PPACA Blog

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Provided by Warner Pacific: We field questions about Health Care Reform from brokers and Sales Execs every single day.  And one question I hear employers are asking almost every single day is, “Will I have to offer coverage to all of my employees under ACA or face a penalty? “  Well, that’s a good question.  And the answer is simply, to know that, first you have to do the math. Small employers will not need to worry about this issue as groups with less than 50 Full- Time Equivalent employees will not be subject to this provision of the law.  However, an employer who qualifies as a small group today, may in fact be a large group under the ACA guidelines.  Let’s take a look at how this works. What is the Employer Mandate? Beginning in 2014, large employers may be subject to an excise tax/penalty if the employer: a)      Offers coverage to full-time employees (and their dependents) o   That does not meet the law’s affordability standard (employee’s cost for self-only coverage must not exceed 9.5% of family income) or  o   Coverage does not meet minimum value standards, or b)      Fails to offer any coverage to full-time employees and their dependents The penalty is triggered under situation (a) or (b) if at least one full-time employee whose household income is between 100% and 400% of the federal poverty level  is able to qualify for and receive a premium tax credit for Exchange coverage. What defines a large employer?  The ACA defines a large employer as an employer who has 50 or more full-time/full-time equivalent employees.   Let’s break it down further. ·         Full-time employee: Defined as an employee who works on average 30 hours per week or 130 hours of service per calendar month. ·         Hour of service: Each hour for which an employee is paid or entitled to payment for the performance of duties, including vacation, leave, holiday, illness, incapacity, layoff, jury duty, military duty or other leave of absence. ·         A full-time equivalent employee is actually two or more part-time employees whose combined hours per week add up to a single full-time employee.  For example, Carl works an average of 20 hours per week and Jonas works an average of 10 hours per week. Together, Carl and Jonas work an average of 30 hours per week, which is equivalent to one full-time employee’s hours. Therefore, Carl and Jonas together equal one full-time employee. NOTE: These calculations are only used to determine whether or not the employer is a large or small employer and are not used in calculating penalties or premium costs. It should also be noted that large employers are not required to offer coverage to part-time employees (those who work less than 30 hours per week per month) even though they are part of the calculation to determine large group status. How do I calculate how many full-time employees I have?  ·         Hourly employees: Count actual hours served ·         Non-hourly employees: Select one of three methodologies that does not understate hours: 1.       Count actual hours of service 2.       Days worked equivalence: Count 8 hours for each day credited with at least one hour of service 3.       Weeks worked equivalence: Count 40 hours of service for each week credited with at least one hour of service To calculate the number of full-time employees: for each calendar month of the preceding calendar year, employers must: 1.       Count the number of full-time employees (including seasonal employees) who work on average 30 hours per week per month. 2.       Calculate the number of full-time equivalent employees (including seasonal employees) by aggregating the number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not employed on average at least 30 hours of service per week for that month and dividing by 120. 3.       Add the number of full-time employees and full-time equivalents calculated in steps (1) and (2) for each of the 12 months in the preceding calendar year. 4.       Add the monthly totals and divide by 12. If the average exceeds 50 full-time equivalents, determine whether the seasonal employee exception applies. Seasonal employee exception: The penalties do not apply to employers whose workforce exceeds 50 full-time equivalent employees for no more than 120 days or four calendar months during a calendar year if the employees in excess of 50 who were employed during that period were seasonal employees. The 120 days or four calendar months are not required to be consecutive. Example:  The ABC Company employs 81 people but only has a total of 28 full-time employees who work an average of 30 or more hours per business week. The other 53 people are part-time or seasonal employees whose combined work hours equal 24 full-time equivalent employees. Therefore, according to the ACA, the ABC Company has a total of 52 full-time employees and is considered a large employer for the ACA. For purposes of determining large employer status until further guidance is issued, employers may apply a reasonable, good-faith interpretation of the statutory definition of seasonal worker, including a reasonable, good-faith interpretation of the standard set forth under the DOL regulations at 29 CFR 500.20(s)(1). Transition Relief for Smaller Employers Employers can determine whether they are large employers based on a period of three to six consecutive calendar months in the 2013 calendar year as chosen by the employer, rather than based on the entire 2013 calendar year. The 2014, compliance deadline is not delayed for smaller employers determined to be large employers based on the three to six-month calculation. One thing I should mention.  When counting the number of full-time employees an employer has for purposes of calculating the penalty, all full-time equivalent employees within a Controlled Group or an Affiliated Service Group must be counted.  There is a lot more we could go into here, penalties/excise tax, etc., and there are many resources for all this information including the Warner Navigator.  But the information supplied in this article is meant to be a first step in the process and should at least help an employer figure out the very basics of whether they are or are not, a large group under the ACA. We will be getting into more detail about this and other provisions in the upcoming issues of the Pulse.   This article is not intended to be exhaustive nor should any of it be construed as legal advice. Readers should contact an attorney if legal advice is needed. We make no warranty or guarantee concerning the accuracy or reliability of the information posted here. Although we have made every effort to provide complete, up-to-date, and accurate information, such information is meant to be used for reference only. If there is any inconsistency between the information contained in this site and any applicable law, then such law will control.

This document is not intended to be authoritative, and its accuracy is not guaranteed. It is believed to be correct at the time of its printing. Any questions about official interpretations of the law should be directed to legal counsel.

 

 

Summary
On February 9, 2012, the Department of Health and Human Services’ Center for Consumer Information and Insurance Oversight (CCIIO) issued its final rule regarding the Summary of Benefits and Coverage provision.

The rule and accompanying guidance provide detailed instructions about what insurers and health plans must do to comply with Section 2715 of the Patient Protection and Affordable Care Act (PPACA).

The rule requires that insurers and health plans provide a standardized Summary of Benefits and Coverage (SBC) and Uniform Glossary to consumers “when shopping for coverage, enrolling in coverage, at each new plan year, and within seven business days of requesting a copy from their health insurance issuer or group health plan.”

The rule applies to employees and dependents of domestic and international group and individual health plans. It applies to all fully insured and self-insured plans, regardless of grandfathered status. It does not apply to Medicare plans.

The penalty for “willful” non-compliance is $1,000 per enrollee for each failure to comply.

Since this is a final regulation, there is no comment period.

Intent of Regulation
In developing the regulation, HHS stated that its aim is to help consumers understand and evaluate their health insurance choices by providing a “simple”, consistent document that outlines benefits and coverage in plain language. It may be provided in paper or electronic form under current ERISA electronic distribution rules.

Effective Date
Group:

• For participants enrolling or reenrolling at open enrollment (including late enrollees) – prior to the first day of open enrollment beginning on/after 9/23/2012
• For participants enrolling other than through open enrollment (including newly eligible and special enrollees) – starting on the first day of the plan year beginning on/after 9/23/2012
• For SBCs provided to insured plan sponsors – immediately on 9/23/2012 upon application, when changes occur, at renewal and upon request

Individual:

• Immediately on 9/23/2012

Highlights
Many of the requirements set forth in the HHS proposed rule published August 21, 2011 continue to stand. The SBC must be provided in a consistent four-double-sided-page format with 12-point font. Individuals must be informed in writing 60 days ahead of any significant plan changes that affect the SBC (other than in connection with a renewal or reissuance of coverage). And, it must include a customer service phone number and internet address for questions and copies of plan documents. See sidebar above for a sampling of differences.

http://www.proskauer.com/publications/client-alert/irs-clarifies-previous-guidance-on-form-w-2-informational-reporting-requirement/

 

The Washington Post (12/17, Aizenman) reported that HHS "will give states broad latitude to define the minimum benefits that many health insurance policies will be required to offer under the 2010 healthcare law, officials announced Friday." The plan "sparked criticism from interest groups on all sides of the issue. Consumer advocates worried that millions of Americans could end up with insurance substantially less comprehensive than the law's drafters intended," while "employers and insurers warned of an opposite scenario: A state could make the benefits package so comprehensive that the resulting plans would be prohibitively expensive." The law "leaves it to the discretion" of HHS Secretary Sebelius "to determine whether to specify precisely which procedures and services should be covered and to what extent insurers can limit the frequency of their use."

        The New York Times (12/17, Pear, Subscription Publication) said Friday's decision "would allow significant variations in benefits from state to state, much like the current differences in state Medicaid programs and the Children's Health Insurance Program." The Wall Street Journal (12/17, Radnofsky, Subscription Publication) reports Sebelius said, "As we've acknowledged many times, coverage that works in Florida may not work in Nebraska."

        The AP (12/19) reports that the law's requirement that the federal government "set a basic benefits package for private insurance" is "tricky territory for the administration as it tries to avoid the 'big brother' label on health care." But the proposal Friday from HHS Secretary Kathleen Sebelius "allows states to retain some leeway," for example letting each state "pick a benefits package from several federally approved options." Sebelius said, "The proposal we're putting forward today reflects our commitment to giving states the flexibility they need." According to the AP, "initial state reaction was positive."

