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Think Tank

How Should California Respond if Part or All of ACA Is Struck Down?

Within the next six to eight weeks, the U.S. Supreme Court will issue rulings that will have a significant effect on health care nationally and in California.

If the Affordable Care Act is upheld in all respects, it will be full steam ahead for reform and the effects will probably be more significant in other states.

However, if part or all of the ACA is struck down, the effects will be considerable in California, which has embraced and prepared for reform more aggressively than most states.

We asked policymakers and stakeholders how California should respond if the court rules against part or all of the ACA. We got responses from:

Little in Dysfunctional System Is Actually Systemic

Notwithstanding all the heated rhetoric about the Affordable Care Act and the recent Supreme Court arguments, no one thinks our health care system works as well as it should. There is actually very little that is actually systematic. The ACA is a noble attempt to rationalize some of the dysfunction. Whether all or part of it survives, California will continue to be at the forefront of improving the health of its people.

When the law takes full effect in 2014, insurance companies cannot deny coverage because someone has a health condition that needs attention and in return, everyone must have some level of insurance. Without these interlocking provisions, the cost of providing health care to people without insurance is shifted to everyone else through higher premiums and higher health care charges. This mandate is the central focus of the law’s opponents, but there are many other provisions that are already providing significant benefits: adult children up to age 26 continuing on parents’ policies, companies can’t deny coverage to children with pre-existing conditions, no lifetime coverage limits and certain preventive care provided without out-of-pocket costs.

California has gone even further through a federal-state-county partnership establishing Low-Income Health Plans for people to start getting care sooner than 2014. More than 350,000 Californians have enrolled in these new federally-funded plans that provide much-needed care and relieve some of the cost burden of the uninsured. California was the first state to authorize a Health Benefit Exchange — a transparent, trusted marketplace for sellers and buyers of health insurance. And California is leading with a Coordinated Care Initiative to improve the management and integration of care for people with chronic and complex health conditions who depend on Medi-Cal and Medicare.

The Affordable Care Act will provide health security to millions of Americans through insurance coverage; it encourages reform of the way health care is delivered and paid for; and it incentivizes prevention and personal responsibility for health. But none of this will be possible unless we can slow the unsustainable rate of growth in health care costs. The state budget deficits in California and other states are due in part to these costs and the states must take the lead in reforming and realigning the payment systems and incentives. Californians deserve an efficient, affordable, high-quality system of health care. The ACA will help us reach that goal.

Legislature Should Slow Down, Be Careful

If, as several experts anticipate, the Supreme Court strikes down some or all of the Patient Protection and Affordable Care Act, California will find itself in the untenable position of having promised services it cannot provide without federal funding.

California policymakers, in a rush to lead the nation in implementation, have given little attention to how California will fund the ACA, should it fail the constitutional sniff test. The California Health Benefit Exchange was created in 2010, operating under the assumption that massive federal subsidies will be available for low and middle income earners needing assistance to afford health coverage offered.

It is my belief the Democratic leadership will fully implement legislation concerning the ACA regardless of the court’s decision. As vice chair of the Senate Health Committee, I have heard hours of testimony on legislation seeking to implement facets of the ACA. These measures are irresponsibly moved forward, often in the absence of definitive federal guidance, and without any plan to unwind the implementation should the court reject the ACA.

Just last week a bill dealing with Medi-Cal eligibility was amended to include language stating that it “is the intent of the Legislature to ensure full implementation of the Affordable Care Act … It is further the intent of the Legislature to enact into state law any provision of the Affordable Care Act that may be struck down by the United States Supreme Court and that is necessary to ensure all Californians receive the full promise of the act.”

Previous attempts by some California legislators to move in the direction of single-payer health care have been largely rejected due to the high price tag. Leveraging the ACA as cover to expand state-run health care, the Legislature is moving forward on programs we frankly can’t afford on our own. It appears the Legislature will continue on this path, without a plan in place for funding, regardless of the court’s decision.

The Legislature should slow down and proceed more cautiously on implementation. I intend to introduce legislation that would give the exchange 90 days to submit a plan documenting how it is going to continue operating if the ACA is struck down. In essence, the exchange board will have 90 days to share its “Plan B” — including alternate sources of financing — or implementation grinds to a halt. 

