health care law update june 18, 2012 this presentation is intended for general information purposes...

Health Care Law UpdateJune 18, 2012

This presentation is intended for general information purposes only and does not constitute legal advice.

Specific questions and requests for legal advice should be addressed to legal counsel.© Michael Best & Friedrich LLP 2012. All Rights Reserved.

Charles P. StevensMichael Best & Friedrich, LLP

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Supreme Court Decision

Two Issues:

Does Congress have constitutional authority to enact legislation requiring individuals to purchase health insurance coverage?

Does Congress have constitutional authority to enact legislation mandating that states expand their Medicaid enrollment or lose all Medicaid subsidies?



Initial Issue: The case is not “ripe” for court decision-making, if it is a tax that has not yet been assessed or paid. The government called it a “shared responsibility payment” in the law and a “tax penalty” during argument. For purposes of the issue of ripeness, is it a tax or a penalty?

Roberts, Scalia, Kennedy, Thomas, Ginsberg, Breyer, Alito, Sotomayor and Kagan (unanimous) = A Penalty.



Can the Federal Government require individuals to purchase health insurance coverage under the authority of the Commerce Clause?

Roberts, Scalia, Kennedy, Thomas and Alito = No.

Congress has the power to regulate commerce, but does not have the power to compel it. People without coverage are not “in the market” and cannot be required to get into the market.

Ginsberg, Breyer, Kagan and Sotomayor = Yes.

People will eventually require health care, and so will be in the market sooner or later.



Can the Federal Government impose the shared responsibility payment as a tax on individuals who do not purchase health insurance coverage? Roberts, Ginsberg, Breyer, Sotomayor and Kagan = Yes.

Congress’s power to tax is not limited like the Commerce Clause. The shared responsibility payment is by its nature a tax. People without health coverage can be required to pay more in taxes.

Scalia, Kennedy, Thomas and Alito = No. While Congress had the power to frame the shared

responsibility payment as a tax, it did not do so.



Is it a tax? - Majority said yes because:

The payment is established through an amendment to the Internal Revenue Code.

The payment is not so high that there is really no choice but to buy health insurance.

The payment is not limited to willful violations, as penalties for unlawful acts often are.



Is it a tax? - Majority said yes because:

The payment is collected solely by the IRS through the normal means of taxation.

Neither the Affordable Care Act nor any other law attaches negative legal consequences to not buying health insurance other than requiring a payment to the IRS (the law expressly states that no criminal action or liens can be imposed on people who do not pay the fine).



Medicaid Expansion


Today, the federal Government provides Medicaid money to the states for pregnant women, children, needy families, the blind, the elderly and the disabled.



Medicaid Expansion

Under the new law, those covered by Medicaid will expand to be everyone under 65 with incomes below 133% of the federal poverty line.

Under the new law, coverage will be expanded to include many more health benefits.

While the federal government initially provides funds for this expansion, such funds are later reduced.

If states do not comply with the federal law, all Medicaid funds, even those provided under the current law, will be denied.



Medicaid Expansion


Roberts, Scalia, Kennedy, Thomas, Breyer, Alito and Kagan = No. The Spending Clause of the Constitution does not permit Congress to

require states to participate in Medicaid. Because the threat of withdrawn Medicaid subsidies is a “gun to the head” of the states, the part of the law permitting withholding of funds is stricken.

Roberts, Breyer and Kagan: The rest of the law is unaffected.

Scalia, Kennedy, Thomas and Alito: The whole law should be invalidated.



Medicaid Expansion


Ginsberg and Sotomayor = Yes.

The Spending Clause does not preclude Congress from withholding funds for noncompliance with a federal program.

Because Ginsberg and Sotomayor would uphold the entire law, their votes count with Roberts, Breyer and Kagan, to not strike the remainder of the law.


Supreme Court Decision - ObservationsThe Individual Mandate Won’t Work1. It applies to only a very small percentage of the uninsured. States cannot be required to expand Medicaid enrollment, Texas has

already announced that it will not. The Individual Mandate does not apply to:

Those for whom the cost of coverage exceeds 8% of household income.