        Politico (12/19, Millman) reports the HHS guidance "would ensure that families and small businesses who buy their own coverage have access to health plans that offer comprehensive, affordable benefits," HHS Secretary Kathleen Sebelius said on Friday. "At the same time, we want to give the states the flexibility to choose an essential health benefits package right for them."

        Bloomberg News (12/17, Wayne) also quoted Secretary Sebelius as saying, "Our approach will protect consumers and give states the flexibility to design coverage options that meet their unique needs." According to Neil Trautwein of the National Retail Federation, "lobbyists will focus efforts on trying to persuade states to adopt narrow packages of required benefits." Trautwein noted that the decision "shifts the argument back to the state arena where insurance has always been regulated."

        CQ Healthbeat (12/17, Bristol, Subscription Publication) quoted HHS Assistant Secretary for Planning and Evaluation Sherry Glied as saying that the approach "recognizes that issuers make a holistic approach in constructing a package of benefits" that "balance consumer needs for comprehensiveness and affordability." Some groups, however, were unenthusiastic about the decision. Carl Schmid of The AIDS Institute said, "We were looking for some federal protections, for a federal floor to the benefit design. It looks like we're not going to get that and we're still going to get the state patchwork of care." Schmid added that HHS had "also failed to provide any guidance on copays, deductibles and premiums, 'which is important, extremely important.'"

ABC World News (12/14, story 4, 0:20, Sawyer) reported, "And there was an announcement from the White House today about the President's healthcare reform. The government said 2.5 million young adults who were uninsured now have received health insurance because of that law, which allows children to stay on their parents' insurance until age 26."

        The CBS Evening News (12/14, story 5, 2:30, Pelley) reported, "Patient rights advocates like Ron Pollack of the nonprofit group Families USA call this an accomplishment because young adults will 19-25, are the most likely not to have health insurance." Ron Pollack, Families USA: "This is a benefit for those people who are struggling to find a job or who are in an entry-level job and they can't pay for health insurance and now they have the ability to stay on their parents' policy until their 26th birthday."

        The Wall Street Journal (12/15, Radnofsky, Subscription Publication) quotes HHS Secretary Kathleen Sebelius, who said, "It shows what a big difference this law is already making in Americans' lives." According to Sebelius, without the option for additional coverage, insurance was a major factor in young adults' career decisions, while others were "a car accident or a surprise diagnosis away from a lifetime of medical debt or worse." The AP (12/15) also quotes Sebelius as saying, "Many of them gained coverage earlier this spring, meaning the law was there for young people as they graduated from college or high school and began their careers."

        USA Today (12/15, Kennedy) reports that according to HHS assistant secretary for planning and evaluation Sherry Glied, "the rise in coverage for younger adults came as those between the ages of 26 and 35 remained the same," which "shows it's 'very clear' the increase for those 19 to 25 is because of the new law." Meanwhile, Glied said that "there was no increase in Medicaid coverage for adults ages 19 to 25, which means the increase in overall coverage was driven by private insurance."

        The Los Angeles Times (12/15, Levey) reports, "Facing persistent public skepticism, the administration has been trying to highlight early benefits of the law such as the young adults coverage and the expansion of aid to seniors who hit the coverage gap in Medicare's drug benefit known as the doughnut hole."

        Also reporting this story are the Washington Times (12/15, Cunningham) "Inside Politics" blog, NPR (12/15, Rovner) "Shots" blog, CQ (12/15, Norman, Subscription Publication), Bloomberg News (12/15, Wayne), The Hill (12/15, Pecquet) "Healthwatch" blog, Modern Healthcare (12/15, Daly, Subscription Publication), Politico (12/15, Mak), and Reuters (12/15, Pierson, Selyukh). 

 

The Supreme Court's announcement that it would take up the challenges to healthcare reform drew heavy print and broadcast coverage, including nearly 7 and a half minutes of coverage on network newscasts (it was the lead story on NBC Nightly News) and several stories that appeared on the front pages of major newspapers. Most reports place the arguments, scheduled for March, against the backdrop of a politically charged presidential year.

        ABC World News (11/14, story 3, 2:15, Sawyer) reported, "Word today that the Supreme Court will weigh in on a lightning rod issue, whether the President's healthcare law is constitutional. A question that spawned heated debates on both sides. A Supreme Court ruling being heralded as the most important since Bush vs. Gore in 2000. Not to mention, the decision will come during the heat of the presidential race."

        The CBS Evening News (11/14, story 7, 2:05, Pelley) reported, "The case is so complex the court has scheduled arguments for more than five hours." Twenty-six "states joined forces and sued the federal government to block the law. The 11th Circuit Court of Appeals in Atlanta agreed and struck it down."

        NBC Nightly News (11/14, lead story, 3:05, Williams) reported, "As for how the ideologically divided court might rule, legal experts say it might not be the usual 5-4 split. Some of the conservatives have been willing to uphold broad uses of federal power in the lives of individual citizens."

        USA Today (11/15, Biskupic) reports, "The Supreme Court's announcement Monday that it will hear challenges to the Obama-sponsored health care law opens the most important chapter in the legal battle over the law, amid the tumult of election-year politics." USA adds, "A ruling could determine the federal government's power to address the most pressing social problems, specifically how to ensure medical coverage nationwide. The decision is likely to be handed down in late June, right before the Republican and Democratic conventions for the 2012 presidential election."

        The Washington Post (11/15, A1, Barnes), on its front page, reports, "As a mark of the importance of the case to the court headed by Chief Justice John G. Roberts Jr., justices said they will hear 5 1/2 hours of oral arguments on the constitutional question and related issues." The Post notes that the White House "welcomed the court's announcement. 'We know the Affordable Care Act is constitutional and are confident the Supreme Court will agree,' White House spokesman Dan Pfeiffer said in a statement."

        A front-page story in the New York Times (11/15, A1, Liptak, Subscription Publication) reports, "Appeals from three courts had been vying for the justices' attention, presenting an array of issues beyond the central one of whether Congress has the constitutional power to require people to purchase health insurance or face a penalty through the so-called individual mandate." The court "agreed to hear appeals from just one decision, from the United States Court of Appeals for the 11th Circuit, in Atlanta, the only one so far striking down the mandate. On Monday, the justices agreed to decide not only whether the mandate is constitutional but also, if it is not, how much of the balance of the law, the Patient Protection and Affordable Care Act, must fall along with it."

        The Los Angeles Times (11/15, Savage) reports, "The Republican governors and state attorneys who challenged the law argued that the power to regulate commerce does not extend to requiring unwilling buyers to purchase insurance. They also allege that the law's expansion of Medicaid will force the states to take on extra burdens. Sponsors of the law estimate that it will extend health coverage to 16 million more children and low-income adults through expanding Medicaid."

        Politico (11/15, Haberkorn) reports that the court "also signaled that it could punt a decision on the individual mandate until 2014. In accepting the challenges to the law, the court said it would devote an hour of the arguments to the effect of the Anti-Injunction Act - a law that, in the view of some courts, could prohibit a ruling on the individual mandate until the mandate goes into effect in 2014. That could provide an escape clause if the court wants it."

        Bloomberg News (11/15, Stohr) reports, "Both sides said they were pleased the court agreed to take up the case. US Health and Human Services Secretary Kathleen Sebelius said a high court ruling would clear up legal uncertainty that might interfere with implementing the law's central provisions by 2014. 'We're eager to have states, who may be sitting on the sidelines, engage fully in putting together these exchanges,' she said."

        Poll Shows Falling Support For Law. A front-page story in the Wall Street Journal (11/15, Bravin, Subscription Publication) reports that although public opinion about the new law appeared fairly evenly split for more than a year, a poll released last month by the Kaiser Family Foundation found 51 percent of respondents now have an unfavorable opinion of the law, while only 34 percent held a favorable view.

        Effects Of New Law Would Be Difficult To Reverse. The New York Times (11/15, Abelson, Harris, Pear, Subscription Publication) reports, "No matter what the Supreme Court decides about the constitutionality of the federal law adopted last year, health care in America has changed in ways that will not be easily undone. Provisions already put in place, like tougher oversight of health insurers, the expansion of coverage to one million young adults and more protections for workers with pre-existing conditions are already well cemented and popular." Meanwhile, "a combination of the law and economic pressures has forced major institutions to wrestle with the relentless rise in health care costs."

        More Commentary. In an op-ed for the Wall Street Journal (11/15, A19, Subscription Publication), David B. Rivkin and Lee A. Casey, attorneys who served in the Justice Department during the Reagan and George H.W. Bush administrations and have represented the 26 states in their challenge to the healthcare reform law before trial and appellate courts, argue that the law's individual mandate is unconstitutional because only the states have the authority to impose individual regulations of this type. Rivkin and Casey also attack several other provisions of the law on legal grounds, and urge the court to rule the entire law unconstitutional.