ACA implementation has put California on a collision course where no one wins — not the medical community, the people in need of health care or the taxpayers. Let’s get back on the rails.

Key to Proceeding Is Funding

The Affordable Care Act is the culmination of decades of movement toward health care reform and is the most significant transformation of the United States health care system in 40 years. Although I remain confident the Supreme Court will uphold the ACA, it would be a travesty to see it blocked by the courts after so much progress has been made in California. In my heart, I truly believe that a majority of the justices will agree with the logic exercised by Senior Judge Lawrence Silberman of the United States Court of Appeals, District of Columbia Circuit, who argued, “The right to be free from federal regulation is not absolute and yields to the imperative that Congress be free to forge national solutions to national problems.”

In the event that the Supreme Court does not uphold the entire ACA, I see two plausible scenarios:

  1. The worst case scenario is that the Supreme Court exercises the nuclear option and strikes down the law completely; and
  2. The other scenario would be for the justices to find portions of the ACA unconstitutional and invalidate only those portions of the act.

The real key to how California proceeds in the event of either of those two scenarios is funding.

If the Supreme Court strikes down the law entirely, the effects on California would be devastating. There are virtually no meaningful reforms that can happen in California without federal dollars. We could tinker around the edges at some market modifications, but without the funding that accompanies the ACA, Californians will not receive the full promise of health reform and millions of our state’s residents will remain uninsured. Additionally, because many Californians are already benefiting from provisions of the law like the Pre-Existing Condition Insurance Program, thousands of citizens will lose that coverage and will be worse off than they are today.

Should the Supreme Court strike down portions of the law without affecting the federal funding available, I will work to enact into state law any provision of the ACA necessary to realize the full promise of the act for all Californians. That is why I have introduced SB 1487, which puts our state in a position to do just that. California needs to be ready to implement health care reform, no matter what the Supreme Court may decide in June.

Access to affordable, quality health care for millions of uninsured Californians is within reach, and we have made too much progress to turn back now.

Some Federal Standards Now State Law

As the most populous state, and with six million uninsured, California has a huge amount to gain if the ACA is upheld. The state has already received $41 million from the federal government to establish the California Health Benefit Exchange — the one-stop shop to buy health insurance coverage. Progress is well under way to start enrolling Californians in fall 2013, and provide tax credits and other subsidies to make policies more affordable for small business employees and individuals without employer coverage.

California is expected to receive another $45 billion to $55 billion in federal funds between 2014 and 2019 if the law is upheld. If the entire federal statute is found unconstitutional, the loss of federal funds for Medi-Cal and the exchange, including affordability subsidies, would be a huge blow.

Yet, we would not be back to square one. California has been proactive in writing some key federal standards into state law. These will remain in effect regardless of what the U.S. Supreme Court decides:

  • 350,000 children under age 26 have already gotten coverage by being able to stay on their parents’ policies under a 2010 California bill SB 1088 (Price).
  • Coverage for an estimated 575,000 California children under 18 with pre-existing conditions is protected thanks to AB 2244 (Feuer), enacted in 2010.
  • Bills last year, SB 222 (Evans)/AB 210 (Hernandez), require maternity coverage in all policies in California, one of the basic services defined in the ACA and now a requirement of state law.

If the court strikes all or portions of the ACA, we would need to build on that platform. The momentum for reform in California is so strong that I am confident we would pick up the pieces to see what new state measures are needed. The Brown administration is signaling that we will move ahead without our “federal partners” if we must. A quick shift to the legislative arena would be needed and could throw open a wide range of possibilities from considering a state-based individual mandate — which had been part of our comprehensive reform bill in 2007-2008 — to revisiting a single-payer solution, and everything in between.

California’s near-miss effort for comprehensive reform in 2007-08 was grounded in the fact that our health care system is broken. Health care costs have continued to rise and must be curbed. The ACA contains some steps toward that end, and without it, the cost of care would be ever more pressing. The related “elephant in the room” would be finding the money to ensure affordable coverage is available. Without curbing ever-increasing health care and insurance costs, no major “reform” will work and no individual coverage requirement will be viable.

