As Supreme Court weighs health care reform, contractors await their fate

BRENDAN SMIALOWSKI/AFP/GETTY IMAGES - A supporter of recent health care reform holds a sign outside the U.S. Supreme Court March 27, 2012 in Washington, DC.

The Public Consulting Group likens its work in implementing states’ health insurance exchanges to helping a city set up a farmer’s market for the first time: Local officials may want to provide urban dwellers with access to fresh produce, but they may not know how to organize such a venue.

Similarly, PCG is helping states determine what types of plans health insurance companies should offer and how best to merge consumers with plan providers in an open marketplace.

Or, with produce standing in for health insurance plans: “We’re helping the city tell farmers which fruits and vegetables to bring and figuring out the infrastructure they have to establish for their farmer’s market,” said Paul Buckley, the D.C. firm’s director of government affairs.

However, they may be planning a farmer’s market that never actually takes place.

Government contractors like PCG are involved in every aspect of setting up the new health insurance exchanges — the “marketplaces” for health plans that the Affordable Care Act established.

But depending on the outcome of March’s Supreme Court case, which will be revealed in June, the exchanges — along with the rest of the law— may be scrapped, leaving some health insurance contractors uncertain about the end result of their labor.

“I don’t know if the federal government will take back their grants, but many of the health exchanges likely will stop,” said Michele Kang, chief of the McLean-based Cognosante, where roughly half of all current contracts are related to a combination of the health care reform bill and the health care portions of the American Recovery and Reinvestment Act. “Our growth would continue, but we probably wouldn’t grow as fast as we hoped.”

Size of the pot

The federal government has already begun providing states with grants in order to set up the exchanges and other parts of the health care reform law, such as determining which state residents will be eligible for the income-based subsidies for purchasing health insurance.

“There’s a lot of contractor work to get the exchanges to work well,” said Mark Duggan, who worked on the Affordable Care Act as a senior economist on the President’s Council of Economic Advisors. “Each state wants to set things up so that residents can easily choose between various plans and to make that experience a very good one.”

Roughly 75 contracts have been awarded in connection with various parts of the Affordable Care Act, and between 40 and 45 of those are related to setting up the state-based exchanges, according to the enterprise software and information company Deltek. (Deltek is a content partner with On Small Business’s parent publication, Capital Business.) Overall, more than $700 million in contracting work is wrapped up in the implementation of the ACA.

How much of that work gets called off depends on which of three courses of action the Supreme Court takes. First, the Court could choose to uphold the law, and the ACA would remain in effect. Second, it could strike down the individual mandate portion of the law — the hotly contested provision that all Americans obtain health insurance or face fines — while keeping the rest of the law in place . Finally, it could overturn the entire law, thus potentially dismantling the exchanges along with it.

“Striking down the entire bill is likely to have an impact on the role played by contractors,” said Joe Onek, a former senior counsel to Rep. Nancy Pelosi (D-Calif.) who has studied the law.

But some believe certain states would continue to build exchanges even without the ACA’s directive to do so. Fourteen states have already begun creating exchanges, according to a March report from the Kaiser Family Foundation, and 23 more are making plans to do so.

“The states that have strong government and legislative support will continue to move in that direction,” said Andrea Danes, director of CSG Government Solutions’ health care practice. “But there are states that will want to pull the plug entirely — like the ones who are involved in the Supreme Court case. The political uncertainty around the topic has created a challenging situation for the states where the leadership that has not decided to move ahead.”

Fifty different reactions

Ray Bjorklund, chief knowledge officer with Deltek, said he thinks the damage for contractors wouldn’t be that severe. There would be some broken contracts, he said, but the total losses for contractors would amount to roughly half a billion dollars combined — a relatively small amount of their total business.

But the impact on individual firms depends on which states they’re working with, Duggan said. Some states might forge ahead with health care reform without the ACA’s federal grants, but the budgets of many other states are so recession-ravaged that funding health reform on their own dime is out of the question. Some are also independently enthusiastic about the prospect of simplifying the health insurance market, but others are less so.

“You’d see 50 different reactions if ACA were overturned,” Duggan said. “Connecticut would do one thing, Kentucky would do another.”

Some states don’t yet know what they’ll do. Maryland Health Secretary Joshua Sharfstein said that the overturning of the ACA would be “hugely disruptive” because Maryland has already begun implementing various parts of the law. He doesn’t exactly know how the state would begin to reverse its course.

“There’s nothing in my experience that would be in the scale of having to deal with this,” he said. “I don’t know what would happen to patients, to contractors, or anyone. I don’t think it’s an easy answer.”

All of those questions add up to uncertainty for the firms that have already broken ground on the project.

Fred Forrer, manager of health strategy at PCG, said a number of the firm’s contracts have been put on hold, and the Supreme Court case has impacted how the firm can plan future contracts within each state. Still, the company said any potential ACA reversal “would not have a significant impact on PCG as a whole.”

Smaller firms may feel the impact more acutely, however. Kang said Cognosante wouldn’t triple its growth, as she had hoped it would, if the law were suspended.

Danes said that if the law were overturned, she’d try to find a way to make CSG useful to the states in which she’s already working, but otherwise, “I imagine it would be a gentleman’s conversation to wrap the work up and consider the project concluded — unless they find something else they want us to do to.”


Follow Olga Khazan and OnSmallBiz on Twitter.

Read more about the health care reform law.

 
Read what others are saying