Tag: Affordable Care Act

Federal Government to Launch Multistate Health Insurance Plans

The National Law Review recently published an article by Nita Garg of Barnes & Thornburg LLP regarding Multi-State Health Insurance Plans:

 

 

Under multistate plans recently announced by the Obama administration, health insurance operated under contract with the federal government will be available to consumers in every state through state insurance exchanges mandated under the Affordable Care Act (ACA). While the White House has suggested that these plans will serve as a substitute for the government-run health insurance plan that was discussed, and rejected, during health care reform negotiations, existing insurers and developers of CO-OPs were taken by surprise at the announcement.

The impetus behind these plans is the belief that a government sponsored multistate plan will increase competition in health insurance markets, which tend to be geographically clustered.

In those states and regions in which a single insurer is dominant, the hope is that these plans may lead to competitive pricing where such competition would otherwise be difficult.

While proponents speak of these plans’ promise, others are concerned. The ACA provisions pertaining to these plans do not specify how these plans will comply, if at all, with requirements under various state laws. Generally, issues related to insurance regulation fall under the jurisdiction of state governments. Private insurers worry that if state laws would not apply, these multistate plans may have an unfair competitive advantage over other insurers who are subject to state-specific requirements.

While administration officials stated that for they past three months they have been reviewing rules to be issued soon (Pear, New York Times, Oct. 27, 2012), insurers have been without any regulatory guidance as of yet, and, as mentioned earlier, the ACA provisions have not provided much clarification on how these plans will operate. Given this lack of direction, insurers been unable to prepare for implementation of these plans. Speaking to Sarah Kliff of the Washington Post, John McDonough, a Harvard University School of Public Health professor who worked as a health policy adviser to Sen. Ted Kennedy, said that these plans have the potential to disrupt insurance markets, due to the rushed nature of these discussions. “It’s happened so fast, in a brief window, that there was not a lot of time for robust conversation,” he says. “The conversation was like, ‘this is a good idea, let’s cook something up.’ It was definitely not a thoughtful, nuanced conversation.”

© 2012 BARNES & THORNBURG LLP

Analysis: U.S. Supreme Court Upholds the Affordable Care Act: Roberts Rules?

The National Law Review recently published an article by Meghan C. O’Connor and William O. Jackson of von Briesen & Roper, S.C. regarding The U.S. Supreme Court’s Healthcare Ruling:

Today, June 28, 2012, the U.S. Supreme Court issued its decision upholding thePatient Protection and Affordable Care Act of 2010 (the “ACA” or “Act”). The decision marks the culmination of a legal battle and public debate that began soon after the ACA was enacted. The Court upheld the individual mandate, perhaps the most controversial provision of the ACA, but limited the expansion of Medicaidunder the ACA. All provisions of the ACA will continue to be in effect, with some limits on the Medicaid expansion. In order to prevent a constitutional violation due to the Medicaid expansion portion of the ACA, the Court held that the Secretary of the Department of Health and Human Services (“Secretary”) is not permitted to apply §1396c of the Act to withdraw existing Medicaid funds to a state for failing to comply with the requirements set out in the expansion provisions. Though today’s decision will have far-reaching effects in political discourse, the Court emphasizes its deference to Congress and its sensitivity to its judicial role: “We do not consider whether the Act embodies sound policies. That judgment is entrusted to the Nation’s elected leaders. We ask only whether Congress has the power under the Constitution to enact the challenged provisions.”

Key points from decision:

  • Individual mandate not supported by Commerce Clause or Necessary and Proper Clause
  • Individual mandate must be construed as a tax, which is upheld under Congress’s taxing power
  • Expansion of Medicaid program constitutional, but HHS may not penalize states that choose not to participate in the expansion of Medicaid
  • Decision strikes a balance between principles of federalism and judicial restraint

I. Background

On March 23, 2010, President Obama signed the ACA into law. The 2700-page Act contained numerous provisions that, when implemented, would alter the health insurance and health care delivery systems in the United States more significantly than any federal law since the creation of the Medicare and Medicaid programs in 1965. Significant ACA provisions include the expansion of coverage under federal health care programs, such as Medicaid; the creation of new programs to integrate and reform health care delivery, such as the Medicare Shared Savings Program; and the minimum coverage provision at §1501 of the ACA that requires, with limited exceptions, individuals to maintain minimal essential health care coverage as of 2014 (commonly referred to as the “individual mandate”) or make a “shared responsibility payment”. After the enactment of the ACA, individuals, organizations, and 26 states brought suit against the federal government alleging, among other things, that the individual mandate and Medicaid expansion were unconstitutional. After multiple federal appeals court decisions with diverging opinions, the Supreme Court granted review.

This article will discuss the four main issues at play during the oral arguments, highlights of the Court’s decision, and implications of the Court’s decision.

II. The Issues At Play

In March 2012, the Supreme Court heard three days of oral arguments focusing on four issues: (1) whether the Court could even hear arguments about the constitutionality of the ACA; (2) whether the individual mandate was unconstitutional; (3) if so, whether the individual mandate, and potentially other provisions of the ACA, could be “severed” from the remaining portions; and (4) whether the Medicaid expansion provisions of the ACA were constitutional.