Costs, Number of Uninsured Would Rise

The Supreme Court’s decision about the Affordable Care Act will have enormous implications for California. If the ACA is upheld in its entirety, the state can continue to move ahead with the implementation of the Health Benefit Exchange and related insurance reforms. There are two other scenarios, however, in which California businesses, public sector purchasers and consumers would be seriously affected.

If the ACA’s individual mandate and related insurance reforms are struck down, it will be much more difficult for small employers and individual consumers to get affordable health insurance. Consumers with pre-existing conditions will be unable to get coverage, and high-risk employer groups will continue to face high premiums. California has established itself as a leader in adopting the insurance reforms and setting up the California Health Benefit Exchange. Furthermore, the Exchange has embraced a vision of becoming a “catalyst for change in California’s health care system, using its market role to stimulate new strategies for providing high-quality, affordable health care, promoting prevention and wellness, and reducing health disparities.” If the mandate and related insurance reforms are rolled back, however, the Exchange is likely to be much smaller, and its ability to be a catalyst for broader health system improvement will be limited.

If the entire ACA is overturned, it would have a dramatic effect throughout the health care system. Most importantly from the perspective of businesses, the elements of the ACA that are likely to produce cost savings in the future will be rolled back. For example, the Medicare Accountable Care Organization (ACO) program, which has the potential to reduce costs and improve the quality and coordination of care, will be eliminated. California has a long history of high-performing integrated medical groups and health systems that are poised to become ACOs. While some ACO-type pilots have been launched by private insurers in collaboration with physicians and hospitals, it will be difficult to maintain these initiatives if the Medicare ACO program is eliminated. In addition, the ACA is changing the way that hospitals and physicians are paid by rewarding them for high quality of care, not just high volume of services. For example, under a series of new Medicare “value payment” models, up to 10% of a hospital’s payments in 2017 will be based on its performance on quality indicators.

In California, we have been leaders in the development of innovative provider payment mechanisms. If the Medicare payment reforms are overturned, however, these initiatives may be stifled, and we may be stuck with the dysfunctional fee-for-service payment structure for the foreseeable future. Finally, one of the most important elements of the ACA is the expansion of Medicaid and the dramatic reduction in the number of uninsured.

If the ACA is overturned, the number of uninsured will grow significantly. This in turn will increase the volume of charitable care at hospitals, and it will exacerbate the “cost shift” to privately insured patients, thus driving up insurance premiums. In sum, a full rollback of ACA would likely result in higher health care costs and further increases in premiums due to the cost shift.

State Should Pass Its Own Mandate, If Needed

We at Western Center on Law & Poverty remain optimistic that the U.S. Supreme Court will rightly uphold the constitutionality of the Affordable Care Act in its entirety, given the huge economic impact of the health care industry. But, even if the court finds the requirement that individuals have health coverage impermissible when enacted by Congress, the same requirement is plainly within state authority to legislate.

This “individual mandate” should be enacted in California if the national mandate is struck down, and I have been heartened by the strong statements by both administration and legislative leaders expressing their intent to implement health reform in California. Health and Human Services Agency Secretary Diana Dooley said, in no uncertain terms, that California will implement health reform and the chairs of both Senate and Assembly Health Committees have made similar declarations.

As an advocate for low-income Californians, I want to highlight the constitutionality and importance of the ACA’s Medicaid expansion.  Since its creation in 1965, the Medicaid program — known as Medi-Cal in California — has been a state-federal partnership where the federal government pays a portion of the costs of the program for states willing to abide by federal minimum requirements. States can choose to provide certain optional services and cover optional populations. The ACA’s expansion of Medicaid to low-income adults without dependent children continues this framework with a notably higher match rate. The federal government will pay 100% of the costs of coverage for this new population in 2014-16, phasing down to a still-high 90% by 2020 — hardly coercion, as argued by some states in the case.

California has already made important progress implementing the Medicaid expansion through the “Bridge to Reform” Medicaid waiver. To date, 47 counties have formed Low-Income Health Programs (LIHPs) providing Medicaid-like benefits to indigent adults with half the funds coming from the federal government. More than 335,000 poor Californians in LIHPs are already benefiting from affordable, comprehensive health coverage through the ACA in myriad ways: people who have been uninsured for years are now getting health coverage and necessary services; public health systems are receiving much-needed federal resources; and clinics are offering medical homes to patients with chronic health conditions.