Those for whom purchasing coverage would be a hardship. Native Americans. Non-citizens and undocumented aliens. Those entitled to a religious conscience exemption. Those who are incarcerated. Non-taxpayers.


Supreme Court Decision - ObservationsThe Individual Mandate Won’t Work

2. Even for those who are required to pay the “tax penalty”, the amount is very low.

In 2014, the penalty is only $95 per person for the entire year, gradually increasing to $695 or 2.5% of income, whichever is higher.

For most, the amount due will be far less than the price of insurance.

3. The law provides that the IRS may impose no criminal sanctions or liens for non-payment.

4. The law prohibits insurance carriers from denying coverage due to health status and further prohibits carriers from charging more in premiums based on health status.

5. Thus, the law motivates individuals to forgo coverage, pay (or choose not to pay) a small fine, and then apply for coverage when they get sick. We anticipate massive noncompliance.


Patient Protection and Affordable Care Act


Politics

How does the Supreme Court Decision change the dynamics in the presidential race?

How is the law anticipated to change in the event Republicans take control of the Senate? The White House?

Some have indicated that they will take no action and make no plans for compliance before the election in November. What problems may occur from this approach?


Short Term Compliance and Planning

Grandfathered Health Plans Summary of Benefits and Coverage Flexible Spending Account $2500 Cap W-2 Reporting


Loss of Grandfathered Plan Status

When a plan loses grandfathered status, it becomes subject to: Providing coverage for clinical trials (2014) Future limits on the amount an employer can charge in the aggregate

for employee contributions towards deductibles, copayments, coinsurance and specific limits on the amount an employer can charge for the deductible (2014)

Coverage of preventative health services without cost-sharing (currently required)

Reporting obligations to the public, and state and federal agencies regarding claims payment policies/practices, data regarding plan financials, enrollment, claim denials, cost-sharing, and participant rights (currently required, but not enforced)



Annual reporting to HHS regarding reimbursement structures where plan sponsors have found improved health outcomes, limited hospital readmissions, improved patient safety, or wellness and health promotion activities (currently required, but not enforced)

Changes to internal appeals procedures and requirement to implement external review procedures (currently required)

Permitting the patient to designate the doctor, pediatrician or obstetrician/gynecologist of their choice if the individual is available to accept the patient (currently required)

Emergency services must be provided without prior authorization and without regard to the provider’s in-network status. In addition, co-pay and coinsurance charged to the participant for such service can not exceed the in-network rate (currently required)



Penalty for failing to comply: A group health plan which has lost grandfathered status, but has failed

to provide coverage which meets PPACA’s requirements are subject to an excise tax of $100 per day for each day the plan is noncompliant multiplied by the number of affected participants

There is a limit for unintentional failures which limits the excise tax to the lesser of: (1) 10% of the amount paid or incurred to provide medical care; or (2) $500,000

Takeaway: There are multiple ways to lose grandfathered status—plans wishing to retain such status must be vigilant to ensure they do not accidentally lose it.


Summary of Benefits and Coverage 4-page (double-sided) (doesn’t that mean 8 pages?) summary of benefits and

coverage (“SBC”) and uniform glossary of terms must be provided to applicants and enrollees of the group health plan

The SBC includes: Uniform definitions and internet address for uniform glossary Description of coverage (including the HHS coverage examples) Description of the plan’s exceptions, reductions and limitations Plan’s cost-sharing provisions (deductibles, coinsurance, and copayments) Renewability and continuation of coverage provisions Coverage examples Statement of the summary status of the document Contact information for questions Contact information for network providers (if more than one) and prescription

drug coverage formulary An internet address for obtaining the “uniform glossary”


SBC is a stand-alone document SBC must be created for every benefit program offered:

