proper to carry
out its enumerated powers) as enabling Congress to pass laws
IS THE INDIVIDUAL MANDATE necessary to fulfill its health care financing requirement.
CONSTITUTIONAL? The opponents’ view is that the Constitution was designed to
limit Congress’s powers to those specifically enumerated in the
The underpinning of PPACA is contained in Constitution, with the remaining powers left to the states or to
the so-called “individual mandate” portion of the people. For example, the so-called “police powers” permit
the shared responsibility provisions of Massachusetts to include a health coverage mandate in its
PPACA. The proponents of PPACA realized legislation without challenge under the federal Constitution.
that the insurance reforms designed to make Since there is no provision in the Constitution that permits
coverage more affordable for those that did Congress to force people to buy a private product, opponents
not have it (community rating requirements, argue that the mandate is unconstitutional.
the prohibition of preexisting condition
exclusions and the guaranteed issue During oral arguments, the Justices evinced some skepticism of
requirement) could not function financially the idea that forcing people to purchase insurance (and a specified
unless everyone in the U.S. was in the pool minimum level) or pay a penalty would be permitted under the
and paying premiums (or at least having their Constitution.
employer or the government paying
premiums on their behalf ). That makes sense Justice Kennedy asked if it is possible to create commerce in
of course. If it is possible to get the same order to regulate it. Since it is presumed that Justice Kennedy is
coverage as everyone else can get any time the swing vote, there is some indication that he might be skeptical
with no preexisting condition exclusion, there that the mandate is a Constitutional regulation of commerce
is little incentive to actually pay a premium versus an unconstitutional overreach. The conservative Justices
for the coverage before it is needed. In fact, pretty much piled on with that reasoning and kept asking the
similar reforms in Massachusetts did lead to Solicitor General (arguing in favor of the mandate) that if
higher premiums even with a mandate Congress can force people to purchase insurance, what can’t
(http://www.patriotledger.com/topstorie Congress do? That is, they were searching, and asking the
s/x1852604642/Massachusetts- Solicitor General to delineate the “limiting principal” that shows
individual-health-premiums-highest- the outer limits of Congressional power. While Justices Ginsburg
in-Nation). Those higher costs have led to and Breyer (two of the Justices in the liberal wing of the Court)
some people gaming the system and buying seemed to be helping the Solicitor General to make his arguments,
coverage when it is needed and dropping it even Justice Sotomayor asked the Solicitor General to clarify why
later (presumably due to the high cost) Congress does not have unlimited power if it can force people to
buy insurance.
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3. Those questions and the admittedly weak responses from the Solicitor General led many
to believe that the individual mandate will not survive the Supreme Court review. The
potential for the individual mandate to be found unconstitutional was buttressed by oral
argument the next day – where more liberal Justices seemed to make arguments that
would allow the rest of the Act to stand even if the individual mandate is overturned. That
could be an indication that in the discussions the Court had prior to oral arguments they
were already leaning toward overturning the mandate.
IF THE INDIVIDUAL MANDATE IS UNCONSTITUTIONAL,
MUST THE REST OF PPACA BE OVERTURNED, OR CAN
SOME OF PPACA BE RETAINED (AND IF SO, HOW MUCH)?
As mentioned above, the individual mandate is one of the essential pillars supporting the
entire health reform scheme. If it strikes down the individual mandate as
unconstitutional, the Supreme Court must decide whether the rest of the law must also
fall. The district court that originally ruled that the entire Act had to be overturned if the
individual mandate was unconstitutional noted that, unlike most laws, the PPACA
legislation was intentionally drafted without a severability clause and found that the
individual mandate was not severable – declaring the entire PPACA unconstitutional. The
Eleventh Circuit Court of Appeals ruled differently – that the provisions were severable,
and that is where the Supreme Court finds the question now.
Supreme Court precedent states that an unconstitutional provision may be severed from
other Constitutional parts of a statute unless it is “evident that [Congress] would not have
enacted those provisions which are within its power independently” of the
unconstitutional provision. Other lower court decisions also noted the ambiguity
surrounding Congressional intent – but split on this issue – some decided the individual
mandate was severable; others concluded all must “rise and fall” with the individual
purchase requirement.
PPACA proponents argued that provisions may only be invalidated on non-severability
grounds if Congress clearly would not have enacted the provisions in the absence of the
individual mandate. PPACA opponents argued that the entire PPACA should be
invalidated, if the individual mandate is found unconstitutional, because the remainder of
PPACA could not be implemented in a manner consistent with Congress’ original
legislative intent without the mandate.
