Health Case Ripples Outward

After three days of historic Supreme Court debate, the
political world and health-care companies confronted the prospect of President
Barack Obama's health law being wiped away, a decision that would upend years
of planning by businesses and roil the November elections.

Among those set to implement the law, insurers would have to
ditch changes to their businesses designed to bring in millions of new
customers. Provisions that have already gone into effect, including letting
children stay on their parents' insurance plans until they turn 26, would no
longer be required.


Justices in the Supreme Court's conservative majority said
Wednesday that it would be difficult to figure out which parts of the Obama
health-care law should survive if one part of it is judged unconstitutional.
Jess Bravin has details on The News Hub. Photo: Reuters.
.Companies facing the law's requirements would be reprieved,
including health firms set to pay new taxes and businesses that would have been
required to insure their employees or pay a fee.


As the affordable health care law arguments wrap at the
Supreme Court, WSJ's Peter Landers checks in on Mean Street to outline the next
steps in the legal process. Photo: Getty Images.
.
It is impossible to predict how the court will rule, but
skepticism from key justices heightened the possibility the 2010 health
overhaul could be overturned in June, when the court is set to announce its
opinion.

During the marathon arguments, the government's attorney was
grilled by the conservative majority over the constitutionality of the law's
central plank, the mandate to buy insurance. On Wednesday, the final day, the
court's conservatives appeared inclined to wipe away the entire law if it found
the mandate in error.

The same justices even questioned the basis for the law's
expansion of the Medicaid insurance program for the poor, giving credence to an
argument that even some of the challengers had declared a long shot.

Few disputed that untangling the law would be tricky if it
is overturned. It would leave "a mess," said Jon Kingsdale, a
managing director with Wakely Consulting Group and a former official of
Massachusetts' near-universal insurance system. "It just ripples
throughout Medicare and Medicaid and the private markets."

Neil Trautwein, a vice president at the National Retail
Federation, a Washington trade group that represents stores, said: "If the
clock went back and health-care reform was gone, we could live with that."
He said it would be "a little trickier" if the court decided to only
strike down parts of the law.

Under any outcome, the decision will wedge itself into the
2012 presidential election.

White House officials said they remained confident the law
would be upheld, and that it was impossible to predict the outcome. Ultimately,
one official argued, the election is likely to turn on the economy, not health
care, no matter what the ruling. Mr. Obama, who returned late Tuesday from
South Korea, was briefed by staff on the court deliberations.


.
Still, if all or part of the law is struck down, it would be
a blow to Mr. Obama and Democrats, and create a liability months before the
election. Republicans would hold up the victory as evidence the Obama
administration overreached in trying to expand the scope of federal power.
"To strike it down would send a chilling message to the administration's
agenda," said Rep. Tim Scott (R., S.C.).

Congressional leadership aides from both parties say a
health law left with holes would have no chance of getting patched until at
least after the election. What happens next would be largely driven by the
election result. Republicans want to repeal the law, and Democrats have little
incentive to restart work on a legislative fix, given how the law has thus far
been a political loser.

Lawyers for the Obama administration pressed the court on
Wednesday for its preferred outcome, which would be to scrap certain popular
insurance rules tied to the mandate, if the court was inclined to rule out the
mandate.

Justice Antonin Scalia called it "totally
unrealistic" to expect a court to "go through this enormous bill item
by item and decide each one." Justice Anthony Kennedy, a key swing vote,
suggested the justices may "lack the competence" to pick and choose
what parts should stay.

Chief Justice John Roberts, whose vote is also somewhat
unclear, asked several questions that appeared to further the case of the
challenger's attorney, Paul Clement, who argued the whole law be struck down.

The court could decide to strike down parts of the law. If
it nixed only the insurance mandate, insurers say premiums would skyrocket
because there would be nothing to stop people from waiting to buy coverage
until they got sick.

Health-industry officials on Wednesday began grappling with
a range of problematic outcomes and said there was little they could do to
prepare for them.