1. Could the Supreme Court Even Hear the Case?

Before the Court addressed the constitutionality of the individual mandate and Medicaid expansion, the Court determined that the Anti-Injunction Act (“AIA”) did not apply to the lawsuits challenging the ACA. Under the AIA, courts may not hear lawsuits that attempt to restrain the imposition or collection of a tax. If the AIA did apply to the ACA lawsuits, the Court would have been prevented from hearing the case until the parties had exhausted other remedies.

The Court held that the AIA did not prevent the Court from hearing the challenge to the individual mandate because the mandate is not a “tax” for purposes of the AIA. This decision is not surprising given that during oral argument, the Court expressed skepticism about whether the AIA applied to the case and whether the case could be considered an exception to the AIA.

Today’s decision is interesting in that it distinguishes between whether a law is a “tax” for purposes of Congress’s taxing power versus the Court’s jurisdiction under the AIA. The government argued that the mandate was not a tax for purposes of the AIA but that it was a tax for purposes of Congress’s constitutional authority. At oral argument, Justice Alito noted to the Solicitor General “[t]oday you are arguing that the penalty is not a tax. Tomorrow you are going to be back and you will be arguing that the penalty is a tax.” Justice Scalia also questioned the Solicitor General regarding the labeling of the mandate as a “penalty” rather than a “tax”: “The President said it wasn’t a tax, didn’t he?”

Despite these exchanges, Chief Justice Roberts ultimately focused on whether Congress intended for the AIA to apply. The Court agreed with the government and held that Congress’s decision to describe the shared responsibility payment in §5000A(b)(a) as a “penalty” and not a “tax” demonstrates that Congress did not intend for the AIA to prohibit jurisdiction.

2. Is the Individual Mandate Constitutional?

The central issue in the case was whether Congress had the power under the Constitution to mandate that individuals purchase health insurance and assess a tax or penalty against those individuals who refuse or fail to purchase such insurance. As a general principle of the U.S. federalist system, the federal government may only pass laws under those powers that are enumerated in the Constitution, such as the Commerce Clause. All other powers remain with the individual states. The ACA lawsuits challenged the individual mandate as an unconstitutional use of the Commerce Clause.

The Court telegraphed its skepticism with the Commerce Clause justification during oral argument in March. The justices questioned whether the government was “creating commerce” and whether the penalty associated with the individual mandate was actually a proper exercise of the taxing power.

In a 5-4 decision (with Justices Ginsburg, Breyer, Sotomayor, and Kagan joining Chief Justice Roberts), the Court concluded that the individual mandate was constitutional and could be upheld under Congress’s taxing power as the imposition of a tax on those who do not have insurance. However, the individual mandate could not be sustained under the Commerce Clause or the Necessary and Proper Clause.

• “Creating” Commerce.

A key issue involved whether Congress was creating commerce by requiring individuals to purchase health insurance. During oral argument, Justice Kennedy questioned the government on whether it could “create” commerce by requiring an individual to perform an affirmative act and then regulate that act under the Commerce Clause. The government argued that health care is unique since nearly all persons will be in the health care market at some point, many times the choice to be in the market is uncontrollable and unpredictable, and the result of being uninsured shifts costs to the insured.

In today’s opinion, the Court emphasized that Congress’s broad power to regulate commerce “presupposes the existence of commercial activity to be regulated.” Roberts noted that the mandate creates activity to “compel individuals to become active in commerce by purchasing a product” rather than regulating existing commercial activity. Consequently, the individual mandate cannot be upheld under the Commerce Clause.

The dissent also rejected the use of the Commerce Clause to support the constitutionality of the individual mandate. Justice Scalia wrote “[t]he Federal Government can address whatever problems it wants but can bring to their solution only those powers that the Constitution confers, among which is the power to regulate commerce… Article I contains no whatever-it-takes-to-solve-a-national-problem power.”

• Necessary and Proper Clause.

The Court also assessed whether the individual mandate was constitutional under Congress’s power under the Necessary and Proper Clause because the mandate was integral to the guaranteed issue and community rating provisions of ACA. The Court rejected the government’s argument, concluding that this would give Congress the “extraordinary ability” to create the predicate necessary to the exercise of its power.

• Is the Individual Mandate Actually a Tax?

Despite holding that the Commerce Clause and the Necessary and Proper Clause do not support the constitutionality of the individual mandate, the Court found that the mandate could be sustained under Congress’s taxing power. The Court held that “Congress had the power to impose the exaction in §5000A under the taxing power, and that §5000A need not be read to do more than impose a tax. That is sufficient to sustain it.” Consequently, while the ACA’s description of the shared responsibility payment as a “penalty” and not a “tax” is “fatal” to the application of the AIA, Congress’s choice of words does not “control whether an exaction is within Congress’s constitutional power to tax.” Instead, the “mandate can be regarded as establishing a condition—not owning health insurance—that triggers a tax—the required payment to the IRS.”

The Court then offered a straightforward analysis of its taxing power: “[t]hose subject to the individual mandate may lawfully forgo health insurance and pay higher taxes, or buy health insurance and pay lower taxes. The only thing they many not lawfully do is not buy health insurance and not pay the resulting tax.”

