Many predicted the 2012 election would be a referendum on health care issues, even though exit polls conducted yesterday indicate a deep split remains between voters who support the Affordable Care Act and those who believe it should be fully or partially repealed. Voter sentiment closely mirrors the bitterly divided Congress that, in 2010, passed the health care reform law to expand health care access for approximately 32 million Americans without a single Republican vote. For the last two years, Republicans in Congress have sought to repeal the law – in fact, former Massachusetts Governor Mitt Romney vowed to repeal the law on his first day in office.

“The election results mean that the health care reform law is not going to be repealed,” said former U.S. Senator Byron Dorgan, who serves as a senior policy advisor at Arent Fox, LLP . “The law has already started to provide health coverage to people who didn’t have it. Now 30 million Americans will have insurance, which is a good thing. Now both parties need to turn their attention to finding a way to control and reduce health care costs.”

In fact, health care providers expect a flurry of Affordable Care Act regulations to be released in the next few weeks, an indication of how politically charged health care reform has remained. Longanticipated rules providing guidance to insurers, health care providers, and states on how to implement the law and codify privacy and security rules mandated by the HITEC H Act dealing with enforcement, breach notification, and penalties were simply too controversial to be released prior to Election Day.

“Republicans may try to refuse to fund the Affordable Care Act,” said former Senator Robert Bennett, senior policy advisor at Arent Fox, LLP . “Tea Party candidates who supported that view cost Republicans at least two Senate seats as well as a few more in the House. Triggering an appropriations crisis over health care could be detrimental for Republicans going into 2014.”

Several consumer-friendly provisions of the health care law have already been implemented. Young adults may remain on their parents’ health insurance policies until they turn 26. Senior citizens have benefited from reduced Medicare prescription drugs costs due to drug manufacturer discounts and the elimination of copayments for annual exams and certain health screenings. In the last few months, insurance companies began issuing rebates to consumers that spent more than 80% of deductibles on non benefit costs.

Pivot to States

Despite the political focus at the federal level, it will be the newly elected and returning Governors and state legislators who will largely determine the progress of health care reform. Governors will play a crucial role in decisions about the Medicaid expansion and creation of state health exchanges. As of publication, of the 12 governors up for election, only North Carolina’s changed hands – from Democrat to Republican – though races in Montana and Washington are still too close to call.

Voters in Alabama, Montana, and Wyoming passed ballot initiatives preventing citizens in those states from being forced to purchase health care. A similar measure in Florida did not pass. The outcome of these ballot initiatives makes little difference in Washington, as the Supreme Court ruling in June supersedes state law. A ballot measure in Missouri to prevent the state from creating a health exchange also offers little practical effect as federal regulators are expected to put their own exchange in place in states that have opted out.

State Health Exchanges

The expansion of health coverage will begin in 2014 when individuals and small businesses will be able to purchase private health insurance through state-based health exchanges – a virtual marketplace for choosing health insurance plans based on benefits and cost. Most individuals and businesses with more than 50 employees will be required to purchase insurance or pay a penalty, even though individuals at certain income levels will receive financial assistance in order to do so.

The health care law authorizes states to establish their own exchanges and the federal government has provided states with grants to support the planning, implementation, and operation of these exchanges. For states that opt not to establish their own exchange, the Department of Health and Human Services will provide a federal exchange for consumers in these states. Approximately 14 states and the District of Columbia have taken steps to create a health exchange, but the vast majority of states have failed to move forward with legislation or executive authority to implement the law. States have only until November 16 to indicate their intent to establish a health care exchange.

Medicaid Expansion

In June, the Supreme Court upheld the health insurance mandate of the Affordable Care Act allowing implementation of the law to proceed, but overturned the requirement that states must expand Medicaid coverage to approximately 17 million Americans by 2019 with incomes below 138 percent of the federal poverty level – or at incomes of $15,415 for an individual or $26,344 for a family of three.

“Many Republican-led states will opt out of the Medicaid expansion, but this will vary based on local factors such as tax base and political culture,” said former Representative Philip English, senior policy advisor at Arent Fox, LLP , “There is no monolithic Republican position on Medicaid expansion.”

The Affordable Care Act provides financial incentives to entice states to expand Medicaid coverage. From 2014–2017, the federal government will cover the entire cost of newly enrolled individuals and, in 2017, the federal government will pay 90 percent of costs. It is unclear at this time how many states will opt out of the Medicaid expansion, but those who do will could leave some of the poorest Americans without access to Medicaid and not eligible for the subsidized health insurance available through the state health exchanges. The financial burden would be higher on states that have traditionally had less expansive Medicaid programs – like Texas, whose Governor, Rick Perry, has already indicated opposition to expanding its Medicaid program.