Molina Healthcare, which manages care for 1.7 million
low-income Medicaid members in 10 states, saw in the health law a growth
opportunity. Steven T. O'Dell, the senior vice president overseeing Molina's
growth strategy, said it was preparing for an influx that could as much as
double its membership as states boost Medicaid rolls to comply with the law.

If the law fails in the court, Mr. O'Dell said, the company
would turn instead to a state-by-state strategy, seeking to expand in states
that overhaul their own health systems or expand Medicaid. That is a decision
each state will make based on "politics and budget," he said.

If the entire law fell, many parts of the law already in
place would cease to exist, including checks for seniors to fill a gap in their
Medicare prescription-drug program and insurance pools covering nearly 50,000
Americans who otherwise can't get health insurance.

Planning for the main pieces of the law that are set to
begin in 2014—including new marketplaces where consumers can shop for policies
and subsidies designed to expand coverage to millions of lower earners—would
halt. Experts said it could be years before the U.S. again tackled the issue of
covering the tens of millions of Americans who lack insurance.

If only the mandate falls, insurers have scratched out
backup plans that could potentially be done with support from state officials.
These include offering narrow annual windows in which people could buy
policies, or allowing plans with narrower benefits and lower premiums, which
might entice younger and healthier people to sign up. They plan to press
Congress to get rid of the requirements most closely linked to the mandate,
should the court not strike those down, too. But with little political will
among Republicans to fix a law they dislike, there is little chance a federal
replacement to the mandate could get passed.

In states such as New Jersey, which in the 1990s guaranteed
policies to all applicants but didn't require all residents to carry coverage,
premiums rose about 30% over the first few years of the policy, said Robert
Laszewski, president of Health Policy and Strategy Associates, a consulting
firm, and a former insurance-industry executive.

Mr. Laszewski said insurers could decide to voluntarily keep
in place the requirement that children can stay on parents' plans, which the
Obama administration says has covered 2.5 million young adults. That change is
already priced into coming policies and isn't expensive, he said.

Justices Question Health Law

WASHINGTON—The Supreme Court's conservative justices sharply
challenged the Obama administration's health-care overhaul Tuesday, raising
clearly the prospect that its signature domestic achievement could be struck
down.

The court's liberal and conservative wings seemed inclined
to split evenly over the question of whether the "individual mandate"
requiring Americans to carry health insurance or pay a fee is constitutional.

Justice Anthony Kennedy—nearly always the court's deciding
vote—at times appeared to back the administration's position but also offered
one of the toughest tests to the mandate, suggesting the government faced
"a very heavy burden" on the requirement.

..
Justice Kennedy said the mandate took "a step beyond
what our cases have allowed," echoing in his line of questioning the nub
of the challengers' argument. Later, however, he seemed to show more sympathy
for the government's position.

Justice Antonin Scalia posed the challengers' favorite
hypothetical about the government's power over a market. "Everybody has to
buy food sooner or later, so you define the market as food, therefore,
everybody is in the market," he said. "Therefore, you can make people
buy broccoli."

The solicitor general, Donald Verrilli, seemed ready for the
argument, replying that food isn't a market in which a person's participation
is unpredictable or involuntary.

The skepticism of Justice Scalia and the other conservative
justices brought home the possibility that the insurance mandate could be
overturned. If so, that would raise the question of which parts of the law, if
any, could remain, a question the court was set to address Wednesday morning on
the final day of arguments.

The court's four liberal justices all seemed friendly toward
the law, and two conservative justices—Mr. Scalia and Samuel Alito—left little
doubt they would vote against it. Justice Clarence Thomas remained silent, as
is his custom, but his prior writings suggest little sympathy for the
government's position.

Apart from Justice Kennedy, Chief Justice John Roberts's
vote also appeared to be in question.

Rising to open the two-hour hearing, Mr. Verrilli seemed
almost overcome by the moment, choking momentarily as he opened his defense of
President Barack Obama's signature legislative achievement.