Justices Ginsburg, Breyer, Sotomayor, and Kagan joined Justice Roberts’s majority opinion holding the mandate constitutional under Congress’s taxing power. The Court’s liberal justices would have held the individual mandate constitutional under the Commerce Clause as well, but avoided issuing a concurring opinion that would support a constitutional differentiation but make no practical difference in the implementation of ACA.

Justice Scalia’s dissent is also not surprising, as it echoes his comments at oral argument. The dissent notes, “[w]hat is absolutely clear… is that there are structural limits upon federal power—upon what it can prescribe with respect to private conduct… Whatever may be the conceptual limits upon the Commerce Clause and upon the power to tax and spend, they cannot be such as will enable the Federal Government to regulate all private conduct…”

3. Is the Individual Mandate Severable from the Rest of the ACA?

When a statute or law is held unconstitutional, the Court may eliminate certain provisions of the statute (severing it) or strike the entire statute. At issue with regard to the severability issue was whether other ACA provisions could and/or should be severed from the individual mandate provision if the individual mandate was found unconstitutional. Since the individual mandate was found constitutional, the Court did not address the severability of other ACA provisions.

4. Is Medicaid Expansion Under the ACA Constitutional?

Perhaps the most unexpected component of today’s decision is the limitation imposed on the ACA’s Medicaid expansion. Medicaid funds medical care for needy individuals through a federal and state partnership under which the federal government provides matching funds to states that agree to comply with federal requirements. Congress may change Medicaid requirements, and participating states must amend state Medicaid plans to comply with changes in federal law. Under the ACA, Congress expanded Medicaid eligibility to certain individuals under age 65 who do not receive Medicare and who have an income up to 133% of the federal poverty level. The ACA requires states to provide limited Medicaid coverage to these newly eligible individuals beginning in 2014. Funding of the expansion will not follow traditional matching guidelines; instead 100% of the expansion will be paid for by the federal government through 2016, with the federal share decreasing to 90% by 2020.

Congress’s authority under the Constitution includes spending funds, and setting conditions on the spending of those funds, in order to promote the general welfare. However, Congress’s spending power is limited such that it cannot use the power to compel states to adopt federal policies. At issue was whether the ACA unconstitutionally compels states to expand Medicaid by making expansion of Medicaid eligibility a requirement for receipt of federal Medicaid funds despite increased federal funding to subsidize the expansion.

The majority concluded that the Medicaid expansion is constitutional. However, the Court held that it would be an unconstitutional expansion of Congress’s authority under the Spending Clause for the federal government to withhold Medicaid funding to the states for non-compliance with the ACA’s expansion provisions. Writing for the Court, Chief Justice Roberts noted that “Nothing in our opinion precludes Congress from offering funds under the ACA to expand the availability of health care, and requiring that states accepting such funds comply with the conditions on their use. What Congress is not free to do is to penalize States that choose not to participate in that new program by taking away their existing Medicaid funding.”

Rather than invalidate the Medicaid expansion in its entirety, the Court adopted a more limited remedy of severing the penalty provisions from the ACA. Section 1396c gives the Secretary the authority to withhold all further Medicaid payments to the state if the Secretary determines the state is out of compliance with any Medicaid requirement, including those contained in the expansion. The Court ruled that the Secretary could not use this section to withdraw existing Medicaid funds for failure to comply with the requirements set out in the expansion. However, §1396c remains applicable to the existing Medicaid program, and it could be used by the Secretary to withdraw funds provided under the ACA if a state that has chosen to participate in the expansion fails to comply with the requirements of the ACA.

III. Impact of the Decision

Whether denominated as a mandate or a tax, the Court’s validation of Section 1501 avoids much of the uncertainty that would have resulted if the ACA was struck down. Providers may proceed, for now, with the assumption that the ACA will reduce the burden of providing care to uninsured and underinsured individuals. The Court’s ruling also relieves providers of the need to re-think, or undo, other operational and strategic planning that was implemented under the ACA, such as the move away from fee-for-service to value-based and quality-based reimbursement in an accountable care environment; bundling; bonuses; incentives for various ACA initiatives in areas such as electronic medical records, public health, preventive care, and others; physician quality reporting initiatives; requirements for tax-exempt hospitals such as community health needs assessments, financial assistance, and billing and collection policies; and many other areas of the ACA that might have collapsed with the whole ACA house of cards if the ACA had been struck down in its entirety. Hospital stocks surged ahead on the initial news of the Court’s decision while insurance company stocks fell, suggesting the market’s assessment of the winners and losers from the case.

From a constitutional law perspective, the path taken by the Court in reaching its decision is extremely important. On the one hand, the Court’s conclusion that the individual mandate could not be justified under either the Commerce Clause or the Necessary and Proper Clause confirms that the Court will continue to police the boundaries of Congressional power in a federalist system. Congress may have the power to regulate commerce – what people do – but it does not have the power tocompel commerce – what people do not do. In a similar vein, the Court concluded that the Medicaid penalty provisions ran counter to the nation’s “system of federalism” as Congress improperly went beyond pressure to compulsion.

On the other hand, in upholding the individual mandate under Congress’s power under the Taxing Clause (even notwithstanding statements by the President and the Congress that this was not a tax), the Court gave deference to Congress in searching for any reasonable construction of the law in order to save the ACA from unconstitutionality. The Court also found the means to preserve the expansion of Medicaid by severing only the penalty provisions. In so doing, the Chief Justice remained true to his philosophy of judicial restraint rather than judicial activism, placing himself firmly in the company of Justice Oliver Wendell Holmes, Jr. and Justice Felix Frankfurter.