        In an editorial, the Wall Street Journal (11/15, A18, Subscription Publication) also puts the individual mandate under tight legal scrutiny, and applauds the court for showing courage in taking up this contentious issue during an election year.

        The New York Times (11/15, A30, Subscription Publication) reports, "If the court follows its own precedents, as it should, this case should not be a close call: The reform law and a provision requiring most people to obtain health insurance or pay a penalty are clearly constitutional."

        In the Los Angeles Times (11/15), Erwin Chemerinsky, dean of the UC Irvine School of Law, writes that "what complicates the decision and makes the result unpredictable is whether the justices will see the issue in terms of precedent or through the partisanship that has so dominated the public debate and most of the court decisions so far."

        USA Today (11/15) editorializes, "In recent years, judges increasingly have come to be seen not as independent, fair-minded interpreters of the law and the Constitution, but as politicians in robes. The health care case gives the court an extraordinary opportunity to help clean up that tarnished image." According to USA Today, "Simply because the case is so politically contentious, a lopsided ruling in either direction would send an encouraging message that the court is what Chief Justice John Roberts once said it should be: an honest umpire."

 

The Chicago Tribune (10/26, Cancino) reports, "Four out of five metropolitan areas in the United States lack a competitive health insurance market, according to a study released Tuesday." Investigators "used 2009 enrollment data from health maintenance organizations (HMOs) and preferred provided organizations (PPOs) from 368 metropolitan markets in 48 states." In half of those "states, including Indiana and Michigan, the two largest health insurers had a combined market share of more than 70 percent."

        The AP (10/26) reports that "Alabama had the least competitive health insurance market with two companies controlling 95 percent," while "Oregon has the most competitive market with the top two controlling 39 percent," according to the report.

        The Detroit Free Press (10/26, Anstett) reports, "Michigan has the fourth least-competitive health insurance market in the nation, according to" the report. The report indicates that "Blue Cross Blue Shield of Michigan, which covers 71% of the state's residents with commercial insurance, dominates 13 of 15 metropolitan areas in the state, controlling at least two-thirds of those markets."

The Administration's release of final rules for accountable care organizations received widespread print media coverage. Overall, the reaction to the rules was positive, as Politico notes, although the Washington Post says that insurer and employer groups expressed certain concerns. The Washington Post (10/21, Aizenman) reports, "The Obama administration on Thursday substantially revised the rules of a program under the 2010 health-care law aimed at encouraging doctors and hospitals to coordinate care. The final regulations grant medical providers far more flexibility than a draft proposal released in March." These rules for accountable care organizations (ACOs) were "greeted with jubilation by groups representing doctors and hospitals," although "insurers and employers complained that the administration's concessions increased the likelihood that providers will consolidate, reducing competition and driving up prices."

        The Wall Street Journal (10/21, Radnofsky, Subscription Publication) says that healthcare facilities that decide to participate in ACOs will face less financial risk as a result of the new rules. They will not be responsible for paying for some losses if prices increase, instead of decrease. But, providers which accept the risk will be entitled to a greater share of savings.

        The Los Angeles Times (10/21, Levey) reports, "The rules will reward healthcare providers who form partnerships to reduce the cost of caring for Americans on Medicare while also boosting quality, two goals of the sweeping overhaul the president signed last year." ACOs "have been held up by many experts as one of the most promising remedies for the poor outcomes and high costs that bedevil the American healthcare system." CMS Administrator Donald Berwick said that the partnerships "can represent a very big step forward in helping to transform Medicare, Medicaid and the Children's Health Insurance Programs so they can help assure high quality, seamless and less costly healthcare."

        The AP (10/21) reports that under the rules, "health care providers will be able to start forming accountable care organizations in 2012 to coordinate care, share records, and cut down on duplicative tests and medical errors." They "will have to make a three-year commitment to care for a group of at least 5,000 Medicare patients if they form...ACOs."

        Bloomberg News (10/21, Eisenberg, Wayne) reports, "The final rules make government antitrust reviews voluntary, a change from the original agreement between the Justice Department and the Federal Trade Commission issued in March." Notably, "investor-owned hospital systems, represented by the Federation of American Hospitals, had criticized requiring antitrust reviews before companies could participate, saying it would be 'a significant deterrent' to participation."

        CQ (10/21, Norman, Subscription Publication) reports, "Reaction to the final rule for accountable care organizations...was cautiously optimistic. But health care providers warned that they were continuing to study the fine print of the 696-page document, and no one was ready to declare the revised regulation a home run."

 

HHS Will Not Implement CLASS Long-Term Care Insurance Plan.

There was widespread television and print media coverage over the weekend of an announcement by the Obama Administration that it would not implement a health reform provision called the Community Living Assistance Services and Supports program, or CLASS. Sources portrayed the decision as a blow to the Administration and the law. FOX and Friends (10/15, 8:30 a.m. EST, 1,165,673) reported that the "White House announced it will not move forward with" the CLASS program, "a key program in the president's health care overhaul." HHS Secretary Kathleen Sebelius informed "Congress it could not be implemented in time. This program was expected to launch next year," but was "said to have design and financial problems."

        The AP (10/14, Alonso-Zaldivar) reported that HHS has "pulled the plug on a major program in the president's signature health overhaul law -- a long-term care insurance plan dogged from the beginning by doubts over its financial solvency." This program, "targeted by congressional Republicans for repeal," became "the first casualty in the political and policy wars over the healthcare law. It had been expected to launch in 2013." Sen. John Thune, who led opposition to CLASS in the Senate, said, "This is a victory for the American taxpayer and future generations."

        Bloomberg News (10/15, Wayne, Armstrong) reported HHS said CLASS is "financially unsustainable." In a letter to congressional leaders, HHS Secretary Sebelius said, "I do not see a viable path forward for Class implementation at this time." CLASS "had been championed" by Sen. Edward Kennedy "before his death," but Republicans "called it an accounting gimmick whose premiums would be used to pay for other parts of the law and said Democrats vastly underestimated its future costs."

        The New York Times (10/15, A10, Pear, Subscription Publication) said the decision "was another setback for the new law, which is under attack in court, in Congress and in many state legislatures." Sebelius "said her decision 'does not affect the rest of the healthcare law,' which is supposed to provide coverage to more than 30 million people who are uninsured." The Los Angeles Times (10/15, Levey) also said the move "will not affect other parts of the sweeping law, including preparations for a major expansion of health insurance coverage starting in 2014, according to administration officials."

        The Wall Street Journal (10/15, Radnofsky, Subscription Publication) reported CLASS had been projected to generate billions in revenue early on, but its long-term obligation to meet claims payments was seen as problematic. Senate Minority Leader McConnell said, "The Obama Administration today acknowledged what they refused to admit when they passed their partisan health bill: The Class Act was a budget gimmick that might enhance the numbers on a Washington bureaucrat's spreadsheet but was destined to fail in the real world."

        The Washington Post (10/15, Aizenman) said while CLASS "had been dogged from the start by doubts about its feasibility, its elimination marks the first time the administration has backed away from a key piece of President Obama's signature legislative achievement."

        CQ (10/15, Ethridge, Subscription Publication) reported, "Many Democrats signaled they intend to try to devise a workable and affordable alternative to address the costs of long-term care, while Republicans used the announcement to revive their calls to repeal last year's health care law." GOP lawmakers "said shelving the program was insufficient and called on Congress to vote to repeal the program, a proposal that could allow the GOP to re-open the larger health care overhaul debate." In addition, "House Republicans wasted no time in scheduling an Oct. 26 hearing of two Energy and Commerce panels to explore the cancellation of the program and its effect on the deficit."

        More Commentary. A Wall Street Journal (10/15, Subscription Publication) editorial welcomed the announcement that the Department of Health and Human Services will close one of the Affordable Care Act's major new entitlement programs. The editorial saw HHS Secretary Kathleen Sebelius' decision to shut down the office in charge of creating the insurance program for long-term care as an admission that the Obama Administration's claim that the program would help to reduce the deficit reduction was a fantasy. According to the editorial, Democrats had finagled the figures during the healthcare debate to make it appear as if the program could reduce the deficit, but the program's killing proved that the numbers had always been an illusion.

 

Several print media sources picked up an announcement by the Obama Administration that it would not appeal a decision in one of the cases challenging the healthcare law. The announcement fueled expectations that the Supreme Court would ultimately decide the fate of the Affordable Care Act. For the most part, news outlets suggested that this was a good strategy on the part of the Administration. The AP (9/27) reports that the Obama Administration "has decided not to ask a federal appeals court in Atlanta for further review of a ruling striking down the centerpiece of" President Obama's "sweeping health care overhaul." The decision increases the likelihood that the Supreme Court "would hear a case on the health care overhaul in the court's term starting next month, and render its verdict on the law in the midst of the 2012 presidential election campaign."

        The Washington Post (9/27, Barnes) notes that in June, "a divided panel of the Court of Appeals for the 6th Circuit in Cincinnati upheld the health-care law in a separate case," but the 4th Circuit Court of Appeals in Richmond, VA "turned down a challenge to the law."