This is but the beginning of what ACA implementation has to offer California through coverage expansion, federal investment, delivery system reform and eligibility simplifications. California has accomplished a lot already. I agree with our state leaders that no matter what, our state must continue on the path toward health care for all Californians.

Experience Puts State in Strong Position

I am confident the U.S. Supreme Court will uphold the ACA in its entirety. There are far too many people in California and all across the country who have already benefitted from many of the ACA’s provisions. More than 12 million Californians no longer have a lifetime limit on their health insurance; more than 6.1 million Californians have had their coverage improved to include coverage of preventive care without cost-sharing; more than 355,000 young adults under age 26 can remain on their parents’ coverage; and more than 319,000 California seniors have saved $170 million in prescription drug costs.

I am proud to be working with others to implement the provisions of the ACA as quickly and thoughtfully as possible. This year I am authoring legislation to implement aspects of the ACA. These bills would:

  • Select an essential health benefit plan to set the floor on the benefits that people purchasing insurance in the individual and small group market can buy, ensuring that people have access to real, not junk insurance;
  • Expand Medi-Cal to childless adults; and
  • Reform the individual insurance market and the small group insurance market to prohibit pre-existing condition exclusions and adjust for ACA implementation.

If some or the entire ACA is held unconstitutional, we in California will have to assess the ruling and determine how to move forward to achieve the objectives of the ACA and continue our efforts to build a strong foundation for health reform. I am committed to reducing the number of uninsured in California.

The California State Assembly in the 2007-2008 session passed AB x1, which would have established a comprehensive health reform program that included a requirement for all California residents to carry a minimum level of health insurance coverage for themselves and their dependents; required health plans and insurers to offer and renew, on a guaranteed basis, individual coverage,  regardless of the age, health status, or claims experience of applicants; and established new modified community rating rules for the pricing of individual coverage. While ABx1 did not become law, it did contain a framework consistent with the ACA. This experience puts California in a strong position to maintain the momentum created by the ACA.

Status Quo Is Unsustainable

We have confidence the Affordable Care Act will be upheld in its entirety, but in case it is not, California can and must move forward with health reform regardless. The status quo in California’s health care system without reform is unsustainable. The worsening problems in our health care system won’t go away by themselves. Californians are more likely to be uninsured, more likely not to get coverage at work, more likely not to afford coverage and more likely to be denied for pre-existing conditions than residents of most other states.

If the court just strikes down the mandate and/or related provisions, those are easily fixable. For example, Congress could replace the individual mandate with a tax credit/penalty system that would be clearly constitutional under Congress’ taxing powers. However, the current Congress, particularly the GOP-controlled House, lacks the political will to make this simple fix.

Where Congress fails, California can step in. This is a fixable policy issue, which is how to attract and retain healthy people into coverage, not just the sick. The act has several provisions to prevent “adverse selection” beyond the mandate, most importantly the tax credits and subsidies to help low- and moderate-income families better afford coverage. California could put in place its own mandate and/or its own tax incentives.

Other mechanisms to prevent “adverse selection” include open enrollment periods, which encourage people to sign up at a given time of the year. With or without the mandate, Health Access has been advancing legislation, AB 714 (Atkins) and AB 792 (Bonilla), to encourage pre-enrollment and seamless enrollment and make getting coverage as easy as possible. There are a range of policy options that California can pursue after the Supreme Court decision in June, but before the legislative year is out in August, to put in place a California fix.

It’s another matter if the court strikes down the whole law, or the Medicaid expansion. This outcome would be stunning. California would lack the federal funds and the policy tools of the federal law to move forward with the same speed.

California has already been putting some policies and consumer protections in place in state law that will continue regardless of the fate of federal law, including addition of children up to age 26 on their parents’ coverage, free preventive care, and eliminating annual or lifetime caps on coverage. Health Access would work in the Legislature to salvage other consumer protections for Californians. But some of the provisions in the act are reliant on the federal funds and framework to function properly.

California would debate broad health reform, as we did before the passage of the Affordable Care Act, with proposals from an employer mandate to a universal children’s coverage proposal, to single-payer universal health care. The problems don’t go away, even if the law does.