The Medicaid ruling is significant for states – and for providers. This means that each state will have the ability to determine whether or not to accept the Medicaid expansion terms, without the risk of losing all of its Medicaid programs should the state decide not to agree with expanded eligibility requirements. The ACA was structured so that most everyone had health care coverage – either through employer-provided plans, insurance purchased by individuals, or government-provided programs. The ACA expanded eligibility for Medicaid to provide health care for poor persons who do not have employer-sponsored insurance and who would be unable to pay for their own health insurance. If a state declines to enact the expansion, there will be a gap. The size of the gap—or the number of uninsured individuals—will depend on how eligibility standards are set. For providers, this likely translates into uncompensated care.

In Wisconsin, Medicaid eligibility has been more expansive than required by the federal government. Therefore, the question about what carrots and sticks apply to the Wisconsin Medicaid program is not clearly answered in the decision. This will likely be the subject of consideration and potential debate as the Wisconsin legislature develops the next biennial budget.

Perhaps the greatest impact from the ACA decision will be felt in the upcoming elections. The Court’s characterization of the individual mandate as a “tax” will shape the political debates in the months to come. House Speaker John Boehner, presidential candidate Mitt Romney, and their supporters have already vowed to repeal the ACA following the decision, using the ACA “tax” as their rallying cry. As a result, some uncertainty will remain through and beyond the fall as elected officials sort out what provisions should remain and what should be modified or eliminated. Some of the provisions have proven popular with voters; other provisions have not. And, absent a Republican sweep in November, a total repeal of the Act is not likely. Nonetheless, Wisconsin Governor Scott Walker indicated that the state would not take action to implement provisions of the ACA until after the November elections and that he is counting on the next president and Congress to repeal it.

©2012 von Briesen & Roper, s.c

Employer Group Health Plans and the Constitutionality of the ACA

Focus turns to completing 2012 and 2013 compliance tasks following the U.S. Supreme Court’s decision.

Today, the U.S. Supreme Court ruled that virtually the entire Patient Protection and Affordable Care Act of 2010 (ACA) is constitutional (with the exception of a Medicaid issue that is not directly relevant to employers), validating the full range of past, present, and future ACA requirements. Employers now must continue to press ahead with 2012 and 2013 ACA compliance requirements, particularly if these tasks were placed on a back burner awaiting the decision.

The Decision

Writing for a 5-4 majority in National Federation of Independent Business et al. v. Sebelius, Chief Justice John G. Roberts, Jr., found that the individual mandate in the ACA is a permissible exercise of Congress’s taxing authority, stating that “[t]he Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax.” Chief Justice Roberts also wrote that “because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.” Chief Justice Roberts was joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor, Stephen G. Breyer, and Elena Kagan. Justices Antonin Scalia, Anthony M. Kennedy, Clarence Thomas, and Samuel Anthony Alito, Jr., dissented.

Next Steps for Employers

Now that the ACA has been upheld, employer group health plans must focus on a number of pressing tasks for 2012 and 2013 compliance with the ACA. In the coming weeks and months, employers should do the following:

  • Determine whether they are appropriately aggregating group health plan valuation data in order to support 2012 Form W-2 reporting.
  • Prepare to receive, and properly distribute or apply, any Medical Loss Ratio rebates associated with 2011 insured health coverage.
  • Finalize Summary of Benefits and Coverage material for inclusion in the 2013 Open Enrollment package.
  • Complete updates to Summary Plan Descriptions and plan documents to capture and describe the 2011 and 2012 ACA changes to their plan design.
  • Reflect the 2013 plan year $2,500 cap on salary deferral contributions into healthcare spending accounts in 2013 Open Enrollment material, payroll processes, and administration systems.
  • Understand and begin to determine the patient-centered outcomes trust fund fees due in July 2013.
  • Begin to identify whether their group health plans are both affordable and available to full-time employees in order to avoid any shared responsibility penalty in 2014.
  • Prepare for audits associated with their participation in the Early Retiree Reinsurance Program, if applicable.
  • Review possible design changes to retiree drug programs to reflect the change in Medicare Part D subsidy taxation rules.
  • Review future plan design changes to blunt the balance sheet impact of the 2018 Cadillac Tax.

Implications

While the Supreme Court decision is an important milestone in the federal debate over expanding healthcare coverage, it likely represents just the first in a series of future federal discussions and actions in the coming months and years.

The federal debate now moves to the November election cycle. The ACA no doubt will play a large role in the upcoming elections, but it is premature to expect any quick legislative reversals to ACA provisions, as any changes would require a significant shift in power.

In the interim, employer group health plans should continue to examine and implement those ACA requirements that will be effective in 2012, 2013, and later years into the design and operation of their group health plans.

We will release future LawFlashes and hold webinars as further guidance becomes available.

