Employee Benefits

The Supreme Court Decision You Didn’t Hear About With the Largest Impact on Employer-Sponsored Healthcare

a very new description2

Published On: July 21, 2022

Mid-June always sees a flurry of Supreme Court decisions as the court wraps up its annual term. Still, it’s safe to say that no other pre-recess decision drop in the modern era captured–and held–the public’s attention so completely.

Between unprecedented leaks and unprecedented precedents on issues ranging from the right to privacy, due process, guns, and abortion, it is obvious why the nation–and the media–turned its attention to the highest court.

Despite the outsized number of eyes on the latest batch of Supreme Court rulings, however, there is one particular decision that received very little coverage from major outlets. I find this omission particularly fascinating given the significant short- and long-term impacts it will likely produce.

Short-term: A direct impact on nearly every large employer and health system in the U.S.

Long-term: The potential impact for the current employer-sponsored healthcare construct.

The Decision

In the case of Marietta Memorial Hospital Employee Health Benefit Plan v. Davita, Inc. the Supreme Court ruled 7 - 2 that current federal law does not require the employer health plans to include in-network dialysis providers.

At face value, the scope of the decision may seem fairly narrow and unlikely to have major reverberations. End-stage renal disease (ESRD) is a special case where if an employee has kidney failure–and is covered by their employer–the employer must cover that person for the next 33 months. At that point, according to the Medicare Secondary Payer Act, the employee will then be covered by Medicare.

The Supreme Court ruling says employer-sponsored health plans can make all dialysis providers out-of-network because they are doing it across both ESRD and non-ESRD employees. This decision practically forces workers who have kidney failure to drop their private plans and enroll in Medicare immediately.

The ruling also opens the door for all employers to update the language in their health and benefit plans to carve out dialysis services, as set by the parameters established in the Court’s opinion on this case. In effect, employers can now essentially shift ESRD or dialysis patients to Medicare enrollment approximately 30 months sooner.

The Impact

Impact 1: ESRD patients represent a small count of employees but a higher percentage of employer spend. Imagine if 4%-6% of employer healthcare spend vanished and shifted to the Centers for Medicare and Medicaid Services (CMS). That decision lowers the healthcare expense immediately for every employer with ESRD employees.

For healthcare providers, it shifts the bill to Medicare from the employer. That doesn’t seem profound but employers pay 2X Medicare rates on average. This will immediately impact dialysis centers (DaVita’s stock price is down 20% from May based largely on the decision), nephrologists, hospitals, and other caregivers. Imagine pulling $40B out of the system and replacing it with $20B. There are negative consequences.

Impact 2: The SCOTUS decision is focused on ESRD, which is unique because of its Medicare Secondary Payer (MSP) provision. Could this open the door for employers to move other specific high-cost services, treatments, or drugs off of their employee benefit plans to Medicare or the exchanges?

Why It Matters to Employers

During a conversation with one of the largest health insurance carriers in the country last year, the carrier described what they called their “5%-50% strategy” for their employer customers.

Analysis consistently revealed that 5% of their patients made up 50% of their costs, so they focused their efforts on these 5%; this consisted primarily of heart failure, COPD, diabetes (which has a large impact on ESRD and dialysis), trauma, and high-risk births.

If a portion of these 5% of patients were moved off of employer’s books, similar to what has just occurred with ESRD, and onto Medicare or the exchanges, employers would be poised to see healthcare costs shift down between 20%-30% with that cost moving onto Medicare/caid. Healthcare costs are usually the second largest line-item expense employers incur, as such this would be a significant lift to corporate profitability.

It is a zero-sum equation. For any given dialysis patient, this Supreme Court decision will not change their treatment plan or the costs associated with such treatment. What it does change, however, is who will pay for that treatment and, even more importantly, how much they will pay. Any shift like this from the employer’s health insurance cost to Medicare will have large ripple effects across every major player in the sector. A few predictions on impact: Positive impact: Employers, employees, and Medicare Advantage players Negative impact: Insurance brokers, carriers, providers, pharma, and Medicare

Moving dialysis patients off employer benefits plans to Medicare several years earlier would have had an impact of $15-$20 billion, a ~2%-4% Medicare increase that can be digested in a normal congressional budget cycle. Large impacts for other patient types, however, would carry a more significant change and force legislative action to balance.

Partisan Review

Shifts like this with ESRD move more of the U.S. healthcare costs to Medicare, which is a hotly contested item. Interestingly, the majority opinion in support was written by conservative Justice Brett Kavanaugh, while two considerably more liberal justices–Justice Elena Kagan and Justice Sonia Sotomayor–filed the dissent.

Justice Kavanaugh, focusing on the letter of the law, wrote: “If Congress wanted to mandate that group health plans provide particular benefits, or to require that group health plans ensure parity between different kinds of benefits, Congress knew how to write such a law. It did not do so in this statute.”

How Does This Play Out?

The door is open for employers to alter their benefit plans to match Marietta Hospital, thereby significantly reducing coverage for dialysis patients and shifting those employees to Medicare. It will be interesting to see what percent shift their plans in 2023 vs. 2024 and if others follow.

What’s more, we should watch closely to see if other employers test the waters with different disease states, eg. transplant lines or high-cost drugs.

In general, this is a positive for employers, but the move creates negative consequences for other industry participants. The government will not allow employers to walk away with a financial boon to Medicare’s dismay. For every action, intended or unintended, there is an equal and opposite reaction. Looking for more exclusive content? Check out the latest episode of This Week in Benefits, and see what's trending on the Mployer Advisor blog.

Employee Benefits


Author Picture

Brian Freeman

Founder and CEO, Mployer Advisor


Popular Posts


Podcast: Strategies to Identify and Mitigate Burnout in the Workplace

In:Employee Benefits