Plans and issuers may combine information for different coverage tiers Plans and issuers may combine information for different cost-sharing

selections (such as levels of deductibles, copayments, and co-insurance) SBC must be provided to applicants and enrollees:

upon application (within 7 business days following receipt of the application)

by first day of coverage (if there are changes) upon special enrollment upon renewal upon request (no later than 7 business days of the request)

A COBRA qualified beneficiary who has elected coverage has the same rights to receive an SBC as a similarly situated non-COBRA beneficiary

Summary of Benefits and Coverage


Summary of Benefits and Coverage Insurers must provide SBC to the group health plan upon application for

coverage, renewal of coverage, or request. Plan administrators of self-funded plans are responsible for creating SBC for

such plans. If there are mid-year material modifications that affect the SBC, the notice of

the modification must be provided to enrollees no later than 60 days prior to the date the change is effective. Modifications upon a renewal are not subject to this requirement (but a new

summary would be issued upon renewal). Summary of material modifications must still be issued, but can still be

done after the fact. The SBC must be provided beginning on the first day of the first open

enrollment period that begins on or after September 23, 2012. For individuals who are newly eligible for coverage and special enrollees, the

SBC must be provided beginning on the first day of the first plan year that begins on or after September 23, 2012.


Summary of Benefits and CoveragePenalty for failing to comply, PHS Act section 2715(f):

‘‘(f) FAILURE TO PROVIDE.—An entity described in subsection (d)(3) that willfully fails to provide the information

required under this section shall be subject to a fine of not more than $1,000 for each such failure. Such failure with respect to each enrollee shall constitute a separate offense for purposes of this subsection.

Example: On Monday November 5, 2012, the employer issues open enrollment materials to 100 health plan participants without the SBC. Was the violation willful? Penalty = $100,000.


Summary of Benefits and Coverage

Q8: Under what circumstances can penalties be imposed for failure to provide the SBC or the uniform glossary?

PHS Act section 2715(f) states that an entity is subject to a fine if the entity “willfully fails to provide the information required under this section. . . . Compliance assistance is a high priority for the Departments. Our approach to implementation is and will continue to be marked by an emphasis on assisting (rather than imposing penalties on) plans, issuers and others that are working diligently and in good faith to understand and come into compliance with the new law.” Accordingly, consistent with this guidance, during this first year of applicability, the Departments will not impose penalties on plans and issuers that are working diligently and in good faith to comply.” (Emphasis added.)

Takeaway: What is meant by “willfully fails,” “working diligently,” and “good faith?” Clearly, imposition of penalties are at the discretion (hopefully not whim) of HHS officials, just as are many other decisions (example, granting of waivers).


Flexible Spending Account $2500 Cap

Health FSA contributions are limited to $2,500 (inflation-adjusted beginning 2014).

Effective 1/1/2013.

This limit applies only to employee deferrals, not to employer contributions.

Failure to comply creates a “disqualified” Section 125 Plan permitting possible recognition of FSA amounts as taxable income and associated problems.

Takeaway: Make sure open enrollment materials provided later this year limit wage deferrals to an FSA to $2,500.


Form W-2 Reporting Rules Originally effective in 2011 (i.e., for W-2 distributed January 2012) Rule Delayed: Optional for 2011, required for 2012 W-2 (issued in

January 2013) Only applicable to employers who filed at least 250 Forms W-2 during the

previous calendar year (until further guidance is issued). Employers must report the “aggregate cost” of “applicable employer

sponsored coverage” on employee Form W-2 Applicable employer sponsored coverage includes insured or

self-insured major medical benefits Report in Box 12 of W-2 with Code DD Reporting cost does not make coverage taxable Usually includes major medical (health plan) coverage


W-2 Health Insurance Reporting - Exclusions Accident or disability insurance Long-term care or specified disease coverage Hospital indemnity or other fixed indemnity insurance Amounts contributed to HSAs or Archer MSAs Salary reduction contributions under FSAs (but under some

circumstances employer contributions may be included) Coverage under a multiemployer plan Retiree coverage (unless the retiree otherwise receives a Form W-2) Health reimbursement arrangement (HRA) contributions Long-term care benefits Many excepted benefits (such as "stand-alone" dental and vision plans) Coverage provided to an employee who terminates employment mid-

year and requests a W-2 prior to the end of the calendar year


Aggregate reportable cost includes employer’s and employee’s share of the cost Example: employer pays $800 per month and employee pays