Copyright © 2012 by Morgan, Lewis & Bockius LLP

U.S. Supreme Court’s Affordable Care Act Decision: Impacts on Life Sciences

The National Law Review recently published an article by Robyn S. Shapiro of Drinker Biddle & Reath LLP, regarding the U.S. Supreme Court’s Affordable Care Act Decision:

The June 28, 2012 U.S. Supreme Court decision upholding the Patient Protection and Affordable Care Act (“Act”) impacts the life sciences industry in a number of ways, including impacts on innovation and compliance initiatives by medical device, pharmaceutical, and biotechnology companies.

Innovation

A number of provisions in the Act provide incentives and resources for product innovation.  First, it is expected that more than 30 million Americans will obtain health care coverage on account of the Act.  A bigger pool of Americans with health coverage to pay for treatment will yield growth in pharmaceutical sales and, perhaps, the ability to charge higher drug prices, which, in turn, could spur innovation.  In addition, the Act created the Therapeutic Discovery Project Program, through which $1 billion in new therapeutic discovery project grants and tax credits will be awarded.  In 2010, 2,923 companies specializing in biotechnology and medical research in 47 states and the District of Columbia received awards under the grant program.  Firms can opt to receive either a grant or a tax credit under the program, which allows both profitable companies and start-ups that are not yet profitable to benefit.  A third measure in the Act likely to have a positive impact on innovation is a provision that gives biotech companies a dozen years of exclusive rights to the data underpinning their products.

On the other hand, the ruling leaves intact a 2.3% excise tax on medical devices, which is estimated to cost the industry $20 billion over the next 10 years, and which manufacturers fear will burden innovation.  On the other hand, some believe that, as in the case of pharmaceutical manufacturers, expansion of health care coverage will increase the demand for medical devices and offset the effect of the tax.

The Supreme Court ruling affects not only the speed but also the direction of life sciences product innovation.  PricewaterhouseCoopers[1] has identified five broad pillars of medical technology innovation: financial incentives (such as reimbursement for adoption of new technologies), resources for innovation (such as academic medical centers), a supportive regulatory system, demanding and price-insensitive patients, and a supportive investment community of venture capitalists and other investors.  Various provisions in the Act promote the development of more cost-effective ways of delivering care, including a measure that calls for more real-world evidence of a new drug’s superiority over other treatments in order to qualify for reimbursement.  Such provisions may spur more definitive product innovation, as opposed to production of “me too” drugs and new devices that make only modest improvements to existing products.

Compliance

Certain provisions in the Act impact compliance initiatives in the life sciences industry.  The Act includes “Sunshine Provisions,” which require pharmaceutical and medical device manufacturers to track and report payments and other transfers of value greater than $10 to physicians and teaching hospitals.  While under prior laws improper industry-provider relationships primarily were uncovered by whistleblowers and government investigations, the Sunshine Provisions place the onus on life sciences manufacturers to disclose their relationships with providers, for review by others.  This enhanced transparency and data accessibility could result in sharper scrutiny by enforcement agencies of information about improper relationships and violations of fraud and abuse laws.  Moreover, other provisions in the Act enhance the government’s ability to pursue violations of existing fraud and abuse laws–e.g., revisions to the intent requirement of the Anti-Kickback Statute; and strengthening of fraud enforcement tools through changes to the False Claims Act, civil monetary penalty laws, sentencing guidelines and exclusion authority, and dedication of $250 million for fraud and abuse enforcement.  These changes will require life sciences companies to carefully structure and manage relationships with providers, and ensure that their compliance initiatives include efficient and effective operating procedures for tracking and reporting payments, educating and training sales and research personnel, and auditing and monitoring provider relationships.

[1] PricewaterhouseCoopers, Medical Technology Innovation Scoreboard: the Race for Global Leadership, January 2011.

©2012 Drinker Biddle & Reath LLP

Supreme Court Upholds ACA, Including the Individual Mandate

The National Law Review recently featured an article by Meghan C. O’Connor of von Briesen & Roper, S.C. regarding The Supreme Courts Recent Ruling on ObamaCare:

This morning, June 28, 2012, the U.S. Supreme Court issued its opinion in theAffordable Care Act (ACA) cases. The individual mandate, requiring the purchase of health insurance, was held constitutional under Congress’ taxing power. The Court did not address the severability issue as to whether other ACA provisions are unconstitutional because the mandate survived. However, the Court did address Medicaid expansion, holding that the expansion is constitutional as long as states would lose only new federal funds – rather than all funding – for failing to comply with the new Medicaid requirements.

Stay tuned for a full summary of the Court’s decision as well as the potential effect of the decision on providers.

©2012 von Briesen & Roper, s.c

Impact of New Medicare Investment Tax on Trusts and Estates

As part of the Patient Protection and Affordable Care Act enacted in 2010, Section 1411 was added to the Internal Revenue Code. Beginning in 2013, this section imposes an additional tax on individuals and on trusts and estates. It is a tax on net investment income tax. Net investment income includes capital gains.

It has generally been reported that the tax on individuals does not apply unless their modified adjusted income exceeds $200,000 ($250,000 for a married couple).

What is less well known is that this new investment tax applies to trusts and estates at a much lower income level. Section 1411 provides that the new tax applies when income reaches the level at which it is taxed at the highest marginal rate. In 2012, the highest marginal tax rate is reached when undistributed net income reaches $11,650. This figure will be adjusted for inflation in 2013.

