Health Care Reform in California: What Does It Mean for Attorneys and Clients?0

The following article appeared in the July 11, 2011 Daily Journal.

At the end of June, the 6th U.S. Circuit Court of Appeals weighed in on the health care reform debate, focusing in particular on the constitutionality of the health insurance mandate embedded within the Patient Protection and Affordable Care Act (PPACA). This was the first mid-level Federal Court to opine on the subject, casting the decision as an important benchmark as PPACA inches closer toward intervention by the U.S. Supreme Court.

The 6th Circuit concluded that the insurance mandate, sometimes referred to as the minimum coverage provision, is constitutional and within congressional authority under the Commerce Clause. However, this most recent ruling is not alone in its attempt to define the future of American health care.  Other noteworthy if disparate decisions also on point include: an opinion last December from a District Court in Virginia striking the same (insurance mandate) provision, but confirming at least indirectly the overall constitutionality of PPACA; and a ruling in January from a District Court in Florida, declaring PPACA unconstitutional in its entirety.

These are exciting times for medical professionals, including health care practitioners and other attorneys who confront issues of contract, real estate, tax, employment, tort, bankruptcy or antitrust law in their practice.  But what effect does the fluidity of the modern American health care structure have on our clients as PPACA continues to work through its growing pains? It is often easy to overlook important, client-centric issues when daily media headlines spew prognostications of unprecedented historical importance.  Esoteric as they may appear on the surface, however, these high profile discussions offer a wealth of relevant information for attorneys and their clients, even if such wisdom is hidden beneath a cloak of ambiguity as thick as the pages of reform legislation itself.

By setting their sights on two of the basic concepts contained within PPACA, health care practitioners are better suited to cut through the controversy and rhetoric, and focus instead on the needs of their clients.

The first issue impacts nearly everyone in the field, including attorneys who may represent individuals or businesses:

To meet PPACA’s requirements in 2014, individuals have the option to: enroll in a government program such as Medicare, Medicaid (California’s version of Medicaid is “Medi-Cal”), or TRICARE; participate in qualified insurance programs offered through employment; or purchase a qualified insurance policy, either through a series of state exchanges that are scheduled to begin in or around 2014 or directly from an insurer. To be “qualified” a plan must cover certain “essential health benefits,” at least up to a defined percentage of actuarial value.

Starting in 2014, failure to obtain or maintain preexisting qualifying health care coverage will result in a penalty of $95 or 1 percent of the individual’s income, whichever is greater. In 2016, this penalty increases to $695 or 2 percent of the individual’s income. There are companion penalties for families (capped at three times the per-person flat amount) and dependent children (half of the per-person flat amount).

In the end, the debate over whether or not the Commerce Clause was designed to extend this far will be of little value to individual clients who seek professional advice in understanding how much they may be required to pay or have deducted from income tax filings. This may impact the tax returns of approximately 140 million clients, as well as 15-20 million others who previously did not file, a sizeable client base for any law firm.

While PPACA will require individuals to obtain health care insurance, businesses are under no obligation to offer coverage to employees. Instead, larger employers constituting 50 or more full-time employees will face a $2,000 per employee penalty (which does not apply for the first 30 full-time employees) in the event these employees receive federal subsidies for health insurance. Furthermore, if businesses offer health care plans that are too expensive – known as “Cadillac Plans” – they will face a 40 percent tax imposed in 2018.  On the other hand, small businesses stand to gain generous new tax credits designed to encourage the implementation of qualified health insurance plans for their employees.

As the ongoing debates continue to unfold, both large and small businesses would do well to seek legal consultation in balancing the competing variables before making decisions pertaining to coverage. In deciding whether to offer a health care plan or pay the $2,000 per full-time employee fine, proper advice may necessitate expertise in tax, employment, and/or contract law, in addition to a certain amount of health care acumen. And while not an issue today, practitioners should be aware that they may face scrutiny under the California Rules of Professional Conduct, and Rule 3-310 in particular, for representing both individuals and businesses (small and large) in deciding whether or not to obtain or offer health care insurance.  These are just a few of the complexities upon which attorneys will be called for assistance as health care reform flexes its newfound muscles.

The second issue involves the possible future of health care reimbursements, and Medicare in particular. In April 2011, the Centers for Medicare & Medicaid Services (CMS) published regulations designed to change the structure of hospital reimbursements. Authorized within PPACA, CMS will start paying hospitals Medicare “bonuses” based upon overall performance, adherence to quality measures, and patient satisfaction.  This hospital value-based purchasing program is another step toward shifting the focus of reimbursement infrastructure from the cost of services during a hospital stay to improvements in patient health and performance during a hospital stay.

With the laudable intertwined goals of improving patient care nationwide while saving money for the Medicare system, beginning in October 2012 hospitals will be entitled to share bonus money from an $850 million fund based upon their scores in these newly defined measures. The following year, hospitals will face a 1 percent [reduction] overall on Medicare payments under the inpatient prospective payment system, as these funds will be redirected toward the aforementioned performance bonuses. By 2015, hospitals with a track record of poor performance will not only face exclusion from the bonus pool, they will also face additional cuts in reimbursement.

The maturation process of American health care reform has a long way to go, with each new stage bringing with it a complex set of issues. At each turn, attorneys will be called upon to assist clients in understanding and incorporating structural, legal, and ethical changes. If this alone was not enough of a challenge to our profession, we must also address the inherent conflicts between the desire to make health care better and less expensive and the knowledge that to do so may compromise the livelihood of a hospital, doctor, or medical facility.

As sweeping as the far-reaching implications of PPACA may sound, attorneys must be ever mindful of their clients’ needs as they navigate what is sure to be a future filled with shifting terrain. Regardless of health care reform’s political ramifications, the fundamental concepts behind the upcoming reorganization of the reimbursement paradigm are epic. In many ways, replacing cost-based reimbursement with performance variables appears just as drastic as eliminating income as a factor for calculating individual taxes in favor of implementing a series of assessments designed to quantify the benefit an individual may or may not confer upon society. To truly provide for our clients in upcoming uncertain times, we must be able to relate to the ramifications not only of today’s health care structure, but those that tomorrow has in store for us as a nation.


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