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Last Update :10/12/2011

Health Bill Threatens VA Clubs - NCA Update

The Last Chance to Stop the Patient Protection and Affordable Care Act
 
Over the last year and one-half, NCA has engaged in a dialogue with its members about the impact of the Patient Protection and Affordable Care Act. From that discussion, it is clear that many private clubs have already been affected by the law now – more than two years before it goes into full effect. 
 
For the club industry, the reality is that this law is speeding down the road with little in the way to stop it. Members of Congress know how harmful this law is to the business community, but they cannot muster a majority in both the House of Representatives and the Senate to pass a repeal bill. Even if they could, the President has made it clear he would veto such a bill. 
 
As such, it is clear that the only option left to rein in the law is the third branch of our government – the judiciary.
 
Why Should the Clubs Care?
 
The Patient Protection and Affordable Care Act was passed with the primary purpose of providing millions of uninsured Americans with access to affordable health insurance. A goal that NCA and its member clubs are certainly not against. Unfortunately, the unintended consequences of the law have made reaching that goal extremely painful for industries across the country – including ours.
 
As all club leaders should know by now, the law requires every business with at least 50 full-time employees to offer health insurance to their workers. Since most private clubs already offer health insurance as a benefit, this is not a real issue. However, offering insurance is not all the law requires.
 
To begin, even if a club offers insurance it must be certain that the insurance is not “unaffordable” as defined by the government. If it is and an employee declines the coverage, goes to the government’s Healthcare Exchange and receives a subsidy or tax credit when he buys his insurance, then the employer will be fine $3,000. That’s $3,000 even though the club is offering insurance to its employees.
 
If a club simply cannot afford to offer insurance to its employees, it will be fined $2,000 per employee (minus the first 30 employees – the government gives a pass on those workers).  
 
Not only do club leaders have to worry about fines, but they also must worry about actually paying the insurance premium for an employee who does not even accept the club’s plan. This requirement, entitled the Free Choice Voucher, applies when an employee’s household income is low and his employee contribution for the club’s plan is too high. This part of the law actually allows the employee to turn down the club’s insurance, go to the Exchange and buy cheaper insurance with the employer’s money. 
 
Additionally, private clubs will soon have to offer health insurance to their seasonal workers. In 2014, a club’s probationary period for new employees will be limited to just 90 days, and if a club has more than 200 employees, then no probationary period will be allowed.
 
While these are just some of the most notable requirements and restrictions the law places on private clubs, there is an even bigger impact for clubs: The law adds significant new taxes for individual private club members.
 
Beginning in 2013, individuals making $200,000 per year and families making $250,000 per year will have a new 3.8 percent tax on interest, dividends and investment income. Thus, clubs will see retiree members paying more to the federal government - and possibly less to the club.
 
Also in 2013, there is an increase to the Medicare payroll tax for every American making $200,000 per year and every family making $250,000 per year. Though the tax hike is only .9 percent, it will be levied against those who traditionally join private clubs, which may mean they, too, could reduce their spending at the club.
 
Not only will private clubs have to deal with lost revenue because of higher taxes on their members, but they will also have to deal with higher costs for the insurance they must offer.
 
Starting this year, the law adds a new fee on drug manufacturers. In 2013, there will be a 2.9 percent tax on all medical devices made and in 2014 there will be a new federal health insurance fee for all policies sold. Additionally, the federal government will soon establish the “essential benefits” that must be included in all insurance policies.
 
Naturally, insurance rates will go up as insurance companies pass on these new fees and taxes established under the law. And, of course, no one believes that the minimum “essential benefits” plan will be cheaper than plans currently out in the marketplace.
 
In the simplest terms, the Patient Protection and Affordable Care Act places new mandates, fines and costs on private clubs while placing a higher tax burden on private club members. It is for all of these reasons that NCA worked to stop the law from passing, and why we are working to chip away at the law (like removing the 1099 reporting requirement) when full repeal was defeated. 
 
Though our efforts against the law are ongoing, it is clear that the legislative battle may be very hard to win. That is why the courts are the last best hope of stopping this law.
 