Depending upon what the income tax rates are in 2013, a trust or estate which has a substantial amount of undistributed net taxable income may find itself paying federal income tax of 43.4 percent (39.6 + 3.8) on much of that income. This is in addition to any state income tax (6 percent on income in excess of $9,000 in Missouri).

This makes careful income tax planning for estates and trusts more important than it has ever been.

© Copyright 2012 Armstrong Teasdale LLP

CMS, CCIO, and IRS Release Guidance Proposals on Employer Health Insurance Coverage

The National Law Review recently published an article by Gary E. Bacher and Joshua Booth of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. regarding Employer Health Insurance Coverage:

The Centers for Medicare & Medicaid Services Center for Consumer Information and Insurance Oversight (CCIIO) and the Internal Revenue Service (IRS) recently released four important documents related to the implementation of the Affordable Care Act (ACA) that address employer-provided health insurance plan reporting requirements and the availability of premium tax credits to individuals and families.  The ACA makes tax credits available to help individuals pay insurance premiums, but these credits do not apply if the individual is eligible for employer-provided coverage that is both affordable (in terms of required employee contribution to premium payments) and provides “minimum value” (in terms of overall cost-sharing).

CCIIO issued a Bulletin that describes the procedures it intends to use to verify whether an employee is eligible for employer-provided coverage, and thus precluded from claiming premium tax credits.  To help determine eligibility and availability of employer-provided coverage to an individual, the IRS issued a Notice and Request for Comment that solicits responses to how the IRS intends to determine whether coverage offered by an employer provides “minimum value,” as well as two Requests for Comment (RFC), Notice 2012-32 and Notice 2012-33, on how insurers, government agencies, and employers should be required to report insurance coverage data to implement sections 6055 and 6056 of the Internal Revenue Code, respectively.  The IRS will accept comments related to the above three issuances until June 11, 2012.

Together, all four issuances provide the government’s initial proposals of how to determine an individual’s eligibility for premium tax credits and when employers will be subject to penalties for failing to offer health care coverage.

The CCIIO Bulletin on Verification of Employer Coverage

The CCIIO Bulletin describes the process by which Health Insurance Exchanges (HIEs) will verify whether an individual is eligible for coverage through an employer. The CCIIO Bulletin recognizes that demonstrating that employer-sponsored coverage is unavailable or unaffordable requires data and documents that may not be easily obtainable by employees.  So, the CCIIO Bulletin suggests that theU.S. Department of Health and Human Services (HHS) will give applicants and employers guidance on what information will be needed, where it can be found, and the types of documentation required.  The CCIIO Bulletin also suggests that, where verification might be difficult, an HIE could initially accept an employee’s attestation that he or she is not eligible for employer-provided coverage and require the employee to provide supporting documentation of his or her ineligibility within 90 days of the attestation.  The CCIIO Bulletin anticipates that these strategies would be interim solutions to be used only until more reliable database systems can be implemented.

The IRS Notice on Calculating Minimum Value

The IRS Notice discusses approaches to determining whether employer-sponsored coverage provides minimum value.  The ACA generally states that a plan provides minimum value if it pays at least 60 percent of the enrollee’s costs for allowed expenses, thus having an actuarial value (AV) of at least 60 percent.  Minimum value is thus closely related to AV.  The Notice builds upon a bulletin regarding AV issued by CCIIO on February 24, 2012, and explicitly adopts many of its core calculation methodologies, such as basing AV on a standard population (adjusted for state or regional differences) and the methodology for evaluating employer’s contributions to an Health Savings Account (HSA).

Because the Notice applies to all employer-sponsored coverage including large group or self-insured health plans, while the February Bulletin applies only to individual and small group market plans, these plans’ distinct features required the IRS to propose an AV calculation methodology in the Notice that differs in certain ways from that proposed in the February Bulletin.  For instance, because self-insured and large group plans are not required to provide the essential health benefits (EHBs) upon which the calculations in the CCIIO Bulletin are based, the IRS has proposed that the AV for such plans would be calculated based on four core categories of benefits: “physician and mid-level practitioner care, hospital and emergency room services, pharmacy benefits, and laboratory and imaging services.” In addition, the population set on which this calculation is based will the population for a “typical self-insured employer-sponsored plan,” rather than the general population that is described in the February Bulletin.

New requirements related to employer-provided health coverage are an integral component of health care reform, so industry responses to the above-described guidance will be important in shaping how the ACA’s changes will be implemented.

©1994-2012 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Slogans versus substance in the battle over ObamaCare's future: ANALYSIS

An article regarding ObamaCare written by Wendell Potter of the Center for Public Integrity recently appeared in The National Law Review:

Cries of ‘Hands off my health care’ mask the benefits of the Affordable Care Act

Hands off my health care!

Remember those words from the health care reform debate of two years ago? I’m confident we’ll be seeing them on protest signs in Washington again this week as the Supreme Court hears arguments on the constitutionality of the Affordable Care Act. And we’ll see them again when the protest campaigns shift into high gear this summer.

One of the rules of effective communications is to keep it simple. In attacking something you don’t like, use as few words as possible, and make sure those words pack an emotional wallop. That’s why lies about “death panels” and a “government takeover” of health care have been so potent. Unfortunately for those advocating reform, it’s far more challenging to explain and defend a law as complicated as the Affordable Care Act.