        The Los Angeles Times (9/27, Savage) reports, "Now, the administration can appeal directly to the Supreme Court and ask the justices to schedule the case to be heard and decided during the term that begins next week and ends in June. If the court follows that schedule, the justices will hand down a ruling on President Obama's signature legislation just as the election campaign moves into high gear." The Times notes, "At issue for the court is whether Congress can use its power to 'regulate commerce' to require that all Americans who have taxable income certify by 2014 that they have health insurance."

        In Politico (9/27, Haberkorn), former acting Solicitor General Walter Dellinger said that "the move should be read as a sign of confidence from the administration." He goes on to say, "This confirms what I had already concluded: That the government is confident that it's going to prevail in the Supreme Court and would like to have a decision sooner rather than later."

        The Wall Street Journal (9/27, Kendall, Subscription Publication) reports that Justice Department spokeswoman Tracy Schmaler confirmed that the department will not appeal for further reconsideration.

        The New York Times (9/27, A14, Sack, Subscription Publication) reports, "The Supreme Court has already received one of the multitude of federal cases challenging the constitutionality of the law's individual insurance mandate. It arrived in July from the Court of Appeals for the Sixth Circuit, in Cincinnati, which upheld that provision on a 2-to-1 ruling."

        Also covering the story are the Washington Post (9/27, Stromberg) "Post Partisan" blog, Reuters (9/27, Vicini), National Journal (9/27, McCarthy, Subscription Publication), and The Hill (9/27, Baker) "Healthwatch" blog.

Today marks an important deadline in the ongoing legal battle over the Patient Protection and Affordable Care Act (PPACA). The Obama administration must decide whether it wants to directly ask the Supreme Court to review the constitutionality of its signature health reform legislation or whether it wants to pursue an en banc review from the full 11th Circuit Court of Appeals to review its prior decision striking down the law’s individual mandate requirement. The case in question is the challenge being made by 26 states and the National Federation of Independent Businesses (NFIB). It is the largest and highest profile challenge to the health reform law, which has now seen three circuit courts rule in three different ways on the issue. The Justice Department must file the necessary paperwork by close of business if it plans to pursue the en banc review of the 11th Circuit’s decision. Read More

The Patient Protection and Affordable Care Act (PPACA) requires employers to report the aggregate cost of employer-sponsored group health coverage on an employee’s Form W-2. Although the information must be disclosed, the cost of the coverage remains tax-free to the employee. 

This requirement was initially set to take effect beginning with the 2011 tax year. Employers would have had to include the additional information on the forms required for the calendar year 2011 that they are required to furnish in January 2012.  

However, on Oct. 12, 2010, the Internal Revenue Service (IRS) issued Notice 2010-69, which delayed the compliance date for this requirement by making compliance optional for the 2011 tax year. Under this extension, employers could expect to include this information for the first time on the 2012 Form W-2s instead, which are not issued until 2013. 

On March 29, 2011, the IRS further delayed compliance with this requirement for small employers (those filing fewer than 250 W-2 Forms) in Notice 2011-28. The new guidance makes the W-2 reporting requirement optional for small employers with respect to the 2012 W-2 Forms, which would be furnished to employees in January 2013. This optional treatment for small employers will be continued until further guidance is issued.     

Interim Guidance 

Notice 2011-28 also contains interim guidance for employers that must include group health coverage information on the 2012 W-2 Forms and those that voluntarily choose to comply for 2011 or 2012. Written in question-and-answer format, the guidance provides information on the following issues:

• ·          Employers subject to the reporting requirement;
• ·          Method of reporting on the Form W-2;
• ·          Aggregate cost of employer-sponsored coverage;
• ·          Cost of coverage required to be included in the aggregate reportable cost; and
• ·          Methods of calculating the cost of coverage.  

Notably, this guidance clarifies that the cost of coverage under certain plans is not required to be included on an employee’s Form W-2. These plans include multiemployer plans, health reimbursement arrangements (HRAs), dental or vision plans that are not integrated into a group health plan providing health care coverage, self-insured group health plans that are not subject to federal continuation coverage requirements (such as church plans), and government plans maintained primarily for members of the military or their families.  

To read the full interim guidance, see Notice 2011-28 at www.irs.gov/pub/irs-drop/n-11-28.pdf.

Compliance Steps for Employers 

Although the requirement has been delayed, employers subject to the reporting requirement should use the additional time to ensure that they (or their payroll provider) are prepared to gather this information in advance of having to complete the Forms W-2.  

In doing so, these employers should make sure they can identify the applicable employer-sponsored coverage that was provided to each employee and be prepared to calculate the aggregate cost of that coverage. The aggregate cost of the coverage is to be calculated similarly to how the COBRA applicable premium is determined.  

Employers may also have to address questions from employees regarding whether their health benefits are taxable under this new requirement. They can assure employees that the rule is a reporting requirement only, and does not mean they will incur additional tax obligations. The IRS stated in Notice 2011-28 that this reporting to employees is for their information only to inform them of the cost of their health care coverage and it does not cause excludable employer-provided health care coverage to become taxable.  

Marrs Maddocks & Associates will continue to update you as additional information becomes available with respect to this requirement.

 

Last night and this morning, Mitt Romney's widely anticipated healthcare speech is being portrayed, by and large, as a failed attempt to achieve several objectives simultaneously – defending his Massachusetts healthcare reform plan, differentiating it from President Obama's Federal law and shedding his image as a flip-flopper willing to renounce long-held positions due to political expediency. Praise for Romney's performance is nearly nonexistent, with commentators from across the political spectrum contending that the issue remains a tremendous drag on Romney's 2012 hopes.

        ABC World News (5/12, story 3, 2:30, Sawyer), after describing Mitt Romney as "the Republican the polls show poses the biggest challenge to President Obama," said he "has been taking heat for being the architect of health care reform in Massachusetts, very much like President Obama's plan," which he "signed into law in 2006 with Ted Kennedy at his side." ABC added, "Eighty percent of Republicans oppose the President's health care plan, which, like the Massachusetts model, penalizes people who do not buy insurance. ... Romney did say he would work to repeal the President's plan and hand over power to individual states." Romney: "Our plan was a state solution to state problem. And his is a power grab by the Federal government to put in place a one size fits all plan across the nation."

        On Fox News' Special Report (5/12), correspondent Carl Cameron noted that in his speech yesterday, Romney "first attacked President Obama's healthcare law" although "parts of 'Obama-care' were modeled on Romney's plan, but he flatly refused to apologize or distance himself from it." Romney: "I, in fact, did what I believed was right for the people of my state." Cameron added, "Hours before Romney's latest speech, White House spokesman Jay Carney had already taken notice." Carney: "Governor Romney seems to be running away from some of the goals of his own law." Cameron also reported that "during his 2008 White House run, Romney boasted about his [healthcare] record."

        Politico (5/12, Negrin) reported that Carney "charged" that Romney was "'running away' from the objectives he sought. ... 'There's a lot of similarities between the Affordable Care Act and the law in Massachusetts,' Carney said."

Summary: AB 36 makes CA tax law conform to the
2010 federal tax rules for nondependent adult children 

The Affordable Care Act and Impact on California Tax
http://www.ftb.ca.gov/professionals/taxnews/Patient_Protection_and_Affordable_Care_Act.shtml 

Health Coverage for Adult Children up to Age 27

California Assembly Bill (AB) 36 was enacted on April 7, 2011. This bill conforms California personal income tax law with federal income tax law by adopting a specified provision of the Affordable Care Act signed into law by the President in March 2010. (The Affordable Care Act refers to Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.) AB 36 is effective immediately, and generally applies to the same taxable periods as federal law. 

• The Patient Protection and Affordable Care Act requires benefit plans that provide coverage for family members to cover adult children of the employee, to age 26 whether or not they qualify as dependents for tax purposes.
• The Health Care and Education Reconciliation Act of 2010 extends the general exclusion for reimbursements for medical care expenses under an employer-provided accident or health plan to any child of an employee who has not attained age 27 as of the end of the taxable year.

Impact on Income Tax – The Affordable Care Act amends federal income tax laws to exclude the value of an eligible adult child’s medical coverage from the taxable income of the parent-employee, even if the child is not a dependent. The law also allows self-employed individuals a deduction for health insurance premiums for an adult child under age 27, even if the child is not a dependent.

New California law – California personal income tax law, as amended by AB 36, conforms to the 2010 federal income tax rules which exclude the value of the medical coverage provided to non-dependent adult children from California gross income and allow a deduction to self-employed individuals for health insurance premiums for nondependent adult children under age 27.

• Any amount paid by an employee for such additional coverage is excluded from California taxable wages.
• Self-employed individuals may deduct the health insurance premium paid for an adult child under age 27.

