Washington

Although President Barack Obama signed into law last weekhistoric legislation that promises to expand health coverage fortens of millions who are uninsured while protecting those whoalready have insurance, the battle over reform is far from over.Opponents challenged the measure's constitutionality in court, andvowed to make the controversial measure their rallying point in themidterm elections.

The ink was barely dry on President Obama's signature on thePatient Protection and Affordable Care Act when the Senate begandebate on alterations approved by the House after it passed theSenate's version on March 21. That debate was ongoing as thisedition went to press, but in the end, the Democrats were expectedto prevail in their proposed budgetary revisions.

While some aspects of the lawwon't go into effect for years, President Obama stressed that a"host of desperately needed reforms will take effect right away,this year"–particularly restrictions on insurance companies.

President Obama said the law enshrines "the core principle thateverybody should have some basic security when it comes to theirhealth care."

The nonpartisan Congressional Budget Office said the legislationwould extend coverage to 32 million Americans who lack it now. Itwill ban insurers from denying coverage on the basis ofpre-existing medical conditions and from dumping policyholders ifthey become ill.

However, opponents vowed to continue fighting to stop the law'simplementation–particularly the mandate, beginning in 2014, topurchase insurance or face a penalty.

Virginia Gov. Bob McDonnell signed legislation outlawing theU.S. government from requiring state residents to buy medicalinsurance, while 14 state attorneys general, including Virginia's,filed federal court lawsuits to overturn the new law.

The Virginia measure states in part that no resident "shall berequired to obtain or maintain a policy of individual insurancecoverage except as required by a court or the Department of SocialServices…"

Virginia Attorney General Ken Cuccinelli filed a lawsuit in U.S.District Court in Richmond, arguing the Virginia law is validdespite the Supremacy Clause in the U.S. Constitution because thefederal act is unconstitutional. The suit argues that the federalhealth reform law is an impermissible overreaching of thegovernment's ability to regulate U.S. business under the CommerceClause.

In Florida, a suit challenging the reform law was filed in U.S.District Court in Pensacola by 12 Republican attorneys general andone Democrat.

The Democrat who signed on was Attorney General James Caldwellof Louisiana, who said he did so after Republican Gov. Bobby Jindalmade a request, which he agreed with.

The filing argues that the health reform act is an"unprecedented encroachment of the sovereignty of the states," andthat it has a tax penalty for the uninsured that violates sectionsof the Constitution.

White House Domestic Policy Chief Melody Barnes was quoted byAssociated Press as saying of the suits, "Bring it on," adding: "Ifyou want to look in the face of a parent whose child now has healthcare insurance and say we're repealing that…go right ahead." Shealso cited the failure of legal challenges brought after passage ofSocial Security and the Voting Rights Act.

Senior White House adviser David Axelrod commented that everysingle major piece of legislation "that's ever been passed in thiscountry has engendered lawsuits. That's the nature of our system,and we expected that. We're not concerned about theselawsuits."

Robert P. Hartwig, president of the Insurance InformationInstitute, noted that the majority of states have not sued, and hesaid he believed that legally such a challenge is "a steep uphillclimb."

Some insurers may agree and some may disagree with thelegislation, "but ultimately every industry is going to adjust tothe new health care bill," he added.

Among the provisions that insurers should appreciate, he said,is one that allows them to charge smokers 50 percent more forcoverage. "They have to pay more, [just] like a bad driver," henoted.

Another provision provides that employees enrolled in a companywellness program or meeting certain health standards can get a 30percent reduction in premiums, which could prove to be a benefitfor disability and workers' comp insurers if it prods employees toimprove their health and lower their number of claims.

"The American work force is a ticking time bomb. In many statesthe majority of the work force is overweight," which produces moremedical claims, he noted.

David Sampson, president and chief executive officer of theProperty Casualty Insurers Association of America, lauded Congress'decision to exclude from the bill provisions repealing theexemption from antitrust provisions afforded to health insurersunder the McCarran-Ferguson Act.

"We appreciate that Congress recognized repealingMcCarran-Ferguson would not provide any benefits to the consumer orthe insurance marketplace," he said.

However, insurance and employer groups voiced deep concerns overwhat they see as a lack of provisions in the new law designed toreduce costs, as well as impose a higher tax burden on smallbusinesses.

Karen Ignagni, president and CEO of America's Health InsurancePlans, said "the access expansions are a significant step forward,but this legislation will exacerbate the health care cost crisisfacing many working families and small businesses."

The Independent Insurance Agents and Brokers of America'spresident and CEO, Robert Rusbuldt, said the measure "does littleto stem the skyrocketing cost of health care, and will be financedon the backs of small businesses during one of the most delicatefinancial periods in American history."

Under the legislation, for the first time the Medicare payrolltax would be applied to investment income, beginning in 2013. Thereconciliation bill would also impose a new 3.8 percent tax oninterest, dividends, capital gains and other investment income forindividuals making more than $200,000 a year and couples makingmore than $250,000.