Maybe, then, supporters of the law should co-opt the “hands off” slogan and make it their own. That would require adding just a few more words here and there to make clear what would be lost if the law is repealed, gutted or declared unconstitutional.

Here’s are some suggestions:

“Hands off my health care! Granny doesn’t need her meds all year anyway!”

The Affordable Care Act is closing the despised and even deadly “doughnut hole” in the Medicare prescription drug program, which was designed in 2003 largely by lobbyists for insurance and pharmaceutical companies who were more interested in protecting their companies’ profits than helping seniors stay alive. The way the law was cobbled together, Medicare beneficiaries get prescription drug coverage only up to a certain amount. When they reach that limit, they fall into the “doughnut hole” and have to pay about $4,000 out of their own pockets for their prescriptions before coverage resumes. As a consequence, many people stop taking their medications because they don’t have the money to pay for them. And many of them die. The Affordable Care Act has already shrunk that gap and will close it completely in 2020.

“Hands off my health care! Who cares if insurers refuse to cover sick kids?”

Before the Affordable Care Act, insurance companies routinely refused to insure children who were born with disabilities or who developed life-threatening illnesses like diabetes or cancer. It was perfectly legal for them to refuse to sell coverage to anyone — even children— who had what insurers call a “pre-existing condition.” The reform law already requires insurers to cover all kids, regardless of health status. It will apply to the rest of us in 2014.

“Hands off my health care! My 24-year-old daughter can just stay uninsured!”

Insurers have long had a policy of kicking young adults off their parents’ policies when they turn 23. Many of these young folks don’t have the money to buy coverage on their own—and a lot of them can’t buy it at all because of, you guessed it, pre-existing conditions. That’s why young people comprise the biggest segment of the uninsured population. Because the Affordable Care Act allows parents to keep dependents on their policies until they turn 26, an estimated 2.5 million young people had become insured again as of the end of last year.

“Hands off my health care! If I lose my coverage because I lose my job, so be it!”

Millions of Americans fall into the ranks of the uninsured every year when they get laid off. That’s one reason the number of people without coverage swelled to 50 million during the recession. Many of them can’t afford to buy insurance on their own and many of them have—you guessed right again—pre-existing conditions and can’t buy it at any price. Starting in 2014, not only will the Affordable Care Act prohibit insurers from refusing to sell coverage to people of any age because of their medical history, it will also provide subsidies to low-income individuals and families to help them buy insurance.

“Hands off my health care! It’s not my problem if your insurance company dumps you when you get sick!”

To avoid paying claims, insurers for years have cancelled the coverage of policyholders when they got sick. A former nurse in Texas testified before Congress in 2009 about getting a cancellation notice from her insurer the day before she was to have a mastectomy because she had failed to note on her application for coverage that she had been treated for acne. The Affordable Care Act makes it illegal for insurers to cancel policies for any reason other than fraud or failure to pay premiums.

“Hands off my health care!” Maybe we ought to think that through a little bit more before we take to the streets with those words on our placards. Insurers who profited from the way things used to be will laugh all the way to the bank if you start waving those signs, but you and people you love might live to regret it. On the plus side, at least for the special interests, you probably won’t live as long.

Slogans versus substance in the battle over ObamaCare's future

Signs from a Tea Party protest in St. Paul, Minn.Flickr Creative Commons/Fibonacci Blue

Reprinted by Permission © 2012, The Center for Public Integrity®

Affordable Care Act Holding Insurers Accountable for Premium Hikes

Featured recently in the National Law Review an article by the U.S. Department of Health & Human Services regarding Health Care Premium Hikes:

Health insurance premium increases in five states have been deemed “unreasonable” by the U.S. Department of Health and Human Services, HHS Secretary Kathleen Sebelius announced today.

After independent expert review, HHS determined that Trustmark Life Insurance Company has proposed unreasonable health insurance premium increases in five states—Alabama, Arizona, Pennsylvania, Virginia, and Wyoming.  The excessive rate hikes would affect nearly 10,000 residents across these five states.

To make these determinations, HHS used its “rate review” authority from the Affordable Care Act (the health care law of 2010) to determine whether premium increases of over 10 percent are reasonable.

“Before the Affordable Care Act, consumers were in the dark about their health insurance premiums because there was no nationwide transparency or accountability,” said Secretary Kathleen Sebelius.  “Now, insurance companies are required to disclose rate increases over 10 percent and justify these increases.  It’s time for Trustmark to immediately rescind the rates, issue refunds to consumers or publicly explain their refusal to do so.”

In these five states, Trustmark has raised rates by 13 percent.  For small businesses in Alabama and Arizona, when combined with other rate hikes made over the last 12 months, rates have increased by 27.2 percent and 18.1 percent, respectively.  These increases were reviewed by independent experts to determine whether they are reasonable.  In this case, HHS determined that the rate increases were unreasonable because the insurer would be spending a low percent of premium dollars on actual medical care and quality improvements, and because the justifications were based on unreasonable assumptions.

In addition to the review of rate increases, many states have the authority to reject unreasonable premium increases.  Since the passage of the health care reform law, the number of states with this authority increased from 30 to 37, with several states extending existing “prior authority” to new markets.

