ObamaCare Survives Judicial Death Threat: Impact Of Supreme Court Decision On Offshoring And Outsourcing

Posted June 29, 2012 by   · Print This Post Print This Post

The U.S. Supreme Court’s historic 5-4 decision approved the constitutionality of the entire Patient Protection and Affordable Care Act, P.L. 111-148 (March 23, 2010) [“ObamaCare”]. Nat’l Fed. of Indep. Businesses v. Sebelius, 567 U.S. ____ (June 28, 2012).

How will this law impact the global services industry?   Will it favor offshoring?   Will it create new outsourcing business models? What opportunities arise for new forms of outsourcing services and, indeed, for global entrepreneurship?   Here’s our view on the impact, followed by a brief legal summary for those who study constitutional law in the United States.

Impact of the ObamaCare Decision upon Outsourcing and Offshoring.   The most important aspect of this law is its complexity (over 900 pages, with new regulations to follow).   For the outsourcing industry, the decision is highly positive for process managers seeking to develop service offerings in the administration of healthcare insurance, healthcare funding and corporate human resources.

  • In general, new consulting advisory services will develop tech-enabled decision analsyis and recommendations.  They will identify how to enable small businesses to choose whether, and how, to provide insurance plans for employees.   For large busineses, they will help direct how to manage internally, or externally, a huge healthcare bureaucracy for the employer.
  • For small businesses, new consulting advisory services (and related process automation and outsourced services) may develop to stay below the threshold of a “large” employer to avoid ObamaCare’s mandatory coverage requirements for “large” employers.
  • For insurers and health plans, the pressures for cost containment, regulatory compliance and operational efficiencies will offer opportunities for both consulting and outsourcing, and even offshored teleservices by U.S. qualified medical professionals.

U.S. Health Insurance Model. Unlike other countries, the U.S. has not nationalized healthcare. Instead, since 1965, it has provided nationalized healthcare to seniors (aged 65 and over) under Medicare.   Historically, it has also provided Medicaid to younger, but more needy persons in limited categories.

New Class Warfare; New U.S. Business Models . The ObamaCare legislation creates a “class warfare” between “small” businesses and “large” businesses. ACA exempts “small employers” from the duty to carry health insurance for their employees.   “Large employers” (with more than 200 full-time employees who perform at least 2,080 hours of service per year subject to vacations and statutory exceptions) must automatically enroll all new full-time employees in one of the plans offered and continue the enrolment of current empoloyees in a health benefits plan offered through the employer.

We offer some predictions on the future of employment in the United States.

  • Business Models.  New business models will arise, based on outsourcing, virtualization and avoidance of the 200-employee limit.
  • Accelerated Offshoring and Outsourcing.   The costs, complexity, bureaucratic burdens and overhead, and proliferation of employment litigation associated with mandatory healthcare rules will inspire entrepreneurs to outsource and offshore everything possible.  ObamaCare will accelerate the offshoring of both low-level functions (such as non-voice customer relationship management, credit card claims processing, mortgage origination and administration, and other routine business functions) and high-level functions (such as R&D, market research, accounting and tax administration, cash management, etc.).
  • “Small is Beautiful.” A wave of new incorporations and new LLC’s will be the new norm for establishing rapid-growth organizations.
  • Networked Virtual Organizations.   “Small employers” will stay under 200 FTE’s in the U.S., but will partner with other small employers in the U.S. and with outsourcing service providers wherever possible.
  • Compliance, but with Cutbacks.   Large global corporations will devote more costs and management time to compliance with new regulations. Entrepreneurial leaders at large organizations will consider leaving to form new “small employer” organizations based on a virtualized, global, partnered (outsourced, offshored and allianced) business model.

New HITO: Healthcare IT Outsourcing (New Software Platforms and Service Solutions).  Like the Employee Retirement Income Security Act of 1974 (“ERISA”), the Affordable Care Act creates complex new rules governing human resource administration.   Like ERISA, ACA delegates extensive authority to bureaucracies to review mandatory disclosure reports by employers in order to ensure employers are not discriminating in favor of highly compensated individuals and includes enforcement mechanisms.   The ACA imposes both civil and criminal penalties for non-compliance.

In addition, ACA already has adopted healthcare IT mandates including subsidies for electronic medical records (EMR).   Secretary of Health and Human Services (“HHS”) has adopted regulations for developing interoperable and secure standards and protocols that facilitate enrollment of individuals in Federal and State health and human services programs. Sec. 3021(a).   “Third party service providers” are identified as having a legislatively approved role to facilitate enrollment in covered insurance plans.

New Security and Compliance Requirements.   The outsourcing industry was born out of “boring,” repetitive “standard” business processes. ACA creates a “perfect storm” for outsourcing of many new “boring” processes in human resources administration.

