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The Full Effects of a Full Reversal

By Melissa Attias, CQ Staff

June 18, 2012 -- A decision by the Supreme Court to strike down the health care law would put the subject squarely in the lap of Congress once more, raising a multitude of questions about how to provide medical care to those who cannot afford it, how to constrain the rising cost of care, and who should pay. Most immediately, however, Congress will be faced with decisions about provisions of the law that already are in effect, including two that have turned out to be highly popular with the public.

An estimated 6.6 million adults younger than 26 were able to receive coverage through their parents' health insurance policies last year because of the law, according to the Commonwealth Fund. And roughly 3.6 million seniors and people with disabilities in the Medicare prescription drug plan's coverage gap received discounts in 2011, the Centers for Medicare and Medicaid Services said.

Some insurers already have indicated that they're willing to continue allowing young adults to stay on their parents' plans until they turn 26, no matter how the Supreme Court rules. That would probably take pressure off Congress to act to preserve the benefit should the court strike down the law.

There's far less certainty, however, about the discount provisions for seniors who fall into the coverage gap known as the doughnut hole. Without the 2010 statute, the prospects for the continuation of those discounts are murky. Drug manufacturers could decide to continue providing some of the discounts voluntarily, but the industry already has suggested that barriers may stand in the way. So if the health care law is thrown out, lawmakers may feel pressure to find a way to protect those individuals from once again having to pay the full cost of their drugs.

"You're still talking about millions of people who are going to lose coverage potentially for their prescription drugs in the doughnut hole," said AARP Legislative Policy Director David Certner. "And we've seen what the impact of that is, which is basically that people can't afford their drugs anymore, they stop taking their drugs, and they maybe end up even sicker and therefore have even higher health care costs."

Two Popular Provisions

Theoretically, of course, even the provision that extends dependent coverage until age 26 would end immediately, or on whatever effective date the court might set, if the law were overturned. But many health observers think that young adults would be able to maintain their coverage at least until the end of their plan year. Plus, if a family lives in a state that took separate legislative or regulatory action to implement the provision, insurers there may continue to be required to accept young adults on their parents' policies. The Commonwealth Fund said in a March paper that 22 states and the District of Columbia had passed legislation or issued regulations related to the provision, although the Fund didn't specify how many of those states included language linking the requirement directly to the health care law.

"The bottom line is, if a state has baked this law into their own state code, then the insurers would still be obligated to cover these young adults," said Sabrina Corlette, a research professor at Georgetown University's Health Policy Institute and an author of the Commonwealth Fund paper. But, she said, some states may have tied their statutes to the law, known formally as the Affordable Care Act. "So there's this open question about if the ACA is overturned, then do those state laws still stand?"

Corlette also said insurers may have to allow some young adults to stay on their parents' plans because of a provision in previous law that generally guarantees the renewal of individual coverage.

Even if they aren't required to offer the benefit, some insurance companies will decide to continue it beyond the end of the plan year. Three major U.S. insurers—UnitedHealth Group Inc., Humana and Aetna—announced on June 11 that they would take that approach, no matter how the court rules.

The effect on provisions aimed at closing the coverage gap in Medicare's prescription drug program is harder to anticipate.

Under the 2003 law that established the special benefit, the government helps pay for drugs until a beneficiary's cost reaches a set amount. At that point, the beneficiary falls into the doughnut hole and is responsible for paying the full cost of prescription medicines. Once a beneficiary reaches an annual out-of-pocket spending limit, Medicare drug coverage resumes for the balance of the year.

The coverage gap, which was designed to hold down costs to the new Medicare Part D system, was never popular with seniors and people with disabilities, many of whom live on fixed incomes. So the writers of the health care overhaul decided to find a way to rework the policy. They came up with a phase-out plan that started in 2010, with a $250 rebate for anyone who fell into the doughnut hole that year. In 2011, a series of incremental increases in subsidies began.

This year, drug companies are providing a 50 percent discount on brand-name drugs to eligible beneficiaries whose drug costs fall in the doughnut hole. Next year, the government will begin subsidizing additional coverage of those drugs; that coverage will gradually increase, until enrollees are responsible for only 25 percent of the costs in 2020.

Currently, individuals in the doughnut hole also receive a 14 percent discount on generic drugs covered by Medicare. That benefit will grow, until it covers 75 percent of the costs in 2020.