How to File:

Form 540 - On an original tax return

If the employer issued Form W-2 including the amount of medical coverage for your nondependent adult children in your California wages, contact your employer to have them issue you Form W-2C excluding the amount from your California wages. Use form FTB 3525 as a substitute for federal Form W-2C if your employer does not issue you a Form W-2C.

Self-employed individuals may deduct the health insurance premium paid for nondependent adult children under age 27. No California adjustment is needed.

Form 540X – On a previously-filed tax return

If you have already filed Form 540 with Form W-2 that included the amount of medical coverage for your nondependent adult children in your California wages, contact your employer to have them issue you Form W-2C excluding the amount from your California wages. Use form FTB 3525 as a substitute for federal Form W-2C if your employer does not issue you a Form W-2C. File Form 540X to report the reduction in your California wages.

For self-employed individuals who reported a California adjustment excluding the health insurance premium paid for nondependent adult children, file Form 540X to report the allowed deduction for California.

The IRS has delayed the implementation date in the Affordable Care Act (IRS Notice 2010-69) requiring employers (groups
with fewer than 250 W-2s) to report the cost of employer-provided health care coverage on their employees W-2 forms
until 2013.

This new notice (2011-28) makes the reporting voluntary for 2011 and 2012 - and saves your clients additional work.

For more information, please see the following links for details:

IRS New Release Notice 2011-31 (3/29/2011)
IRS Issues Interim Guidance on Information Reporting of Employer-Sponsored Health Coverage
http://www.irs.gov/newsroom/article/0,,id=237870,00.html
 
Employer-Provided Health Coverage Informational Reporting Requirements:
Frequently Asked Questions
http://www.irs.gov/newsroom/article/0,,id=237894,00.html

Politico (2/25, Haberkorn) reports, "Nearly half of all Americans believe the healthcare reform law has already been repealed or aren't sure one way or the other, a new Kaiser Family Foundation poll shows." The data indicate that "fifty-two percent of Americans believe -- correctly -- that the law has not been repealed," although "22 percent think the law has been repealed, and 26 percent aren't sure."

        TPM Media (2/25, Terbush) reports, "The results are a shocking finding given how contentious -- and highly publicized -- the battle over healthcare reform has been. Republicans made dismantling the healthcare overhaul a central plank of their midterm platform." Meanwhile, "as the 2012 presidential race heats up, healthcare looks poised to be a central issue in that contest as well."

        Kaiser Health News (2/25, Rau) says that the poll was conducted "after the Republican-controlled House of Representatives voted to repeal the law last month, and two federal judges ruled the law was unconstitutional." Confusion about the law on the part of some respondents may be due somewhat to "extensive media coverage of these events."

        The Huffington Post (2/25, Linkins) reports that according to the Kaiser Family Foundation's Drew Altman, the poll's findings suggest that "there may be some partisan wishful thinking going on; 30 percent of Republicans think the law has been repealed while only 12 percent of Democrats do." Yet, "overall, it is obvious that the knowledge of basic civics is pretty low. Maybe it's because 'Schoolhouse Rock' is no longer airing on Saturday morning TV explaining how government works."

        The Hill (2/25, Millman) reports in its "Healthwatch" blog, "The poll indicates trouble for the White House's efforts to sell the reform law to the public as Republicans work to undo President Obama's major legislative achievement. The House voted last month to repeal the law, but an early February repeal vote in the Democratic-controlled Senate failed along party lines." The Hill adds, "The Senate vote proved it will be virtually impossible to pass outright repeal of the law over the next two years, but Republicans are using different tactics," such as a vote to defund implementation of the law, "to chip away at what they call a government takeover of the healthcare system."

        The CBS News (2/25, Condon) "Political Hotsheet" blog reports, "Kaiser's poll shows that more Americans, 48 percent, have an unfavorable view of the laws than hold a favorable view (43 percent)." About "four in 10 want the reform package repealed, though half of those respondents want it replaced with a Republican alternative." In contrast, 22% of respondents said that the healthcare law should be implemented in its entirety, while 30% felt that the law does not go far enough. CBS adds, "When asked about specific, key provisions of the new law, even those who want it repealed say they would keep most of the law's individual elements," such as eliminating the Medicare doughnut hole. Notably, the individual mandate remained the most unpopular provision of the law, with 52% of respondents saying that it should be repealed.

        Modern Healthcare (2/25, Zigmond, subscription required) reports that Kaiser investigators who conducted the poll concluded, "As has been true since early in the debate, individual provisions of the new law are more popular than the law itself, complicating the debate over repeal." The Wall Street Journal (2/24, Hobson) "Health Blog," the NPR (2/24, Hensley) "Shots" blog, and The Atlantic (2/24) also covered the story.

 

Politico (2/19, Nather) reported, "The House voted Friday to block funding for the healthcare law in several ways -- starting the countdown to the defunding clash with Senate Democrats and President Barack Obama. As expected, lawmakers approved Rep. Denny Rehberg's amendment to the continuing resolution, which bars all payments to 'any employee, officer, contractor, or grantee of any department or agency' to implement the law." Rehberg's amendment specifically targets HHS and the Labor Department. In addition, GOP lawmakers "gave unexpected victories to Steve King of Iowa, approving broader measures to deny any implementation funds in the continuing resolution and block salaries to enforce the entire law."

        CQ Today (2/19, Weyl, subscription required) quoted Rehberg, "chairman of the Appropriations subcommittee that oversees" HHS, as saying, "This amendment can slow but not completely stop the process. ... I've tried everything within my power to write an amendment that would completely defund implementation, yet withstand a point of order." CQ noted that "debate echoed arguments lawmakers have made over the last two years. Republicans charged the law is an unconstitutional government takeover of healthcare and a budget-buster, while Democrats blasted attempts to eliminate consumer protections, such as allowing individuals with pre-existing conditions access to health coverage."

        The Hill (2/19, Pecquet) reported in its "Healthwatch" blog, "The continuing resolution faces high hurdles in the Democrat-controlled Senate. And President Obama announced he 'strongly opposes' it before the new amendments even passed." In fact, the Administration stated, "If the president is presented with a bill that undermines critical priorities or national security through funding levels or restrictions, contains earmarks, or curtails the drivers of long-term economic growth and job creation while continuing to burden future generations with deficits, the president will veto the bill."

        The Wall Street Journal (2/19, Zibel, Kendall, subscription required) also reported on the vote to defund the healthcare law, and pointed out that, for the most part, lawmakers voted along party lines. Reuters (2/19, Cowan, Ferraro) also covered the story.

 

The AP (2/8) reports, "Indiana Gov. Mitch Daniels and 20 other Republican governors are asking US Health and Human Services Secretary Kathleen Sebelius to make changes in parts of the federal healthcare overhaul that they feel put states at a disadvantage."

        Fox News' Special Report (2/7, Baier) reported, "Already repealed in the House and on its way to the Supreme Court, the President's healthcare law is facing a new challenge" as 21 Republican governors are "pressing the Obama administration to make big changes" to it.

        Politico (2/8, Kliff) reports, "Republican governors want HHS Secretary Kathleen Sebelius to make specific changes to the new health exchanges, and have threatened to pull back on running their own exchanges if their demands are not met." They wrote to Sebelius saying, "While we hope for your endorsement, if you do not agree, we will move forward with our own efforts regardless and HHS should begin making plans to run exchanges under its own auspices." In response to the letter, HHS spokeswoman Jessica Santillo said that since the healthcare law "was enacted, HHS has made resources available to the states to both plan and establish exchanges and made clear we will consider different models that fit states' needs. We look forward to continuing to build a constructive partnership with governors and state leaders."

        The Hill (2/8, Millman) reports in its "Healthwatch" blog that the "21 Republican governors recommended six major improvements for state-run exchanges that would give the states more decision power," such as "the choice of which insurers can offer products; waive mandates and allow states to choose benefit rules; waive provisions discriminating against consumer-driven health plans, such as health savings accounts; allow the flexibility to move non-disabled Medicaid beneficiaries into exchanges; deliver a plan for verifying incomes and subsidy amounts for exchange participants; and commission a 'new and objective' assessment of how many people will enroll in exchanges and Medicaid as a result of the reform."

        CQ HealthBeat (2/8, Adams, subscription required) reports, "The governors also warn federal officials that failure to give states more authority over the exchanges will mean 'HHS should begin making plans to run exchanges under its own auspices.' The law gives governors a choice of operating the exchanges themselves or allowing federal officials to run them."

America’s employers — large, mid-size and small — for nearly a year have shared a fundamental concern: no one really knows how health care reform ultimately will affect employer-sponsored health benefits.

“At the most basic level, employers don’t know if the Patient Protection and Affordable Care Act (PPACA) will bend the cost curve down … or up,” said Jim O’Connell, Ceridian's consultant on legislative and regulatory affairs in Washington, D.C. Health costs have been soaring for more than a decade, and it is possible that the health care reform law will actually accelerate these costs.