IT-Enabled Healthcare. ACA also delegates authority for administrative regulations under HHS to develop standards and protocols for electronic enrollment in Federal and State healthcare programs. Sec. 3021(b).

(1)  Electronic matching against existing Federal and State data, including vital records, employment history, enrollment systems, tax records, and other data determined appropriate by the Secretary to serve as evidence of eligibility and in lieu of paper-based documentation.

(2)  Simplification and submission of electronic documentation, digitization of documents, and systems verification of eligibility.

(3)  Reuse of stored eligibility information (including documentation) to assist with retention of eligible individuals.

(4)  Capability for individuals to apply, recertify and manage their eligibility information online, including at home, at points of service, and other community-based locations.

(5)  Ability to expand the enrollment system to integrate new programs, rules, and functionalities, to operate at increased volume, and to apply streamlined verification and eligibility processes to other Federal and State programs, as appropriate.

(6)  Notification of eligibility, recertification, and other needed communication regarding eligibility, which may include communication via email and cellular phones.

(7)  Other functionalities necessary to provide eligibles with streamlined enrollment process.

New Training Mandates.  Since the law is new, it requires obligatory trainings. The corporate education markets will expand.

More Litigation under New Civil Rights and Whistleblower Protections.  ACA is good for e-discovery and Legal Practice Outsourcing. It creates new entitlements and protected classes of employees. This will result in new costly litigations. The plaintiff’s class action lawyers will reap big rewards for mistakes or disputes that need to be settled just to avoid distractions, uncertainty and costs.

First, it creates new civil rights, which can be enforced by plaintiff’s contingency-fee lawyers using class actions. Employees may not be excluded from participation in, be denied the benefits of, or be subjected to discrimination under, any health program or activity, any part of which is receiving Federal financial assistance, including credits, subsidies, or contracts of insurance, or under any program or activity that is administered by an Executive Agency or any entity established under ACA. Sec. 1557, extending civil rights under title VI of the Civil Rights Act of 1964 (42 U.S.C. 2000d et seq.), title IX of the Education Amendments of 1972 (20 U.S.C. 1681 et seq.), the Age Discrimination Act of 1975 (42 U.S.C. 6101 et seq.), or section 504 of the Act of 1973 (29 U.S.C. 794).

Second, in addition to substantive healthcare civil rights, the ACA adds a “whistleblower” protection for employees who report to their employer, the federal government or a State Attorney General, any violation of, or act or omission that the employee reasonably believes to be a violation of, the ACA. Similar protection is granted for an employee’s right to object to, or refuse to participate in, any activity, policy, practice or assigned task that is or is reasonably believed to be such a violation. ACA, Sec. 1558.

The Legal Decision on Constitutionality.

Judicial Restraint. A minority of four justices would have invalidated the entire law. Writing for the majority, Chief Justice Roberts chose to uphold the law as a “tax” (even though it is not said to be a tax) and pushed the debate back into the political arena of the November 2012 Presidential elections: “It is not our job [as a Supreme Court] to protect the people from the consequences of their political choices” of legislation enacted by an elected Congress.

Two Key Issues. The judicial decision focused on narrow constitutional principles of limited federal legislative powers as enumerated under the federal Constitution.  It addressed two technicalities: the “individual mandate” to either get health insurance coverage or pay a federal health tax, and the expansion of scope of Medicaid in such a manner that the States would have to subsidize a new class of individuals in order to continue to enjoy federal funding for a 50 year old Medicaid program with limited costs and scope.

Individual Mandate: the “Shared Responsibility Payment.” On the “individual mandate,” the decision confirmed that Congress may impose a penalty (called a “shared responsibility payment” but treated judicially as a tax) on individuals who choose not to obtain insurance coverage, even though the tax is on doing nothing. Justice Roberts, the swing vote, noted that the individual health care tax is not confiscatory or punitive, and imposes no other restraint than the payment of the tax.   The decision represents an expansion of federal legislative power to tax individuals for doing nothing by relying upon the Taxing Clause of the Constitution and not the sweeping Commerce Clause

Medicaid Expansion. The Court struck down the “Medicaid expansion” that would, if enacted, have coercively and unconstitutionally forced the States to raise taxes to cover 10% of new insurance programs covering virtually an entire subclass of individuals earning family income at 133% or less of the federal “poverty level,” far more than the pre-existing Medicaid scope and costs.  So the law was upheld, but it will have a shortfall in revenue where States choose not to “opt in” to provide such new medical coverage for that class of individuals. Hence, a State may elect to continue the existing Medicaid program (which covers the most needy: pregnant women, children, needy families, the blind, the elderly and the disabled.

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