Employer Reaction

Companies will continue to monitor health care reform efforts and look for ways to remain competitive. Employees should not be surprised to see employers limit contributions to benefits or face increased cost-sharing. Companies with more than 50 full-time employees may increase reliance on part-time contractors – in light of new federal penalties for failure to provide health coverage to employees. Employers would also need to ensure their coverage meets affordability standards, that employees are automatically enrolled in certain cases, that they provide information about the health exchanges and give workers understandable descriptions of benefits.

Future of Medicaid and Medicare Programs

We expect debate on the future of Medicare and Medicaid to continue in the 113th Congress given the pressing need for fiscal reform and the runaway cost of health care.

When Governor Romney selected House Budget Chairman Paul Ryan (R-WI) as his vice presidential nominee, Democrats tried to shift focus to potential changes Ryan proposed to Medicaid and Medicare as part of the House Republican budget blueprint that would most impact the elderly and disabled. Ryan proposed shifting Medicaid dollars into a block-grant program to cut federal Medicaid funding by more than 30 percent by 2022. The Ryan budget also proposed replacing Medicare’s guarantee of coverage with a premium-support voucher and increase the program’s eligibility age from 65 to 67 for future beneficiaries.

It is unclear whether President Obama will propose structural reforms for two of our nation’s largest entitlement programs, though “Republicans will remain wedded to premium support as a challenge if Obama fails to offer corresponding structural reforms,” says English.

Whether wholesale changes or piecemeal, both programs will receive considerable attention and based on the 2012 election cycle, will be politicized from both sides.

Health Care Provider Uncertainty

Health care providers remain uncertain about the federal health care climate in large part due to the backlog of regulations that haven’t materialized this year leading up to the election. With just a year to go until most of the health benefit exchanges go online, states, providers, and insurers will be scrambling to get their hands on federal rules that will determine how patients will receive health coverage starting in 2014.

Physicians treating Medicare patients are looking at Congress to revamp the sustainable growth rate (SGR) formula that helps determine Medicare physician payment. In January 2013, the SGR formula is scheduled to cut pay rates by more than 30% if Congress fails to prevent the decrease. Over the years, Congress has continued to avert SGR cuts using shortterm patches. Lawmakers have continued to debate a longer-term solution, but it is unclear whether there is the political will to solve this puzzle. Members of Congress will have to identify an offset to help cover the cost of an SGR repeal, which has estimated to be more than $300 billion over 10 years.

Agreement Among Parties

If there is an area in which Members of Congress are likely to find agreement, it is in the continuation of fraud and abuse legislative and regulatory efforts that have improved fraud prevention and increased federal recovery. Federal efforts to identify under and overpayments through Recovery Audit Contractors (RAC s) and other federal audits will continue even though Congress has shown recent interest in making RAC contractors more responsible for the investigations they initiate.

There has also been bipartisan interest to eliminate or delay the work of an independent panel that is expected to be appointed in the next year to identify specific savings in the Medicare program. Unlike the Medicare Payment Advisory Commission, known more commonly as MedPAC , whose recommendations require passage by Congress, the Independent Payment Advisory Board (IPAB ) will be empowered to make changes to the Medicare program if the Chief Actuary of the Centers for Medicare and Medicaid Services determines that the projected per capita growth rate for Medicare exceeds a target growth rate. Decisions by IPAB will be binding unless Congress votes down proposals by supermajority vote.

If the past is a guide, and with a divided Congress, it is unclear whether there will be the necessary bipartisan political will to turn back the IPAB , particularly because President Obama has signaled his support for the IPAB as a tool for Medicare reform and cost-control.

Conclusion

It is inevitable that health policy will be a central part of budget negotiations throughout the next two years given the disproportionate role health care plays in the U.S. economy and the federal budget. The far-ranging impact of efforts to restrain federal spending will include the number of new grants for biomedical research allocated by the National Institutes of Health, the availability of medications at rural health facilities, the number of pediatric medical residents trained annually at the nation’s leading children’s hospitals, the compensation of physicians and other health care providers, and access to innovative medical devices. All elements of the health care sector will have something at stake and we look forward to working with companies, nonprofits, and associations as the process unfolds.