$200 per month Aggregate reportable cost = $1,000

Employee’s share is included whether pre-tax or after-tax Employee’s share includes imputed income for coverage of

non-dependent domestic partners or overage children

W-2 Health Insurance Reporting


Calculating the aggregate reportable cost Employers may use the COBRA applicable premium Alternatives:

Employers with insured plans may use the premium charged Employers that subsidize the cost of COBRA coverage may use a

reasonable good faith estimate of COBRA applicable premium Employers that determine the cost of COBRA coverage by applying the

COBRA applicable premium for a prior year may use the prior year’s COBRA premium

If employer uses a “composite rate,” it can use that rate (e.g., self-only and family coverage, means two rate groups)

Adjust reportable amount when (1) employee changes coverage mid-year, (2) employee commences or terminates coverage mid-year, or (3) policy year is different than the calendar year

W-2 Health Insurance Reporting


Long Term Compliance and Planning

What problems do insurance carriers face? Will Wisconsin create an Insurance Exchange? How will the Play-or-Pay rules work? What will employers do in 2014?


Problems for Insurance Carriers

The law was based on the premise that expansion of coverage to some segments (the sick and the poor) would be paid for by making those in other segments (the young and healthy) purchase it, paying more into the system than they would take out.

Hospitals and insurance carriers understand that they will have nothing close to universal coverage. The combination of the law as enacted and the Supreme Court decision could actually result in fewer people with coverage than before.



Problems for Insurance Carriers:

Guaranteed issue; Adverse

Community Underwriting; Selection

Federal regulators can now scrutinize rate increases and “deem” them unreasonable.

The law imposes Minimum Loss Ratios (MLRs) of 80% to 85% on insurance carriers.

The law imposes an $8 billion industry fee on insurance carriers in 2014, growing to $14.3 billion by 2018 (roughly $90 billion by 2019).

Other “reforms” including no life-time or annual maximums, coverage of additional preventive services, etc.



Uncertainty concerning these insurance carrier problems is likely to result in a significant increase in insurance premiums. This increase is likely to occur somewhat in 2013 and more substantially in 2014.

The impact of these requirements may make it impossible for many insurance carriers to fully comply with the law and not lose money.


Wisconsin’s Insurance Exchange

Wisconsin’s Governor halted work on a Wisconsin Insurance Exchange in 2011.

Following the Supreme Court Decision, Governor Walker stated he will not consider resuming that work until after the November elections.

States are to have insurance exchanges in place by 2013 or the Department of Health and Human Services is authorized to create the exchange for the state. All Exchanges are to be operational 1/1/2014.

HHS Regional Director for Region 5, Kenneth Munson, may take over creation of the Wisconsin Exchange. Prior to his appointment by President Obama in 2011, he was the Deputy Secretary of the Wisconsin Department of Health Services under Governor Jim Doyle. This agency had primary responsibility for the creation of the Wisconsin Insurance Exchange before Scott Walker took office.


Effective in 2014, if an employer employed an average of 50 employees on business days during preceding calendar year, it must offer “minimum essential coverage” to full-time employees.

“Employee” is defined as someone working 30+ hours per week (120 hours per month).

Also includes FTE for part-time employees for purposes of counting 50 employees. The law requires that FTEs are determined by taking the aggregate amount of hours they worked in a month divided by 120.

Seasonal workers can be excluded. Temporary?

Aggregation rules for business under common control.

“Pay or Play” – Employer Does Not Offer Coverage



A large employer is viewed as not offering minimum essential coverage when it:

Offers no coverage; or

Does not comply with grandfathered or new requirements applicable to health plans regarding minimum essential coverage; or

Does not contribute at least 60% of the cost of the coverage

Penalty = $2,000 per person per year (coverage costs much more).



