October 2011 Bulletin


The Obama Administration has appealed to the U.S. Supreme Court to rule on the constitutionality of health care reform.  As we previously reported, the 11th U.S. Circuit Court of Appeals in Atlanta upheld a federal judge’s ruling in Florida that the individual mandate in the national healthcare law is unconstitutional.  The court also struck down part of the lower court’s decision in that the judge in Florida ruled that because the individual mandate was unconstitutional, the entire law should be struck down; however, the 11th Circuit panel disagreed and found that the rest of the law could stand.  Because part of the ruling was struck down, 26 states and the National Federation of Business, who brought the case, have also appealed to the Supreme Court.

The 6th Circuit previously ruled that the individual mandate is constitutional.  The parties that brought that suit have also appealed to the Supreme Court.  These appeals and the conflict between the circuits sets the stage for the U.S. Supreme Court to decide the issue in their term that begins in October, with a ruling by next June.  It is highly unlikely that the Supreme Court will refuse to hear the case.


A new Institute of Medicine report provides the U.S. Department of Health and Human Services (HHS) with a set of criteria and methods to develop a package of essential health benefits that will cover many health care needs, promote medically effective services, and be affordable to purchasers.  HHS decisions about which benefits warrant designation as essential should be made in a transparent manner that is informed by input from structured public discussions, added the committee that wrote the report.

Certain insurance plans, including those participating in the state-based health insurance exchanges to be established under the Patient Protection and Affordable Care Act (ACA), must cover a package of preventive, diagnostic, and therapeutic services and products in areas that have been defined as essential by HHS.  The package will establish the minimum benefits that plans must cover; insurers may offer additional benefits.  The report neither recommends a list of essential benefits nor comments on whether any particular service should be included or excluded, as doing so would have been beyond the committee’s charge.

The ACA stipulates that the essential health benefits should reflect the scope of benefits covered by a typical employer plan and include 10 specific categories.  To refine the package, HHS staff should determine what is typical of small employer plans because they will be among the main customers for policies in the state-based exchanges, the report says.  HHS officials should gauge potential services and products against a set of criteria, including medical effectiveness, safety, and relative value compared with alternative options, and evaluate whether the package as a whole protects the most vulnerable individuals, promotes services that have proved effective, and addresses the medical concerns of greatest importance to the public, the report says.  Benefits that have been mandated for insurance coverage by individual states should be subject to the same review and criteria.  Products and services that do not meet the criteria should not be included.

Because the package must be affordable to the small firms and individuals who will be the principal customers for the exchanges, its comprehensiveness should be balanced with its potential cost, the committee concluded.  The report recommends that HHS determine what the national average premium of typical small employer plans would be in 2014 and ensure that the package’s scope of benefits does not exceed this amount.  This premium target would be used only as a criterion in developing the package; the premium that a particular employer or individual purchaser ultimately pays for a plan with the package could be different because of a variety of other factors. 

HHS officials would benefit from gathering input on the health priorities of the public from a series of structured deliberative sessions held nationwide.  These sessions would engage small-business owners, uninsured people, and others in weighing benefits and costs and considering trade-offs, and the process would promote transparency, the report says. 

The committee urged HHS officials to be as specific as possible about what benefits are included and which can be excluded when they issue the resulting package. Pragmatically, however, the department will not be able to spell out every service and product that would be included initially, the report says. 

HHS will need to amend the package over time to keep pace with advances in clinical technologies, changes in patient populations, and other trends.  As research yields more knowledge, the list of essential health benefits can become more detailed and promote greater value over time, the report notes, and the report’s criteria should continue to be used to evaluate the list.  The premium target should be updated to reflect medical inflation, and changes in the benefits package should be cost-neutral against this revised target.

Once again, HHS officials would benefit from public input gathered through the deliberative process to inform any adjustments that need to be made.  In addition, they should glean input from a National Benefits Advisory Council, a new independent entity recommended by the committee.  The council should have the necessary expertise to advise HHS on research necessary to evaluate benefits’ effectiveness and values, changes to the premium target, and benefit administration and design issues.  Members should be appointed by a nonpartisan organization, such as the U.S. Office of the Comptroller General, and represent a range of disciplines and perspectives, including those of employers and consumers.

HHS should also develop a strategy to cut the health care spending growth rate, the committee urged.  Since 1990, health care costs have risen faster than the gross domestic product at a rate of two to three percentage points a year.  If the country does not address medical inflation, the range of benefits that can be covered affordably within the package will erode.

HHS should grant states’ requests to adopt alternatives to the federal essential health benefits package only if the alternatives are consistent with ACA requirements and the criteria specified in this report and if they do not vary significantly from the federal package. 