Adding to the uncertainty is Florida Federal Judge Roger Vinson’s declaration this week that the entire law is void because its core — the mandate that almost all Americans obtain health insurance — violates the Commerce Clause of the U.S. Constitution. The U.S. Supreme Court may eventually take up the issue, but many think that might be a year or two away.

One thing is certain, however: health care reform — in any form — will surely represent a compliance tsunami for employers.

“Plan mandates, including the age-26 coverage requirement, auto-enrollment, preventive care without cost-sharing, the definition of essential health benefits, employer 'play or pay', Forms 1099 and W-2 reporting and many other requirements, will all require volumes of clarifying regulations,” O’Connell said.

O’Connell said the employer compliance burden associated with new mandates, reporting requirements and additional taxes could prove in the near future to be just as great as FMLA, COBRA and ERISA combined.

For example, the new 40% excise tax on so-called “Cadillac” health plans, slated for 2018, will force employers to make dramatic changes in employee health benefits to avoid the burden of new taxes.

In his second State of the Union address, President Obama declared that he is open to adjusting the new health care reform law and its funding strategy because, as he put it, “anything can be improved.” As an example, he proclaimed his support for a repeal of the 1099 provision, a requirement that has been widely unpopular for creating an unnecessary paperwork burden for small businesses.

He also proposed a five-year freeze on domestic spending, promising to reduce excessive Medicare and Medicaid expenses to balance the costs of health care reform initiatives.

But he also urged legislators to “fix what needs fixing and move forward.”

All this comes at a time when employers thought Congress had finished making sweeping changes in our nation’s health care system. It now appears that, in reality, the March 23, 2010, White House signing ceremony marked the beginning, not the end, of health care reform.

Last month the Republican-controlled House voted to repeal PPACA, and 26 states are currently involved in lawsuits regarding the law's constitutionality that will likely reach the U.S. Supreme Court.

With a historic swing of 63 seats, the most dramatic change in the House of Representatives since 1948, Republicans seem determined to use their majority to change what they perceive to have been the catalyst for their Election Day victories: PPACA.

This week the Senate Democrats rejected the Republicans’ bid to repeal the law. Yet the repeal vote represents the beginning of a long process to amend PPACA and to forge a long-elusive bipartisan consensus.

So what should employers expect from the 112^th Congress on health care reform?

“It’s becoming increasingly clear that PPACA opponents have a 3-D strategy: defund, delay, dismantle,” O’Connell said.

Defund

O’Connell said Republicans are likely to use their majority control of the House to attempt to cut the appropriations for agencies charged with implementing the most controversial parts of the health care reform law.

For example, the Fiscal Year 2012 appropriations bill for the Department of Health and Human Services (HHS) might contain a specific prohibition on the use of any appropriated funds to enforce new regulations directing the states to expand the Medicaid program.

“While this kind of ‘surgical repeal’ is attractive to conservative opponents of the new law, it runs a couple of risks,” O’Connell said. “One, it potentially sets up a budget confrontation between the executive and legislative branches of government that could lead to a government shutdown. Two, it risks suggesting to voters that Republicans have taken their eye off the main issue — jobs and the economy.”

Republicans likely will target controversial provisions and perhaps confront the administration over funding for such provisions. But it is not likely that Republicans will center their assault of PPACA on its budgetary aspects. 

Delay

Another Republican strategy for challenging PPACA, O’Connell said, might be to pass legislation delaying the effective dates of objectionable provisions. For example, Republicans might seek to postpone the 2014 effective date of the mandate on employers to provide affordable health coverage for their employees or pay steep penalties.

PPACA opponents might also propose to delay the 2014 effective date of the individual mandate until the U.S. Supreme Court reviews the lower court rulings.

“With unemployment still near 10% and state budgets under duress, it might even be possible to achieve a bipartisan consensus to delay PPACA provisions that might impact state costs, such as the sharp increase in Medicaid eligibility,” O’Connell said. 

Dismantle

Because many political observers believe health care reform was damaging for Democratic congressional candidates in 2010, Republicans will likely force separate votes on hot-button issues to tie Democrats more closely to those provisions.

“The PPACA mandate that all individuals must purchase health coverage starting in 2014 is perhaps the most controversial provision in the new law and the subject of pending constitutional challenges,” O’Connell said. "Expect amendments to be offered later in 2011 or 2012, in either the House or Senate, to strike the individual mandate from the law. And it’s possible that Democratic senators up for re-election in 2012 might feel pressure from constituents to support such legislation." Likewise, the employer “play or pay” mandate could be a target for legislative amendments “to alter, delay or eliminate it,” he said.

Republican opponents pushed first for an outright repeal of PPACA. “Because that legislation was rejected in the Senate, Republicans are likely to shift tactics to a piece-by-piece approach, hoping to remove key elements and force consideration of alternative ideas. It’s even remotely possible that one or more of these targeted amendments could also be approved by the Senate,” O’Connell said.

But for employers, whose main interests lie in compliance with the new law and in understanding how it might affect their employee health benefits, the re-opening of legislative action on health care reform deepens the uncertainty that they must live with.

“It means that health care reform could be reconsidered this year and perhaps even reconsidered after the 2012 elections, until at some point a bipartisan majority coalesces around a consensus approach that enjoys broad public support,” O’Connell said.

Employers can only hope that Washington will not wait too long to provide the regulatory certainty that’s long been missing from the nation’s health care policy.

 

http://nyti.ms/hopjBI

On Monday, December 13, a U.S. Federal judge ruled that a key provision in "Obamacare" is Unconstitutional.  What does it mean when a law is unconstitutional?  It means that the law is inconsistent with, unauthorized by, and not in accord with the principles of the Constitution of the United States.  So, in the case of  Commonwealth of Virginia ex rel. Kenneth Kuccinelli v. Kathleen Sebelius, U.S. circuit judge Henry Hudson declared that the individual mandates contained in the Patient Protection and Affordable Care Act (the "Act") are inconsistent with, unauthorized by, and not in accord with the principles of the Constitution.  In other words, Mr. Obama, Ms. Pelosi, Mr. Reid and their cohorts, in the judge's opinion, overstepped the authority of the federal government when they passed the Act.  To borrow from our current Vice President, "this is big freakin' deal."  Or is it?

Since Monday, the pundits have been out strutting like peackoks in force, as well they should be, talking about this ruling, their political leanings in full plume.  Depending on their political perspective, this is either a carefully considered opinion that undertakes to reign in the excesses of the federal government or a travesty of justice that is inconsistent with currently developed case law.  Blah. Blah. Blah.  Who's right?

Well, you will have to decide for yourself, but one thing you should know as an employer, is that this case in Virginia doesn't change one thing right now.  After the judge's ruling was released, I received countless e-mails from clients across the country, all asking the same thing:  what do we do now?  The answer:  nothing on the business front. 

On the personal front, not quite nothing.  As American citizens they should consider the arguments on this and make up their own minds about whether this law is consistent with the Constitution or inconsistent with it, and then act consistently in the next Presidential election, because more likely than not the make up of the U.S. Supreme Court in 2013 or beyond may well determine this issue--but more on that later.

First, the background, in this case:   Judge Henry Hudson agreed with Attorney General Ken Cuccinelli (and approximately 20 or more states attorneys general and governors who have filed a separate suit) that the Act is unconstitutional. The ruling focuses primarily on one aspect of the Act: the Individual Mandates set to become effective in 2014. In finding that the Act is unconstitutional, Judge Hudson takes the Obama Administration to task on whether "activity" equals "inactivity." The Obama Administration, and the Act's supporters, say "yes, activity equals inactivity." As such, Congress was well within its authority under the Commerce Clause of the U.S. Constitution in passing the Act, because a solid line of Commerce Clause cases have found that Congress can regulate activity by private citizens even when they are not engaged in any kind of Commerce, under the Commerce Clause.

Judge Hudson, however, draws a key distinction between activity and inactivity--one requires action, the other one does not. In ruling that the Act is unconstitutional, the Judge found the federal government's argument to be less than persuasive. If accepted, the Commerce Clause would have no limits, because any decision not to do something is then construed as a decision to do something.  The Judge demonstrated little patience for this type of twisted logic.  In a key part of his ruling, the Judge observed that "[t]he unchecked expansion of congressional power to the limits suggested by the [Individual Mandate] would invite unbridled exercise of federal police power. At its core, this dispute is not simply about regulating the business of insurance-or crafting a scheme of universal health insurance coverage-it's about an individual's right to choose to participate."

You see, the Federal Government is a government of limited powers.  If it ain't in the Constitution, Congress can not do it.  No where in the Constitution does it literally say that Congress may order private citizens to buy a product.  In fact, with only a few exceptions, no where in the Constitution is the Federal Government granted the authority to mandate private citizens to do anything.  Two come to mind:  conscription (the draft) and income taxes.  The former is clearly contained in the war powers provisions of the Constitution (Article I grants to Congress the right to "call a militia").  The latter is contained in a grant of power under the Sixteenth Amendment to the Constitution.  

