Some Justices Suggest Preserving Part of Health-Care Law

March 28 (Bloomberg) -- Several U.S. Supreme Court justices suggested they may leave much of President Barack Obama’s health-care law intact even if they strike down its core requirement that Americans buy insurance. Bloomberg's Meghan Hughes, Christopher Flavelle and Hans Nichols reports on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Several U.S. Supreme Court justices suggested they may leave much of President Barack Obama’s health-care law intact even if they strike down its core requirement that Americans buy insurance.

“The bottom line is, why don’t we let Congress fix it” instead of throwing out the entire law, said Justice Sonia Sotomayor during the third and final day of arguments on the health-care law.

Chief Justice John Roberts and Justice Ruth Bader Ginsburg, in arguments still under way this morning, said the law includes items, such as reauthorizing black-lung benefits and an Indian health-care measure, that aren’t related to the individual health insurance mandate.

“Why make Congress redo those?” Ginsburg said. It would be better to let Congress decide “whether it wants them in or out,” she said.

If the court strikes down the requirement to have health coverage, insurance companies want the justices also to toss out provisions that forbid them from refusing coverage or charging higher premiums based on pre-existing conditions.

Justice Elena Kagan said there was a “sharp dividing line” between those provisions and the other parts of the law. She said the case may be one in which “half a loaf is better.”

Still, Justice Anthony Kennedy questioned whether it would be a “more extreme” exercise of judicial power to strike down some of the statute rather than all of it.

Added Significance

The debate on the rest of the health-care law took on added significance after questions from justices yesterday indicated a majority might rule against the insurance requirement.

The justices probably will rule in late June, months before the November election. A ruling against the measure would give ammunition to Obama’s Republican challengers, who have said the law should be repealed.

The court hasn’t overturned legislation with such sweeping impact since the 1930s, when it voided parts of Franklin D. Roosevelt’s New Deal, the package of economic programs enacted in the 1930s in response to the Great Depression.

The Standard & Poor’s Supercomposite Managed Health Care Index of 12 insurance companies declined 0.31 percent at 11:46 a.m. New York time.

Credit-Default Swaps

The cost to protect against losses on the debt of U.S. health-care companies is rising as investors hedge against potential declines when the court rules.

Credit-default swaps linked to hospital operators HCA Holdings Inc., Tenet Healthcare Corp. (THC) and Community Health Systems Inc. (CYH) are poised for the biggest monthly increase since September, climbing an average 79 basis points to 595 basis points, according to data provider CMA.

Paul Clement, the lawyer for 26 states challenging the health-care law, argued today that the court should invalidate the entire statute if it decides the mandatory insurance section, which he called “the very heart of this act,” is unconstitutional.

The mandate and the insurance coverage rules are connected to insurance exchanges that would be created so people without employer-provided insurance could buy coverage, he said. Those, in turn, are related to tax credits for employers that offer insurance to their workers, he said.

Keeping parts of the law without the individual mandate would leave a “hollow shell,” Clement said. “Whatever you do, Congress is going to have options.”

Scalia Questions Clement

Justice Antonin Scalia said that under Clement’s argument, if the court struck down even a minor provision that was included to get particular lawmaker’s vote, “You’re telling us that the whole statute would fall.”

“That can’t be right,” Scalia said. He said later that whatever the court decides, it would “distort” the congressional process.

If the court rules the individual mandate unconstitutional, it would be faced with “a choice between a wrecking operation or a salvage job,” Ginsburg said, adding that she would prefer salvaging other parts of the measure.

Invalidating only the individual insurance mandate would be the “worst-case scenario” for insurance companies, said Paul Heldman, a health-policy analyst at Potomac Research Group in Washington. “That would create an unstable market for insurers in which they would be stuck covering the most expensive people while leaving the healthier people off the insurance rolls.”

Today’s Session

In an afternoon session today, the justices will consider a challenge by 26 states that object to a section of the law that expands the federal-state Medicaid (USBOMDCA) health-insurance program for the poor.

Questions from the bench during yesterday’s hearing on mandatory insurance coverage indicated the justices may split 5- to-4, with the court’s five Republican appointees joining to overturn that part of the law.

The Obama administration needs support from at least one Republican appointee on the nine-member court to uphold the 2010 law. Four of them -- Roberts and Scalia, Samuel Alito and Kennedy -- interrupted U.S. Solicitor General Donald Verrilli repeatedly yesterday as he pressed his case for upholding the law.

Extending Coverage

The health law would extend coverage to 32 million people who lack insurance by 2016, and revamp an industry that accounts for 18 percent of the U.S. economy, in part through the coverage mandate.

An Atlanta-based federal appeals court found the health- insurance mandate unconstitutional and ruled that the rest of the law remains valid. None of the parties to the case wants the Supreme Court to follow suit.

The government, agreeing with the insurance industry, says if Congress can’t make everybody have coverage, the justices should toss out sections of the law known as the guaranteed- issue and community-rating provisions. Those sections say insurers must issue policies and set rates without regard to pre-existing health conditions.

Without mandatory insurance rules, the government says those provisions would create an industry “death spiral,” in which only patients with costly health conditions would obtain insurance. That would lead to higher premiums, which would prompt healthy policyholders to drop coverage, causing more rate increases, the government says.

‘Package Deal’

Insurance industry groups, in a court brief, said Congress structured new policy requirements in a “package deal” with mandatory coverage.

America’s Health Insurance Plans, a trade group in Washington, and the Chicago-based Blue Cross Blue Shield Association, which didn’t take a position on the insurance mandate’s constitutionality, argued that the guaranteed-issue and community-rating rules aren’t practical by themselves.

“Congress would not have intended those insurance-market reforms to operate on their own, without the vital counterbalance of the minimum individual coverage mandate there to prevent the skyrocketing premiums that would otherwise arise,” the industry groups’ brief said.

Because none of the participants supports the appeals court’s conclusion, the Supreme Court appointed an outside lawyer, H. Bartow Farr III, to argue that the rest of the statute -- including the guaranteed-issue and community-rating sections -- should be left in force even if the justices strike down the individual mandate.

In the afternoon argument, the Medicaid issue may be an uphill fight for the states. No lower court judge has accepted their contention that the law unconstitutionally coerces the states into spending their own tax dollars against their will.

The health law’s Medicaid expansion is designed to cover 17 million uninsured people by extending eligibility to those with incomes up to 138 percent of the federal poverty line. States that don’t comply with the new expansion would lose all or part of their share of federal Medicaid funding.

To contact the reporters on this story: Greg Stohr in Washington at gstohr@bloomberg.net; Laurie Asseo in Washington at lasseo1@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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