The bill will increase the Medicare payroll tax by 0.9percentage point to 2.35 percent on wages above $200,000 forindividuals and $250,000 for married couples filing jointly.

"A tax increase, especially during today's tough economicclimate, will put many small businesses in the untenable positionof deciding between job cuts, employee pay cuts, or shutting theirdoors," said Charles Symington, IIABA's senior vice president ofgovernment affairs. "Health care reform should not be financed onthe backs of small businesses that are struggling to make ends meetin this very difficult economic time."

Janet Trautwein, CEO of the National Association of HealthUnderwriters, said the bill that became law last week "does little"to truly rein in health care costs. She also said the bill contains"an unworkable individual mandate which will encourage people towait until they are sick to purchase coverage, causing premiums toskyrocket significantly for everyone."

Joel Kopperud, director of government relations at the Councilof Insurance Agents and Brokers, said that "while the bill issignificantly flawed and risks damaging the employer-providedbenefits system, we're relieved to see the role of agents andbrokers secured in the state exchanges, and a workable minimummedical loss ratio."

However, he said he hoped Congress would "strengthen the weakmandates that were included in the Senate bill" as part of thereconciliation measure. Without stronger mandates, he said, "themarket reforms that are effective immediately may result in evenhigher premiums."

Tom Currey, president of the National Association of Insuranceand Financial Agents, said that NAIFA members "are pleased thatCongress has recognized the positive role that health insuranceagents can play in helping small businesses and individuals acquireappropriate health insurance plans," noting that the bill makes itpossible for agents to continue to perform their traditionalrole.

James Klein, president of the American Benefits Council, saidthe "truth about the bill is more complicated than that voiced byits supporters and critics."

He said the legislation "significantly expands coverage formillions of Americans, and takes steps toward aligning what we payfor health care and the quality of those services." However, headded, several provisions will inevitably increase, rather thanmitigate, health care costs. "The overall financial integrity ofthe measure depends on future Congresses and presidents making verytough political decisions," he said.

One of the most controversial provisions in the reconciliationbill–one that would allow the Department of Health and HumanServices to pre-empt state rate regulation–was deleted. Healthinsurance industry officials told National Underwriter itwas left out because the Senate parliamentarian ruled thatincluding such a provision would not comply with the rules thatonly budgetary issues be considered in the reconciliationprocess.

Among other provisions critical to the industry in thereconciliation measure, the medical loss ratio will be 85 percentfor Medicare Advantage plans, meaning 85 percent of premiums mustbe spent on purchasing medical services. Otherwise, the MLRprovisions track with the Senate-passed bill–85 percent for plansof more than 100; 80 percent for small plans.

REGULATOR REACTION

State insurance commissioners said they will work to implementaspects of federal health care reform where they are required to doso, but acknowledged that state legislatures could still challengethe reforms.

Oklahoma Commissioner Kim Holland, who is secretary/treasurer ofthe National Association of Insurance Commissioners, said duringthe teleconference she expects her state's legislature may pushback against the upcoming federal law. Oklahoma is a conservativestate, and the health care reform bill represents "extraordinarypreemption," she said.

In that case, she said, it is the role of insurancecommissioners to provide impartial information as it is requestedso the legislators can make decisions.

In agreement was Kansas Insurance Commissioner Sandy Praeger,who chairs the NAIC Health Insurance and Managed Care Committee,explaining that regulators are responsible for making sure whenlegislatures do make decisions, they are based on accurateinformation and experiences from insurance departments.

Speaking to the threats of lawsuits that have cropped up fromsome states since the passage of the bill in the House ofRepresentatives, Commissioner Praeger said such actions will notdelay insurance commissioners from beginning work on implementingreforms where they are required to do so.

Jane Cline, NAIC's president and West Virginia's insurancecommissioner, said her department is "going to be proactive inmaking sure we move forward in areas identified for us to moveforward."

But Commissioner Holland said there are still issues that willrequire action from state legislatures, and the speed ofimplementation could differ among the states, depending on howlegislatures react.

Speaking to the bill itself, Commissioner Praeger said thebiggest impact will be protections afforded to consumers in theindividual market. For example, she said consumers who want toleave their job to start their own business will be able to do sowithout worrying whether a pre-existing condition will complicateobtaining medical coverage.

As far as costs, Commissioner Praeger said there should not beany big changes in employer-based health coverage. Any impact inthat arena, she said, could be positive if more people areinsured.

But with the rating bands in the individual market establishedby the reforms, Commissioner Praeger said healthy young people mayhave to pay more at first, as the law stipulates they can only becharged a third of what an older person is charged.

Commissioner Holland said inadequate penalties for not buyingcoverage may not provide the proper motivation to get "younginvincibles" into the marketplace.

Commissioner Holland also said an area of criticism has been thelack of focus on reducing costs. She said many of the reforms willactually increase premium costs. While out-of-pocket costs may bereduced by the reforms, insurance costs are likely to be"substantially more," and she said there is concern among many thatthe cost of the bill will loom to a larger extent thanpredicted.

(Additional reporting by Phil Gusman.)