Until the Obama-Pelosi-Reid Triumvirate no prior Congress had passed a law ordering citizens to "do something."  Ignore pundits who talk about seat belt and helmet laws to argue their case on this point.  They are clearly not  worth  listening to, since th o se laws  have always been passed at the state level. Why?  Because no prior Congress or Administration believed it had the right to order citizens to fasten a seat belt.  To do something.  Yet, this Congress and Administration, despite more than 200 years of intelligent people believing differently, believes that right is in the Constitution.

Where?  According to the US Attorney General, that power is in the Commerce Clause of the Constitution, which gives Congress the right to regulate interstate commerce.  Huh?  To understand this argument, you have to understand the "Wheat Case," a 1942 case in involving a farmer  and  the Secretary of Agriculture.  In that case, under the Agricultural Adjustment Act, the Secretary of Agriculture limited the amount of wheat a farmer can produce in order to control the interstate wheat market.   Farmer Roscoe Filburn grew more wheat than he was allotted ,  but kept the excess for personal use.  The federal government  told him  he cannot do this and the Supreme Court found that this was a valid exercise of the Commerce clause because of the impact that Filburn’s surplus will have, in the aggregate, on the interstate market for wheat. The Court stated, "the power to regulate commerce includes the power to regulate the prices at which commodities in that commerce are dealt in and practices affecting such prices" -- even if it is a completely private activity such as growing wheat to feed your own family.  In other words, because Form Filburn's activity in growing the wheat had a potential (although clearly laughable) impact on the interstate Commerce, he had fallen under the lawful jurisdiction of the U.S. Congress in growing wheat for his own consumption.

Now comes Attorney General Holder who argues that inactivity is the same as activity because in choosing not to buy insurance Americans are having an impact on Commerce.  Again, Judge Hudson isn't buying this Cheshire Cat argument.  For him, activity is activity and inactivity is, well, inactivity.  But in this, you should know, that the Attorney General is not alone in his belief.  Two federal judges, one in Michigan and one 160 miles away from Judge Hudson in Virginia, bought the Attorney General's argument and declared inactivity activity  and the Act Constitutional . 

Did I mention that Judge Hudson is a Republican appointee to the bench and the two other judges were Democratic appoint ees ?  Well he is and they are.  So this is all shaping up to be pure politics in the court system, with another Republican appointed federal judge considering oral arguments in a similar case in Florida brought by over 20 governors and attorneys' general (of both parties).

So, why is this a big deal? For employers right now, it's not, because the Act is still in place.  Why might it become a big deal?  Because the Act was poorly drafted and does not include a "severability clause." Some argue that without a severability clause, the courts (and maybe the Supreme Court) will have to invalidate the whole Act as unconstitutional if any one part (like the individual mandates) is found to be unconstitutional. In addition, most people believe the individual mandates are critical to the Act's success, though the percentage of legal Americans without insurance today (less than 10%), seems to belie that argument.

Judge Hudson showed restraint in that he did not order the Federal Government to delay implementation of the Act pending review of the case, which was well within his authority. A future judge may not show such restraint. Ultimately, this case and the two dozen others that are in various stages right now won't mean a thing until and unless the Supreme Court ultimately decides whether we have passed Through The Looking Glass to a land where inactivity means activity.

 

The Department of Health and Human Services (HHS) recently made an amendment to current grandfathering regulations. Previously, an employer group health plan could lose its grandfather status if the employer, among other actions, changed health insurers. Thanks to this recent amendment, employers have more flexibility to shop their coverage and change insurance carrier and not lose their grandfathered status, so long as the structure of the coverage doesn’t violate one of the other rules for maintaining grandfathered plan status.

HHS was concerned that the original grandfathered language would yield the unintended consequence of forcing employers to offer the same level of benefits to all of their employees thus causing premiums to rise substantially. Ultimately, HHS realized that allowing employers some flexibility in this regard would help some Americans retain their current coverage and, perhaps, their jobs.

This is huge, but not because of what it does for employers or their employees. My guess is that the amendment will affect maybe 1% of consumers. What is significant, what we can’t lose sight of, is that this is clear evidence that HHS and the Administration are willing to listen to and act on employers’, consumers’, insurers’ and other stakeholders’ concerns and ideas on how to make healthcare reform more workable and successful for Americans.

Politico (12/1, Haberkorn) reports, "A federal judge in Virginia threw out a case brought by Liberty University that claimed the health care reform law is unconstitutional and would allow the religious institution's insurance payments to cover abortions." In response, the "White House quickly trumpeted the suit's dismissal as a sign that the health care law will survive the many legal challenges it faces." Stephanie Cutter, assistant for special projects, wrote in a White House blog post Tuesday, "The judge's ruling today only underscores the importance of the law's individual responsibility provision."

The recent elections are bringing big changes to Washington.  Republicans have taken control of the House of Representatives.  Democrats are set to maintain a slim majority in the Senate.  Many Republican candidates included promises regarding health care reform in their campaigns. These promises ranged from making changes to the law to outright repeal.  However, employers and plan sponsors should keep in mind that such changes will not be automatic or immediate. Any changes to health care reform will have to go through the same legislative process that the initial reform package endured.  

Potential Health Care Reform Changes

With a divided Congress, any efforts to completely repeal the legislation will face obstacles. Even if a full repeal could make it through the Senate, President Obama could still veto any repeal legislation. Because of that probability, some Republicans have indicated that that they would try to repeal the health care law “piece by piece,” using strategies like blocking funding or regulations. Other Republicans have also said they may try to replace, rather than repeal, parts of the law.  

Provisions of the law that are likely to be targeted for revision or repeal include:

• The requirement for businesses to report payments in excess of $600 on a Form 1099;

• The employer responsibility provisions, which provide that employers can face penalties for not providing a certain level of health coverage to employees;

• The individual responsibility requirement, which imposes penalties on individuals who do not obtain coverage;

•  The Cadillac Plan tax on high-cost, employer-sponsored health plans;

•  The tax on manufacturers of medical devices; and

• Cuts to Medicare. 

What’s Next?

Despite all these changes, and potential future changes, the health care reform law as we know it is the law. Employers and health plan sponsors should make sure they are implementing the requirements as they become effective. If any changes are made to parts of the law that have already taken effect, there will likely be time for employers and plan sponsors to put changes into place.

  Coverage of the main suit against the healthcare law was relegated mostly to newspapers, and only one network mentioned it briefly. While most sources hailed the decision as a preliminary victory for opponents of the law, they also cautioned that ultimately, this and other cases would likely be decided by the US Supreme Court. The CBS Evening News (10/14, story 2, 0:15 Couric) reported that "the battle over healthcare reform may be heading to court. Twenty states have joined forces to challenge the new law and today, a Federal judge ruled key parts of their lawsuit may, in fact, go to trial."

During the health reform debate, much was said about allowing people ‘who liked their current coverage to keep it’. This is referred to as “grandfathering”.

For example, a group could lose its benefits’ “grandfathered” status for any number of reasons, including:

* If the group chooses a new health carrier after 3/23/10
* If the group chooses even relatively modest benefit changes after 3/23/10
* If the employer chooses to change contribution levels after 3/23/10
* If the group does not maintain one enrollee at all times in all “grandfathered” benefit designs

“Grandfathering” may have limited real value for employers. The health insurance market is in constant flux and trying to keep current benefits and contributions frozen in a time capsule as of 3/23/10 is impractical.   We are not sure if the carriers will even retain "grandfathered plans" to continue and if they do, who knows what the cost will be.  We are not advocating that you ignore the "grandfathering" rules and whether it is important to your situation. However, we would encourage you to look at the big picture before deciding that you need to "grandfather".  If you would like our opinion on your specific situation, please feel free to contact us.

 

 

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September 23 marks the six-month anniversary of the enactment of health reform. As a result, some key changes take effect.

The following changes take place for all health plans:

• Lifetime limits. Plans may not impose lifetime dollar-limits on essential benefits.
  
  
• Rescissions. No rescissions are permitted, except in cases of fraud or intentional misrepresentation.
  
  
• Coverage for adult children. Children may stay on their parents' policies until age 26 if coverage isn't available through their work, regardless of their marital status.
  
  
• Pre-existing conditions. Group plans and new individual plans may not impose pre-existing condition exclusions for children under 19 (does not apply to grandfathered individual plans).

The following changes take place for all new plans and plans renewed six months after the law's enactment date (except grandfathered plans):

• Preventive services. New policies must cover the full cost of preventive care – no cost-sharing – as recommended by the U.S. Preventive Services Task Force; recommended immunizations, preventive care for infants, children and adolescents; and additional preventive care for women.
• Appeals. New minimum requirements go into effect for internal and external claims appeals processes.
• Patient protections. Plans that require or provide for a primary care provider (PCP) designation must allow each member to designate any in-network PCP, or pediatrician for children, accepting new patients. Plans may no longer require an authorization or referral to an Ob-Gyn. Prior authorization for emergency services is also prohibited – and no additional cost sharing for out-of-network emergency room services.
  