The stock prices of health insurers fell in the morning as
word emerged of Justice Kennedy's skeptical questioning, then recovered
somewhat as a fuller picture emerged.

Health insurers fear that if the mandate is struck down but
the rest of the law survives, they would be forced to accept millions more sick
customers without enough healthy customers to balance out the risk pool.

At the Supreme Court, the courtroom again was packed and
demonstrators outside filled the streets.

Inside, the justices finally arrived at the centerpiece of
the case after two years of legal battles, and they dived headfirst into
questioning what powers the federal government has, and when do they go too
far.

Mr. Verrilli immediately asserted the premise behind the
law: that virtually everyone already needs health care or eventually will. He
said the law doesn't force people to buy something they don't want, but rather
governs how they pay for something they inevitably will need.

The government described an existing nationwide market for
health services and said almost everyone already is part of it. The
challengers, joined by several conservative justices, saw the product in
question as health insurance—and said people have a right to stay out of that
market if they wish.

"Why do you define the market that broadly?"
Justice Scalia asked Mr. Verrilli. "It may well be that everybody needs
health care sooner or later, but not everybody needs a heart transplant."

"That's correct, Justice Scalia, but you never know
whether you're going to be that person," Mr. Verrilli replied, saying that
is why the American health-care system is largely financed through insurance.

The challengers conceded that the government could do many
things to regulate the health-care market, including requiring individuals to
pay for medical services with insurance or creating a system in which the
government pays for everyone's care.

The law aims "to get care for the ones who need it by having
everyone in the pool, but is also trying to preserve a role for the private
sector, for the private insurers," said Justice Ruth Bader Ginsburg.
"There's something very odd about that, that the government can take over
the whole thing and we all say, 'Oh, yes, that's fine,' but if the government
wants to preserve private insurers, it can't do that."

Paul Clement, an attorney representing 26 Republican-led
states challenging the law, said Congress had options beyond a "government
takeover." He said the government could simply use its taxing and spending
power to give insurers a subsidy that would enable them to offer coverage to
all comers.

Alternatively, he said, Congress could require people to
purchase insurance immediately before actually obtaining medical care.

"That would be regulating at the point of
purchase," when individuals would be voluntarily entering the health-care
market, Mr. Clement said.

"It seems as though you are just talking about a matter
of timing—that Congress can regulate the transaction, and the question is when
does it make best sense to regulate that transaction," said Justice Elena
Kagan. "And Congress surely has within its authority to decide…[that] it
makes sense to regulate it earlier."

Justice Kennedy, and to an extent Chief Justice Roberts,
seemed to take that position seriously.

Uninsured people, Justice Kennedy said, "are in the
market in the sense that they are creating a risk that the market must account
for."

Mr. Clement said that was true with any industry. "When
I'm sitting in my house deciding I'm not going to buy a car, I am causing the
labor market in Detroit to go south," he said. But he said that shouldn't
entitle the government to force him to buy a car.

Michael Carvin, an attorney representing private plaintiffs
including the National Federation of Independent Business, rejected the
government's premise that 40 million uninsured Americans are distorting the
health-care market by shifting costs of free emergency-room care to taxpayers
and insurance ratepayers.

"The failure to buy health insurance doesn't affect
anyone," Mr. Carvin said. "Defaulting on your payments to your
health-care provider does. Congress chose for whatever reason not to regulate
the harmful activity of defaulting on your health care provider," he said.

Justice Kennedy's response contained glimmers of hope for
both sides.

"I agree that that's what's happening here," he
said. While the government asserts the insurance market is unique, "in the
next case, it'll say the next market is unique," he said, cheering the
challengers.

But Justice Kennedy went on to suggest that "most
questions in life are matters of degree." And in a comment that pleased
the health-law's backers, he said uninsured young people are "very close
to affecting the rates of insurance and the costs of providing medical care in
a way that is not true in other industries."

The Supreme Court scheduled three days of arguments on the
law. During initial arguments Monday, the justices sent clear signals that they
believe they can rule on the health-care overhaul now, casting aside a possible
procedural hurdle.