Examples of how states have used this authority include:

  • In New Mexico, the state insurance division denied a request from Presbyterian Healthcare for a 9.7 percent rate hike, lowering it to 4.7 percent;
  • In Connecticut, the state stopped Anthem Blue Cross Blue Shield, the state’s largest insurer, from hiking rates by a proposed 12.9 percent, instead limiting it to a 3.9 percent increase;
  • In Oregon, the state denied a proposed 22.1 percent rate hike by Regence, limiting it to 12.8 percent.
  • In New York, the state denied rate increases from Emblem, Oxford, and Aetna that averaged 12.7 percent, instead holding them to an 8.2 percent increase.
  • In Rhode Island, the state denied rate hikes from United Healthcare of New England ranging from 18 to 20.1 percent, instead seeing them cut to 9.6 to 10.6 percent.
  • In Pennsylvania, the state held Highmark to rate hikes ranging from 4.9 to 8.3 percent, down from 9.9 percent.

Today’s announcement comes the same week that a report showed that health care spending has grown at remarkably low rates.  According to an analysis done each year by the Centers for Medicare & Medicaid Services, U.S. health care spending experienced historically low rates of growth in 2009 and 2010.  A recent study released by Mercer Consulting also showed a slow-down in the average employee health benefit cost to businesses.

The Affordable Care Act includes several policies, including rate review, to continue this slow growth.  By fighting fraud, better coordinating care, preventing disease and illness before they happen and creating a new state-based insurance marketplace, it helps keep health care cost growth low.

For more information on the specific determinations made today, please visit http://companyprofiles.healthcare.gov/

© Copyright 2012 U.S. Department of Human & Health Services

Medicare Part B premiums for 2012 lower than projected

Recently posted in the National Law Review an article by U.S. Department of Human & Health Services regarding Medicare Part B premiums:

Health & Human Services

Affordable Care Act helps keep Medicare affordable 

The U.S. Department of Health and Human Services (HHS) announced that Medicare Part B premiums in 2012 will be lower than previously projected and the Part B deductible will decrease by $22. While the Medicare Trustees predicted monthly premiums would be $106.60, premiums will instead be $99.90. Earlier this year, HHS announced that average Medicare Advantage premiums would decrease by four percent and premiums paid for Medicare’s prescription drug plans would remain virtually unchanged.

Thanks to the Affordable Care Act, people with Medicare also receive free preventive services and a 50 percent discount on covered prescription drugs when they enter the prescription drug “donut hole.”  This year, 1.8 million people with Medicare have received cheaper prescription drugs, while nearly 20.5 million Medicare beneficiaries have received a free Annual Wellness Visit or other free preventive services like cancer screenings.

“The Affordable Care Act is helping to keep Medicare strong and affordable,” said HHS Secretary Kathleen Sebelius. “People with Medicare are seeing higher quality benefits, better health care choices, and lower costs. Health reform is also strengthening the Medicare Hospital Insurance Trust Fund and cracking down on Medicare fraud.”

Medicare Part B covers physicians’ services, outpatient hospital services, certain home health services, durable medical equipment, and other items. In 2012, the “standard” Medicare Part B premium will be $99.90. This is a $15.50 decrease over the standard 2011 premium of $115.40 paid by new enrollees and higher income Medicare beneficiaries and by Medicaid on behalf of low-income enrollees.

The majority of people with Medicare have paid $96.40 per month for Part B since 2008, due to a law that freezes Part B premiums in years where beneficiaries do not receive cost-of-living (COLA) increases in their Social Security checks. In 2012, these people with Medicare will pay the standard Part B premium of $99.90, amounting to a monthly change of $3.50 for most people with Medicare. This increase will be offset for almost all seniors and people with disabilities by the additional income they will receive thanks to the Social Security cost-of-living adjustment (COLA). For example, the average COLA for retired workers will be about $43 a month, which is substantially greater than the $3.50 premium increase for affected beneficiaries. Additionally, the Medicare Part B deductible will be $140, a decrease of $22 from 2011.

“Thanks in part to the Affordable Care Act, people with Medicare are going to have more money in their pockets next year,” said Centers for Medicare & Medicaid Services (CMS) Administrator Donald Berwick, M.D. “With new tools provided by the Affordable Care Act, we are improving how we pay providers, helping patients get the care they need, and spending our health care dollars more wisely.”

Today, CMS also announced modest increases in Medicare Part A monthly premiums as well as the deductible under Part A. Monthly premiums for Medicare Part A, which pays for inpatient hospitals, skilled nursing facilities, and some home health care, are paid by just the 1 percent of beneficiaries who do not otherwise qualify for Medicare. Medicare Part A monthly premiums will be $451 for 2012, an increase of $1 from 2011. The Part A deductible paid by beneficiaries when admitted as a hospital inpatient will be $1,156 in 2012, an increase of $24 from this year’s $1,132 deductible. These changes are well below increases in previous years and general inflation.

For more information on how seniors are getting more value out of Medicare, please visit:http://www.healthcare.gov/news/factsheets/2011/10/medicare10272011a.html

For more information about the Medicare premiums and deductibles for 2012, please visit:https://www.cms.gov/apps/media/fact_sheets.asp

© Copyright 2011 U.S. Department of Human & Health Services