The essential health benefits package will be available through a variety of health insurance policies with an array of choices in premiums, deductibles, and provider networks.  Services or products excluded from the package could still be added to plans at an insurer’s discretion, for example, as a way to make its plans more attractive and competitive, but consumers may have to bear additional costs for these extra benefits just as they do now.


On October 14, 2011, in letters to Congressional leaders Department of Health and Human Services (HHS) Secretary Kathleen Sebelius announced a suspension to implementation of the Community Living Assistance Services and Supports (CLASS) Act.

The CLASS Act established a voluntary insurance program for American workers to help pay for long-term care services and supports that they may need in the future.  The program sought to help enrollees live independently in the community.  By law, CLASS benefits must be funded entirely through enrollee premiums without any taxpayer subsidy, and the program must be solvent over a 75-year period.

Through the CLASS Act, Congress sought to add a new option for American workers. The CLASS program’s distinguishing features include an offer of lifetime benefits, lack of underwriting, availability of a cash benefit, and the fact that the program would be administered by the federal government.

Secretary Sebelius has stated on a number of occasions that HHS cannot go forward with implementation of the CLASS program unless it determines that the benefit plan to be offered is actuarially solvent over the next 75 years and is consistent with the other requirements of the CLASS Act.

HHS charged the CLASS Office with performing a broad and thorough analysis to design attractive benefit plans and to determine if those plans met the twin tests of solvency and legality.

In order to implement CLASS, HHS needed to be able to identify a benefit design that is actuarially solvent (so that premiums are sufficient to fund the program given an assumed rate of participation), marketable (so that the assumed take up rate is reasonable), and consistent with the authorizing CLASS statute.

The design and implementation of the CLASS program involve two areas of tremendous uncertainty.  First, because there is no precedent for the CLASS program in either the private market or in other government programs, such as Social Security or Medicare, there is great uncertainty around the assumptions used in the actuarial modeling to assess solvency.  Second, while the CLASS statute requires that the CLASS plan be actuarially sound, and that no taxpayer funds may be used to pay plan benefits, it is silent about what would happen if, at some future point, actuarial soundness could no longer be achieved.

HHS developed a broad range of alternative CLASS benefit plan options.  The benefit package described in the CLASS Act will make it difficult to attract purchasers who could otherwise meet underwriting requirements and obtain policies in the private market. If healthy purchasers are not attracted to the CLASS benefit package, then premiums will increase, which would make it even more unattractive to purchasers who could also obtain policies in the private market.  This imbalance in the beneficiary pool would cause the program to quickly collapse.

HHS identified potential benefit plans that could be actuarially sound and avoid the risk of adverse selection.  While these benefit plan options show some promise in achieving actuarial solvency, they may be inconsistent with other provisions of the statute.  There is concern regarding the legal authority for some of the plan features expected to increase solvency, and the more of those features that are incorporated into the plan, the greater the legal risk.  In other words, as HHS takes necessary steps to mitigate solvency risks, it concomitantly raises the legal risk that the plan could be found impermissible under the statute.  If some of these solvency enhancements have to be changed, it is highly likely that the CLASS program could no longer continue and, as noted above, it is not clear whether the program could deliver on its commitment to those participants who had already enrolled.

For the reasons stated above, HHS did not see a path to move forward with CLASS at this time.


California’s Governor has signed some new laws that affect leaves, including:

AB 592 – Employee Leave – Interference, Restraint, and Denial:  This bill makes it an unlawful employment practice for an employer to interfere with, restrain, or deny the exercise of, or the attempt to exercise, any right provided under California Family Rights Act or pregnancy disability leave.  This bill is considered a clarification of existing law.

SB 272 – Leave of Absence – Organ Donation:  This bill clarifies existing law relating to granting a leave of absence to an employee who is an organ donor or a bone marrow donor.  This bill provides that the days of leave are business days rather than calendar days, and that the one-year period during which leave must be taken is measured from the date the employee’s leave begins and consists of 12 consecutive months.  This bill also provides that the leave of absence is not a break in the employee’s continuous service for the purpose of his or her right to paid time off.  This bill further provides that the employer may condition the initial receipt of leave upon the employee’s use of a specified number of earned but unused days for paid time off.

SB 299 – Employment – Pregnancy or Childbirth Leave:  Existing law prohibits an employer from refusing to allow a female employee disabled by pregnancy, childbirth, or a related medical condition to take a leave for a reasonable time of up to 4 months before returning to work.  SB 299 also prohibits an employer from refusing to maintain and pay for coverage under a group health plan for an employee who takes that leave.

Please contact Garner Consulting for assistance with any of these issues.


Garner Consulting does not practice law.  Please seek qualified counsel if you need legal advice.  For employee benefits consulting, please call John Garner, Gerti Reagan Garner or Zaven Kazazian at (626) 351-2300.  Please visit our web site at www.garnerconsulting.com, where you can find back issues of our Bulletins.

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