The Justices clearly differed on the question of severability of the various provisions of
the Act. Those questions were directed at the federal government’s position that if the
individual mandate is overturned, many other PPACA provisions should be preserved.
Opponents took the position that the entire Act is so closely integrated and financially
dependent on the individual mandate that if the individual mandate is overturned, then
the rest of the Act must necessarily be overturned as well.
Case law can be cited for the proposition that if a single provision of an act is
unconstitutional, the entire act is unconstitutional and must be overturned (unless
Congress specifically provided otherwise in the act itself ). However, there is also
precedent for the Court to say that, if there are provisions of an act that can stand alone
without regard to the unconstitutional provisions, then those provisions should be upheld
while the unconstitutional provisions are severed from the remainder of the act. Those
positions were discussed by the attorneys and the Justices weighed in frequently,
challenging the various positions.
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4. Tellingly perhaps, the Justices on the liberal number of amicus (friend of the court) briefs that argued the
wing of the Court asked several questions employer mandate should be invalidated if the individual
which seemed to be directed at complete mandate is invalidated, judicial restraint would argue against
severability, or at limiting severability to overturning the other mandates or the entire bill.
those provisions directly linked to the
individual mandate (guaranteed issue,
community rating and elimination of
HOW WILL THE COURT RULE?
preexisting condition exclusions). Justice
It is pure conjecture of course (and perhaps colored by our own
Sotomayor asked if it were not possible for the
biases), but it appears from the line of questioning that the
entire rest of the Act to stand. Justice
Justices are skeptical of the individual mandate and will likely
Sotomayor asserted that yes, the costs would
overturn that provision. That prediction is also based on Justice
likely go up, but there is some dispute about
Kennedy’s history of being skeptical of government power vis-a-
just how much, and isn’t it really a legislative
vis the individual. He has historically found governmental
act (therefore, something for Congress to fix)
overreach in the criminal area especially, and he retains that
rather than something that can be done by
skepticism of federal power generally. If he rules consistently
judicial fiat? The Congress could fix the
with that outlook, the individual mandate will be overturned.
deficient part or start all over per its
prerogative.
If the individual mandate is overturned, it follows from the
Justices’ questions that they will likely overturn the insurance
Justice Scalia then made the point that it was
mandates as well. It seems unlikely they would overturn the
unlikely that Congress would have intended
entire Act. We would be left then with many employer mandates
for the entire bill to be struck down just
but no individual mandate.
because one feature was invalid, even if that
intent was not specifically included in the
As to the other questions, it appears that the Court is
legislation. Justice Kagan and Justice
comfortable with a ruling at this time that rejects the argument
Ginsburg also made points that many
that the penalty is really a tax. Similarly, the Court seems
provisions of the law could be operational
comfortable with the Medicaid expansion mandate despite the
without the individual mandate and that it
states’ objection.
would be the more conservative approach to
be selective in the ruling rather than
overturning the entire Act. Chief Justice WHAT WILL EMPLOYERS BE REQUIRED OR
Roberts and Justice Kennedy also weighed in PERMITTED TO DO IN RESPONSE?
asking for the standard that could be used to
sever parts of the bill and not others. These scenarios are offered to lay some groundwork for planning
under the various options. All are premised on Congressional
Finally, Justice Scalia asked if it would not be inaction following the Court’s ruling; although most
cruel and unusual punishment for the commentators feel that whatever the Court does, there will be some
Justices or their clerks to be forced to read the Congressional response or at least an attempted response. How
entire bill to make a determination provision that all plays out politically will depend on the fall elections and,
by provision. either way, the ruling will likely be a talking point for both sides
through election day and beyond.
Making any predictions about the Court’s
ruling on severability based on the questions
is difficult. However, it appears that since the
WHAT IF THE ENTIRE ACT IS UPHELD?
Administration argued for the invalidation of
In this scenario, the hypotheticals are largely the same as those
the insurance reforms in other forums if the
employers have been dealing with for the last two years. What
individual mandate were invalidated and all
will our costs be? How much of those can be shared with
the Justices seemed to agree that they were
employees (and still stay under the affordability cap of 9.5% of
tied directly to the individual mandate (even
taxable income)? Who is a full-time versus a part-time
if not necessary) – if the individual mandate is
employee? Can I afford to offer coverage to all my employees?
overturned, it is likely the rest of the
What will the penalty actually be if I offer no coverage or
insurance reforms would also be overturned.
unaffordable coverage? Will I have to continue to offer benefits
With respect to the rest of the bill, including
for competitive reasons regardless of the costs – how will that
the employer mandates, however, despite a
4 Willis North America • 06/12

5. affect other aspects of my total rewards package? Will it make sense for employees to have
coverage at work, or is it acceptable for them to go without coverage and seek it on the
exchanges? Will the exchanges be available January 1, 2014 as promised? Will coverage on
the exchanges actually be an option for employees? Those and other questions have been
occupying employer planning since before passage of PPACA. If the Act is completely
upheld, even with the political firestorm that will likely ensue from the Republican side,
most employers will likely find it prudent to step up that planning once there is some
additional certainty after the Court’s decision. Some may be ready to update their health
coverage strategy and start making incremental changes at this time – before the many
mandates and requirements take effect as scheduled, January 1, 2014.