Because Medicare beneficiaries typically pay 25 percent of their drug costs before they hit the coverage gap, these phased-in changes will effectively close the doughnut hole.

According to CMS, more than 416,000 Medicare beneficiaries saved an average of $724 on prescription drugs in the doughnut hole during the first four months of this year, for a total of $301.5 million. CMS also reported that the 3.6 million Americans who received discounts in 2011 saved more than $2.1 billion on the cost of their prescriptions.

If the high court decides that the overhaul is unconstitutional, health experts say, drugmakers may find it in their best interest to continue the discounts, at least for a while.

"I think the drug industry will probably honor it for a run-off period," said Robert Laszewski, president of the consulting firm Health Policy and Strategy Associates. "Administratively, they can't change the system in 24 hours. And from a public relations standpoint, the drug industry might say something like, 'We'll honor the discounts to the end of the year' or, you know, something like that."

Likewise, AARP's Certner said the benefit might continue for a time. "It would be complicated to untangle contracts that are currently in effect, and the discount provisions are already written into the Part D contracts," he said. "So I think that the provisions that you're dealing with this year, like the drug discount and the age 26 provision, are more likely to be honored for this calendar year, but they are part of the uncharted territory when you're talking about a ruling that the law is unconstitutional."

GOP Skepticism

Several House Republicans have said the drug discounts should remain in effect even if the law is struck down because they are part of a deal between Democrats and the pharmaceutical industry.

"PhRMA agreed to that deal, didn't they? Well, God bless them," said Georgia Republican Phil Gingrey, co-chairman of the House GOP Doctors Caucus, referring to the Pharmaceutical Research and Manufacturers of America. "That was the risk they took, and that's fine. That problem is solved. Why do we need to do anything to solve the problem with the doughnut hole? It's already been done."

Still, others say that seniors who are receiving drug discounts might lose them quickly. Ron Pollack, executive director of the consumer advocacy group Families USA, said drug companies and other providers may question why they should make sacrifices if they aren't receiving a benefit that balances everything out.

"Remember, the drug companies, like other providers, were willing to make some concessions because they felt that those concessions would be more than made up through increased volume in drug sales, which occurs when you've got fewer people uninsured," Pollack said. "Of course, that balance is lost if, you know, the tens of millions of people who currently are expected to gain health coverage due to the Affordable Care Act don't actually receive that new coverage."

Laszewski also said drug companies are offering the discounts "because they got an overarching drug deal in the new law" and that they have an incentive to eventually take the benefit off the table: They'd want to be able to use it in any future negotiations on health care legislation. "That's a big chip that the industry gave up to get other things," he said. "They're going to want that chip back to negotiate with whomever."

There are also questions about whether Medicare would have the authority to help close the doughnut hole without the statute in place, and whether antitrust laws or restrictions on offering inducements to Medicare beneficiaries would permit drug companies to continue the discounts voluntarily.

"The Affordable Care Act created the legal structure for biopharmaceutical companies to provide discounts to seniors through the coverage-gap discount program," said PhRMA spokesman Matt Bennett. "This structure addressed fraud and abuse laws and antitrust concerns, among others."

In the Aftermath

If the law is struck down, most observers agree, the divided Congress is unlikely to have enough time to negotiate and push through any significant health care legislation before the election.

"It just seems that the stars are certainly nowhere aligned to have any serious legislative effort, even if it's just picking up the most popular provisions of the bill," said Sarah A. Binder, a George Washington University political science professor and a senior fellow at the Brookings Institution.

AARP's Certner predicted that there would be an immediate outcry for Congress to address the coverage gap if the drug discounts disappeared. And Pollack pointed to what he called "enormous" public support for the provision to close the gap and the provision to allow young adults to stay on their parents' policies. An April survey by the Kaiser Family Foundation showed that 78 percent of respondents had a very favorable or somewhat favorable view of the health care law's provision to close the coverage gap. The same survey found that 71 percent of respondents viewed the young adult provision favorably.

Regardless of public pressure, Speaker John A. Boehner of Ohio has said House Republicans are committed to repealing the entire health care law, and conservatives have said they have no interest in restoring any parts if the law were to be struck down.

And Democrats won't have much incentive to patch up the system, Binder said, because they will want to campaign on the issue.

"It's another opportunity for Democrats to criticize Republicans for not having an alternative, and so I just can't see them marching to the middle and trying to come up with some patchwork solution here," she said.

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