The Courts and the Law
 
As soon as the health care reform law was signed by the President, numerous lawsuits were filed challenging its constitutionality. Most of these challenges were directed at one specific provision – the individual mandate. The individual mandate requires all Americans to purchase health insurance or face a fine. 
 
The claim being made in every lawsuit is that the U.S. Constitution does not allow Congress to pass a law forcing Americans to purchase a product – health insurance included.
 
To date, there have been five federal District Courts that have ruled on this question. Three of the courts found the individual mandate constitutional and two found it unconstitutional. 
 
Out of these five cases, one Florida case has garnered the most public attention. The plaintiffs in that lawsuit are 26 states and they have argued that the federal government does not have the right to force their individual citizens to buy insurance. 
 
After hearing the arguments from both sides, the Florida federal District Court judge ruled that the individual mandate is unconstitutional. More importantly, this judge also ruled that because the individual mandate is such an integral part of the entire law that the whole law must be thrown out. This was the first time that any judge had ruled the entire law unconstitutional.
 
Of course, the District Court is just the first stop for any lawsuit challenging the constitutionality of the law. The next stop is the U.S. Circuit Courts of Appeals.
        
At this point, two U.S. Circuit Courts ruling have been issued. In the first decision handed down by an appellate court, the Sixth Circuit Court of Appeals decided 2-1 that the individual mandate is constitutional. This happened at the end of June.
 
Then, on August 12, the Eleventh Circuit Court of Appeals ruled on the Florida case. In its 2-1 decision, the Circuit Court ruled that the individual mandate is unconstitutional. However, in a unanimous decision, the Court reversed the ruling that the entire law is unconstitutional.
 
Thus, there are now two differing views on the constitutionality of the individual mandate. Though neither Circuit Court said the entire law is unconstitutional, it will still be up to the Supreme Court to make that determination along with resolving the difference of opinion regarding the individual mandate. With luck, the same arguments that led the Florida judge to rule the entire law unconstitutional will prove successful in the Supreme Court.
 
It is expected that the Supreme Court will hear the case shortly after in its current term. Should that happen, it is anticipated the oral arguments will be held before the end of the year. Traditionally, the Supreme Court issues all decisions by the end of June. Thus, there is a very good chance that this decision will be handed down sometime before June 30, 2012.
 
As of now, the conventional wisdom is that four Justices will be in favor of the individual mandate and four will not – with Justice Anthony Kennedy as the deciding vote. If Justice Kennedy decides that the individual mandate is unconstitutional, then the next question will be whether the entire law is unconstitutional. If the decision is that the individual mandate is constitutional, then there will be no reason to throw out the entire law. 
 
As such, the ultimate decision of whether private clubs and their members will have to deal with this law could rest solely on one man’s shoulders – Justice Kennedy. 
 
In the past, Justice Kennedy has written judicial opinions that favorably discuss Congress’ powers to regulate commerce. Since that is exactly the argument those who support the individual mandate make, it will be interesting to see which way Justice Kennedy ultimately goes. For the private club industry’s sake, let’s hope he sees it our way.        
 
SIDEBAR:
 
Is There Politics Behind Those Court Decisions?
 
Throughout the debate about the new health care reform law, Republicans have generally been opposed to it while Democrats have been for it. That pattern was maintained when the District Court judges handed down their decisions – with all judges appointed by Republicans ruling that the individual mandate is unconstitutional and all judges appointed by Democrats ruling it passes constitutional muster.
 
In the Circuit Courts, that has not been the case. 
 
In the Sixth Circuit case, a George W. Bush appointee joined a Jimmy Carter appointee to uphold the individual mandate. This was the first time a Republican appointee judge ruled in favor of the individual mandate. The third judge, a Ronald Reagan appointee, dissented saying the individual mandate is unconstitutional. 
 
In the Eleventh Circuit case, a George H.W. Bush appointee joined with a Bill Clinton appointee to rule that the individual mandate is unconstitutional. This was the first time a Democratic appointed judge ruled against the mandate. Another Bill Clinton appointee disagreed. All three ruled that the entire law is constitutional regardless of the constitutionality of the individual mandate.
 
It seems the higher the case goes, the more the politics of the issue fall to the wayside. We will see how that plays out in the Supreme Court. 


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