WHAT IF ONLY THE INDIVIDUAL MANDATE IS OVERTURNED
AND THE REST OF THE ACT IS LEFT INTACT, INCLUDING
THE INSURANCE REFORMS?
What will happen if only the individual mandate is overturned? By all estimates, the cost of
coverage in the individual market will skyrocket. The coverage will be required to be
community rated (albeit with some ability to vary costs based on geography and age),
guaranteed issue and with the preexisting condition exclusion. If everyone is not part of the
insurance pool and paying into the pool, those requirements will force insurers to raise rates
because the risks will be borne across a smaller group and, more importantly, a group that
knows it needs the coverage. After all, why would a young healthy person voluntarily pay for
expensive premiums when he knows he can get coverage any time he needs or wants it and
will not be penalized for waiting or for already having a need? Most rational people would
just wait until they are going to use the insurance to buy it if there is no mandate and penalty
to enforce the mandate. This occurred in Massachusetts. Since the healthy people will not
be subsidizing the rest of the population, the costs for those who are in the pool will rise.
As costs continue to go up, fewer people will voluntarily participate forcing the rates to go
higher still. Against that backdrop, it is not clear what actions the Secretary of HHS might
take, or what level of success they would have to review and challenge substantial rate
increases.
The resulting death spiral will ultimately cause the exchanges to fail. In that case, employer-
provided coverage (which has the benefit of including everyone in the pool from the outset)
will become even MORE valuable to employees, as that will be the only place they will be
able to find affordable coverage. In addition, employers will likely find it hard to off-load
that coverage because there will still be no alternative in the individual market. Some of
the expenses of coverage will likely still make the coverage more expensive than otherwise
(because the annual and lifetime dollar limit caps will still be prohibited, and the other
provisions that expand eligibility and coverage will still be mandated). However, compared
to the individual market the costs should be significantly more affordable for employees,
even if shared to the maximum extent possible under the affordability requirement.
Therefore, while costs will likely rise, group coverage will continue to be sought by
employees and provided by employers as a competitive requirement (in addition to the fact
that the pay or play requirement would continue to exist with its penalties).
WHAT WILL HAPPEN IF THE INSURANCE REFORMS ARE
ALSO OVERTURNED BUT NOT THE REST OF PPACA?
This question is a little more difficult to answer. Presumably the “pay or play” mandate and
the affordability requirements will still be part of PPACA in this case. That means that the
employers will still have some pressure to provide coverage at an affordable cost or pay a
5 Willis North America • 06/12

6. penalty. Many of the same questions that they have been asking themselves with respect to
moving forward with PPACA would still apply. However, there may be more reasons for
employers to pay the penalty and let employees purchase coverage through the exchanges,
because, without the insurance reforms, insurers will be able to properly price their
products. That could lead to lower overall premiums in the exchanges. Nevertheless,
without the individual mandate and the expansion of the insurance pool, the premiums in
the individual market would still likely be more expensive than the employer group market.
So, while it is an open question and the individual market would likely be somewhat more
appealing in this scenario, the employer group market would likely still be the best option
for most employees.
WHAT WILL HAPPEN IF THE ENTIRE ACT IS INVALIDATED?
Unfortunately, even if PPACA is completely overturned, it is not as though employers can
just ignore the whole thing and assume we can return to the status quo ante. Many of the
provisions of PPACA have already taken effect – for instance the adult child coverage
requiring children up to 26 to be offered coverage and the elimination of lifetime and annual
dollar limits on plans. Therefore, employers will have to make some determinations
regarding the various requirements or provisions that are already in place:
n Will they eliminate coverage for adult children? Will that result in COBRA for those
whose coverage is eliminated, or will employers offer a substitute continuation coverage
package for them?
n Will employers re-impose dollar limits? What about for those people who exceeded
them recently? Will the limits be imposed retroactively?
n Will employers re-impose preexisting condition exclusions for pre-19 year old
enrollees? How will that be implemented?
n Will employers who obtained a reimbursement under the Early Retiree Reimbursement
Program be forced to repay those amounts? What if they already distributed the funds
to the covered retirees?
n Will employers reinstate the over-the-counter drug reimbursements from FSAs?