Penalty of $2,000 per full-time employee per year (calculated on a monthly basis).

When calculating the penalty, subtract the first 30 full-time employees.

Although the employer must consider part-time employees as full-time equivalents to determine whether it is a large employer, the penalty does not take part-time employees into account.


“Pay or Play” – Employer Offers Coverage

Even where a large employer offers minimum essential coverage, some of its employees may still be eligible for a premium tax credit for coverage through the exchange.

http://rds.yahoo.com/_ylt=A0WTefOBWMNLUhIAe_WJzbkF;_ylu=X3oDMTBpc2VvdmQ2BHBvcwM3BHNlYwNzcgR2dGlkAw--/SIG=1gdsemlrb/EXP=1271179777/**http%3A//images.search.yahoo.com/images/view%3Fback=http%253A%252F%252Fimages.search.yahoo.com%252Fsearch%252Fimages%253Fp%253Dhealthcare%252Bpenalties%2526ei%253Dutf-8%26w=500%26h=333%26imgurl=www.blisstree.com%252Ffiles%252F2009%252F06%252F1004852_77276531.jpg%26rurl=http%253A%252F%252Fwww.blisstree.com%252Farticles%252Fget-healthy-or-pay-up%26size=8k%26name=1004852%2B77276531...%26p=healthcare%2Bpenalties%26oid=e0fb35421564b452%26fr2=%26no=7%26tt=54%26sigr=11nf33735%26sigi=11k1qchji%26sigb=12cuq2r5s



Which employees are eligible for the premium tax credit?

Employee whose household income falls between 100% and 400% of Federal Poverty Level (FPL); and

Whose required contribution to participate in the Employer’s plan is greater than 9.8% of household income; and

Who obtains coverage through the exchange and not through the Employer’s plan.



“Household income” is based on who is in “family”—which focuses on individuals for whom the taxpayer can take a deduction

Unclear how domestic partners / older dependents will be treated

Comment: How are employers to gather information on household income?


“Pay or Play” – HHS Poverty Guidelines

Family Size Poverty Line 4X Poverty Line

1 $10,830 $43,320

2 $14,570 $58,280

3 $18,310 $73,240

4 $22,050 $88,200


“Pay or Play” – Employer Offers Coverage but charges more than 9.8% of household income

Where the employee receives a premium tax credit, the employer must pay a penalty

Penalty is the LESSER of (1) $3,000 x number of full-time employees who received the premium tax credit (i.e., elected coverage in the exchange); or (2) $2,000 x total number of full-time employees employed by the employer (less the first 30 employees).

When calculating the penalty under (1), do not subtract the first 30 full-time employees.

Although the employer used part-time employees as full-time equivalents to determine whether it was a large employer, the penalty does not factor in part-time employees.


What will employers do in 2014?

Drop coverage (recent survey – as many as 30% of employers will consider dropping coverage)

Try to offer coverage but will struggle due to cost Subsidize coverage for lower paid workers Not subsidize coverage for lower paid workers

What will happen in response to employer actions? Penalty for not providing coverage will rise Insurance Industry will be decimated or destroyed


Circular 230 Notice

Any Federal tax advice contained herein is not to be used for, and the recipient cannot use such advice for, the purpose of avoiding any penalties asserted under the Internal Revenue Code. If the foregoing contains Federal tax advice, and if the foregoing is distributed to a person other than the addressee, each additional and subsequent reader hereof is notified that such advice was written to support the promotion or marketing of the transaction or matter addressed herein. In that event, each such reader should seek advice from an independent tax advisor with respect to the transaction or matter addressed herein based on such reader’s particular circumstances.

2012 Health Care Reform:The Supreme Court Decision and What Comes Next

Charles P. [email protected]

www.michaelbest.com

100 East Wisconsin Avenue, Suite 3300Milwaukee, WI 53202-4108

Phone 414.271.6560 Fax 414.277.0656

health care law update june 18, 2012 this presentation is intended for general information purposes...

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