A decision is expected by the end of June.

—Brent Kendall

Fed Hosts Global Gathering on Easy Money

WASHINGTON—The world's leading central bankers have spent
much of the past few months putting out financial fires and launching measures
aimed at recharging the global economy.

On Friday, they will gather here to gauge the impact of
their easy-money policies—including whether the controversial bond-buying
strategy known as "quantitative easing" is a good weapon to keep in
their monetary arsenals.

Enlarge Image


Close.
A number of researchers say it is, despite nagging
doubts.

Quantitative-easing programs "stimulate the economy
by reducing credit costs," concludes Mark Gertler, a New York University
professor, in a paper he will give Friday. The conference is sponsored by the
Federal Reserve and the International Journal of Central Banking.

The impact of these policies on unemployment and
inflation "is very similar to that occurring under conventional
policy," said the paper, which Mr. Gertler will present to an A-list of
central bankers, including Fed Chairman Ben Bernanke, Bank of England Governor
Mervyn King, Bank of Japan Governor Masaaki Shirakawa and Jean-Claude Trichet,
the former European Central Bank president. ECB chief Mario Draghi won't be
there.

Quantitative easing, or QE, refers to central-bank
purchases of long-term bonds or other securities to drive down long-term
interest rates and drive up the prices of other assets, such as stocks, to
encourage more spending and investment. It is an alternative to the traditional
tool of lowering or raising short-term interest rates.

Central banks including the Fed, the Bank of England and
the Bank of Japan have used the approach because short-term interest rates are
stuck near zero and can't be moved much lower to support growth. The ECB has
relied on other unconventional measures.

More
Bernanke Says Low Rates Didn't Fuel Bubble
.
Critics say these policies are doing more harm than good,
because they cause inflationary pressure without helping growth, damping
household spending power. Some worry, for example, that the policies are
pushing up commodity prices. Even many of those who are sympathetic to QE as a
necessary measure when conventional policy is impossible worry about its costs
and benefits.

Researchers like Mr. Gertler are increasingly taking the
view that the policies work and are incorporating them into formal economic
models for the Fed and other central banks to use in devising new policies.

One of Mr. Gertler's conclusions is that central-bank
purchases of government bonds are less effective than purchases of other
assets, like mortgage-backed securities—a conclusion reached in other academic
research in recent months.

Mr. Gertler's presentation is notable because he is a
friend of Mr. Bernanke's, and the two were close collaborators on economic
research during Mr. Bernanke's years as a Princeton University professor before
joining the Fed.

The two days of meetings are informal and aren't aimed at
setting new policy. But they could help shape how policy makers think about
their next steps.

The meetings, to take place at Washington's Madison
Hotel, will resemble the Fed's annual retreat to Jackson Hole, Wyo., in
everything but the vistas. They are centered on a series of academic
presentations by central bankers and university professors.

Donald Kohn, a Brookings Institution scholar and former
Fed vice chairman, said he hopes quantitative-easing programs won't be needed
in the future but that they "need to remain in the central bank tool
kit." He added that "the general public and many of its elected
representatives do not seem to be convinced of the efficacy of these actions or
that the benefits exceed the potential costs." He said central banks
"need to keep working on delineating and explaining costs and
benefits."

The timing of the conference is significant because many
of the world's central banks have recently completed a new round of measures
meant to stimulate economic growth and forestall another financial crisis.

The Bank of Japan and the Bank of England, for instance,
in recent months have increased asset-buying programs meant to drive long-term
interest rates lower. The Fed has revamped its communication policy and said it
would keep short-term interest rates low until late 2014.

The Fed has left open the option of more bond buying. But
officials have signaled that their decision will depend on how the economy
performs. Faster growth or a persistent pickup in inflation could take the
strategy off the table, while slower growth or inflation could spur the Fed to
act.

Mr. Bernanke will deliver brief opening remarks on
Friday, and Fed Vice Chair Janet Yellen will moderate a panel Saturday with Mr.
King and Mr. Shirakawa.