  
• Annual limits. Annual limits are restricted by Health and Human Services.
  
  

  The Washington Post /AP (9/14, A2, Alonso-Zaldivar) reports, "The nation's health system can't be transformed by rationing medical care, President Barack Obama's new Medicare chief said Monday in his first major speech." Dr. Donald Berwick's "appointment earlier this summer without Senate confirmation was contentious because some Republicans accused him of being willing to deny care to save on costs. Since then, the administration has kept Berwick out of the limelight, turning the otherwise well-known medical innovation guru into something of a mystery man in Washington." But, "Berwick broke his silence Monday, telling an audience of health insurance industry representatives that pushing back against unsustainable costs cannot and should not involve 'withholding from us, or our neighbors, any care that helps' or 'harming one hair on anyone's head.'"

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The Washington Post (8/29, Aizenman) reports, "Momentum is building to modify and possibly repeal one of" healthcare reform's "funding sources" in what "some see...as an opening for further changes to a law Democrats had been determined to leave untouched." The provision, which "will require businesses to file 1099 tax forms reporting any purchases they make of goods or services above $600," was "designed to clamp down on tax evasion" and "was projected to raise $17.1 billion over 10 years toward the cost of the health-care law," but "the measure has prompted alarm from small businesses, who complain that it could prove exceedingly labor-intensive and expensive. Members of Congress from both parties have taken notice, and the Senate is scheduled to vote Sept. 14 on two amendments to an unrelated bill: One would eliminate the 1099 provision; the other would exempt businesses with fewer than 25 employees, raise the reporting threshold to purchases above $5,000, and exclude those made with a credit card."

The Managed Risk Medical Insurance Board will begin accepting applications this month and providing coverage to Californians next month for a new health insurance program for individuals with preexisting conditions. It’s one of first major provisions of federal health reform to be implemented in California. The Preexisting Condition Insurance Plan (PCIP) will provide coverage to uninsured individuals who have been denied health insurance or have been offered only unaffordable options.

Premiums will range from $127 a month for children 15 and under in the three most southern counties to $1,003 a month for people over 74 in the Bay Area. For example, the monthly premium would be $499 for a 50-year-old in San Francisco compared to $915 for the state’s high-risk pool. Rates are effective through December 31, 2011.

To be eligible for PCIP, a person must be a citizen, national, or lawfully present in the United States. They must have had no creditable coverage six before applying and have a preexisting condition as evidenced by proof of denial by an insurance carrier in the past 12 months or an offer of coverage above the premium level of the MRMIP PPO rate. So far, nearly 4,000 people requested the PCIP application. Anyone who is interested in an application should submit their name, address, phone number and email address to PCIP@mrmib.ca.gov.

The Board is negotiating with two organizations to operate as administrative vendor and third-party administrator for the program – MAXIMUS, a Virginia-based private company with offices in Folsom, Calif. And HealthNow Administrative Services. They will provide a structure similar to what is in use with self-insured employers.

California will receive a federal allocation of $761 million to operate the plan through the end of 2013 when preexisting conditions are no longer considered in insurance pricing and eligibility under the new health reform law. For more information, visit www.mrmib.ca.gov.

While Dental and Vision plans are not the focus of the new Patient Protection and Affordable Care Act (PPACA), there are several factors that impact Dental and Vision plans none-the-less. Recently, the National Association of Dental Plans (NADP) highlighted those that may affect dental plan premiums over the next few years. Health Insurer Annual Fee All health plans (carriers), including stand-alone dental and vision plans, are subject to the Annual Fee which begins in 2014. The amount of tax revenue raised by the annual fee beginning in 2014 is $8 billion and increases annually to $14.3 billion by 2018; by 2019 the fee will be based on rate of growth of premium. With the exception of some carve-outs for smaller plans and tax-exempt non-profits, plans are likely to share in the tax in proportion to the size of their fully insured premium. The fee paid by insurers in 2014 will be a function of premiums in-force in 2013. It is expected that the ultimate fee paid by carriers may be in excess of 2% of premium. Cadillac Tax The much talked-about "Cadillac Tax" is an excise tax for high-cost health plans. Beginning in 2018, insurers that offer employer-sponsored health coverage with aggregate value exceeding $10,200 (employee only) or $27,500 (family) will be charged a 40% excise tax on any amount above the threshold. In the final modifications to PPACA, it was clarified that stand-alone dental and vision plans are excluded from the aggregate value calculation. However, health plans that embed dental and vision as part of the core medical plan are required to consider the entire value of the embedded benefits in the excise tax test. Other Indirect Costs to Consumers Finally, changes to Flexible Spending Accounts (FSAs) could have an impact on consumers' wallets. While eligible out-of-pocket dental expenses can still be reimbursed via an employee's FSA account, the breadth of these accounts will be restricted. Employee contributions to FSAs will be limited to $2,500 per year beginning in 2013, and then adjusted for inflation.

The health care reform law notes that, effective September 23, 2010, plans may not discriminate in favor of highly compensated employees. This means that group health plans cannot base eligibility or the level of benefits on an employee's wage. The group can offer different levels of benefits as long as they comply with ERISA and are not tied to the amount an employee makes. The legislation defines a highly compensated employee is someone who is:

• One of the five highest paid officers.
• A shareholder who owns more than 10% in value of the employer's stock.
• Among the highest paid 25% of all employees (exceptions apply).

Beginning January 1, 2011, over-the-counter (OTC) medicines will no longer be eligible FSA expenses unless prescribed by a doctor. OTC medicines (aspirin, ibuprofen, antihistamines, etc.) will need appropriate documentation from a doctor in order to be reimbursed by an FSA. Any claims submitted for reimbursement that include OTC drug expenses incurred on or after January 1, 2011 must be accompanied by appropriate documentation. Additional clarification on the OTC provision will be issued by the IRS in the near future.

This change only applies to OTC medicines and becomes effective on January 1, 2011, even if your clients are in the middle of their current plan years (such as plans that began on June 1, 2010 and end on May 31, 2011). Prescription drugs, insulin, and other OTC health care-related products, like blood pressure monitors, bandages, and first aid kits, continue to be eligible expenses.

AP (8/24) reports, California health insurance providers "would be prohibited from raising their rates more than once a year under" a bill (AB 2042) the state Senate approved yesterday in a 21-13 vote. The bill, which now moves to the Assembly, would "apply to individual healthcare policies, not group plans." Supporters say that the bill would "provide Californians with greater predictability when it comes to their health insurance." Opponents, who include "some of the state's largest health insurers," say breaking up fee increases "throughout the year reduces the financial burden on consumers." If approved, the legislation "would take effect in January."

White House Allies Address Persistent Unpopularity Of Healthcare Reform. Politico (8/20, Smith) reports, "Key White House allies are dramatically shifting their attempts to defend healthcare legislation, abandoning claims that it will reduce costs and deficit, and instead stressing a promise to 'improve it.'" According to Politico, "The messaging shift was circulated this afternoon on a conference call and PowerPoint presentation organized by" FamiliesUSA, "led by a staffer for the Herndon Alliance, which includes leading labor groups," and "based on polling from three top Democratic pollsters, John Anzalone, Celinda Lake, and Stan Greenberg." Politico says that the "confidential presentation...suggests that Democrats are acknowledging the failure of their predictions that the healthcare legislation would grow more popular after its passage."         In the Time (8/20) Swampland blog, Kate Pickert says, "The really interesting material, however, can be found in a much longer Herndon document," which includes a "lot more fascinating information, like that AARP has lost a lot of credibility as a trusted source, bashing insurance companies doesn't really work anymore, and elderly men are more skeptical of reform than elderly women."

While a number of the new health care reform law's provisions will take effect in less than six weeks, several polls in recent weeks make it clear that many Americans remain confused about just what the complex law will and will not do. Some Americans continue to erroneously believe the law will create death panels making end-of-life decisions. Others are unaware that September 23 will bring new benefits under the law, such as dependent coverage to age 26, tax credits for small businesses, broad preventive service coverage and high-risk coverage. As a result, a number of organizations are ramping up efforts to educate consumers about the impact of the law.

Commissioners Unanimously Approve Plan For Insurers' Medical Spending.

Politico (8/18, Kliff) reports, "The National Association of Insurance Commissioners approved Tuesday morning a preliminary outline of what insurers will be able to count as medical costs, a document necessitated by the health reform bill's requirement that insurers spend at least 85 percent of subscriber premiums on medical costs in the large group market and 80 percent for small group and individual plans." Although they had "divided political views on the health reform law, all commissioners voted together to approve the document, a move forward that drew the ire of insurers." Notably, "they approved amendments that narrow inclusions of utilization review in the calculation and expand the definition of 'wellness and health promotion activities' to include 'public health marketing campaigns that are performed in conjunction with state or local health departments.'"