Will they eliminate the $2,500 cap (albeit that will no longer be effective before 2013
plan years).
n Will non-grandfathered plans eliminate the additional layer of external appeals?
n Will they otherwise re-impose the managed care limits (such as what provider can
be a primary care physician and certain out-of-network limits) that were eliminated
under PPACA?
Some of these questions will need to be answered by the regulators (like what happens to the
ERRP funds). While we wait for the outcome, Willis is involved with industry groups that
are teeing up those questions to the various agencies in anticipation of the ruling.
CONCLUSION
The Supreme Court decision is unlikely to be the end of the story with respect to PPACA. As
Yogi Berra is reputed to have said, “It ain’t over ‘til it’s over!” Employers should be ready for
a decision to be published at the end of this month. All should be ready to shift into high gear
in terms of planning. As noted above, the PPACA planning is already underway – making
plan sponsor decisions, legislative and regulatory repairs and – design changes difficult to
implement. Regardless of the decision, you should anticipate the regulators will roll out new
requirements, and that Congress (regardless of the results of the 2012 elections) will
promulgate more changes via new legislation. We’ve only just begun.
6 Willis North America • 06/12

7. KEY CONTACTS
U.S. HUMAN CAPITAL PRACTICE OFFICE LOCATIONS
NEW ENGLAND Wilmington, DE Jacksonville, FL
302 397 0171 904 355 4600
Auburn, ME
207 783 2211 ATLANTIC Marietta, GA
770 425 6700
Bangor, ME Baltimore, MD
207 942 4671 410 584 7528 Miami, FL
305 421 6208
Boston, MA Bethesda, MD
617 437 6900 301 581 4261 Mobile, AL
251 544 0212
Burlington, VT Knoxville, TN
802 264 9536 865 588 8101 Orlando, FL
407 562 2493
Hartford, CT Memphis, TN
860 756 7365 901 248 3103 Raleigh, NC
704 344 4856
Manchester, NH Nashville, TN
603 627 9583 615 872 3716 Savannah, GA
912 239 9047
Portland, ME Norfolk, VA
207 553 2131 757 628 2303 Tallahassee, FL
850 385 3636
Shelton, CT Reston, VA
203 924 2994 703 435 7078 Tampa, FL
813 490 6808
NORTHEAST Richmond, VA 813 289 7996
804 527 2343
Buffalo, NY Vero Beach, FL
716 856 1100 Rockville, MD 772 469 2842
301 692 3025
Cranford, NJ MIDWEST
908 931 3005 SOUTHEAST
Appleton, WI
Florham Park, NJ Atlanta, GA 800 236 3311
973 410 4622 404 224 5000
Chicago, IL
Morristown, NJ Birmingham, AL 312 288 7700
973 829 6374 205 871 3300 312 348 7700
973 829 6465
Charlotte, NC Cleveland, OH
New York, NY 704 344 4856 216 861 9100
212 915 8802
Gainesville, FL Columbus, OH
Norwalk, CT 352 378 2511 614 326 4722
203 523 0501
Greenville, SC Detroit, MI
Radnor, PA 704 344 4856 248 539 6600
610 254 7289
Willis
7 Willis North America • 06/12

8. Grand Rapids, MI San Antonio, TX
616 957 2020 210 979 7470
Milwaukee, WI Wichita, KS
414 203 5248 316 263 3211
414 259 8837
WESTERN
Minneapolis, MN
763 302 7131 Fresno, CA
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Moline, IL Irvine, CA
309 764 9666 949 885 1200
Pittsburgh, PA Las Vegas, NV
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602 787 6078
Schaumburg, IL
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213 607 6300
SOUTH CENTRAL
Novato, CA
Amarillo, TX 415 493 5210
806 376 4761
Phoenix, AZ
Austin, TX 602 787 6235
512 651 1660 602 787 6078
Dallas, TX Portland, OR
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Rancho/Irvine, CA
Denver, CO 562 435 2259
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858 678 2000
Houston, TX 858 678 2132
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McAllen, TX
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408 436 7000
Mills, WY
307 266 6568 Seattle, WA
800 456 1415
New Orleans, LA
504 581 6151
The information contained in this publication is
Oklahoma City, OK not intended to represent legal or tax advice and
has been prepared solely for educational
405 232 0651 purposes. You may wish to consult your attorney
or tax adviser regarding issues raised in this
Overland Park, KS publication.
913 339 0800
Willis
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