Affordable Care Act Issues for U.S. Expatriates

By now most employers are beginning to come to terms with the Affordable Care Act coverage mandates and reporting requirements that apply to the group health coverage of their U.S. workforce. For global businesses, though, the problems do not stop at the U.S. border. These companies must also determine how ACA affects U.S. citizens and lawful permanent residents working abroad.

Most companies face four major questions concerning health coverage for U.S. expatriates:

  • Must they provide group health coverage to employees working abroad in order to satisfy the employer mandate?

  • Must their employees working abroad maintain a minimum level of health coverage in order to satisfy the individual mandate?

  • If an individual is covered by a foreign group health plan or insurance policy, does that coverage qualify as minimum essential coverage that satisfies the employer and individual mandates?

  • If an employer provides group health coverage to U.S. citizens or residents working abroad, is that coverage subject to the same requirements that apply to employer health coverage in the U.S.?

When Are Expatriates Subject to the Employer Mandate?

An employer with at least 50 full-time employees must offer minimum essential health coverage to substantially all of its full-time employees (and their dependents) in order to avoid an excise tax. For 2015, “substantially all” means 70% of the employer’s full-time workforce; starting in 2016, it means 95% of the employer’s full-time workforce. An employee who works on average at least 30 hours a week is considered to be a full-time employee. (For more information on the employer mandate, see IRS Proposes Shared Responsibility Tax Rules for Employers and Top Ten Things to Know about the Final Shared Responsibility Regulations.)

Service Outside the U.S. When an employer determines which employees are “full-time employees” covered by the employer mandate, the employer disregards hours of service performed outside the U. S. to the extent that the related compensation is foreign-source income. The “source” of compensation ordinarily is the location where the work is performed. Accordingly, for example, if a U. S. company has a substantial foreign branch, the U. S. company generally is not required to offer health coverage to employees working at the foreign branch in order to satisfy the employer mandate. This rule applies regardless of whether the employees working outside the U.S. are U.S. citizens or foreign nationals.

International Transfers. Complications can arise when an employer transfers employees between U.S. and foreign positions. Many employers rely on a lookback rule to determine an employee’s status as a full-time employee: if the employee works full-time in the U. S. during a measurement period, the employee is considered to be a full-time employee throughout a subsequent stability period lasting up to 12 months. As a result, an employee who works full-time in the U. S. during the measurement period might retain his or her status as a full-time employee for up to 12 months after the employee is transferred to a foreign affiliate.

The regulations include special rules to address the problem of international transfers. The employer may treat an employee transferred abroad as having terminated employment (so that the employee is no longer a “full-time employee” covered by the employer mandate) if the transfer meets two conditions: the employee is expected to remain in the foreign position indefinitely or for at least 12 months, and substantially all of the employee’s compensation will be foreign-source income. (In the reverse situation, when an employee based outside the U.S. on an assignment expected to last indefinitely or for at least 12 months transfers back to the U.S., the employer generally may treat the employee as a new hire.)

When Are Expatriates Subject to the Individual Mandate? 

U.S. citizens and U.S. residents generally must maintain minimum essential health coverage for themselves and their dependent children each month or pay an excise tax. U.S. citizens and residents working outside the U.S. are deemed to have the requisite health coverage for a given month, however, if the month falls in a period during which the individual meets one of three conditions:

  • The individual is a U.S. citizen whose tax home is a foreign country, and the individual has been a bona fide resident of a foreign country or countries for an uninterrupted period that includes an entire taxable year; or

  • The individual is a U.S. citizen or resident whose tax home is a foreign country, and the individual is present in a foreign country for at least 330 full days during a 12-month period; or

  • The individual is a bona fide resident of a U.S. possession (Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands).

The exemption from the employer mandate and the exemption from the individual mandate do not completely overlap. As a result, the employer mandate might require an employer to offer minimum essential coverage to an expatriate employee who is already deemed to have minimum essential coverage for purposes of the individual mandate. Conversely, the employer mandate might not apply to an expatriate employee who is nevertheless required to maintain minimum essential coverage in order to satisfy the individual mandate. Employers will have to think through these issues carefully and communicate them accurately to their expatriate employees.

When Is Foreign Coverage Minimum Essential Coverage? 

A U.S. citizen or resident working abroad often will be covered by a health insurance arrangement maintained by the foreign office where he or she works. To the extent that the employee is subject to the employer mandate or the individual mandate, the question will arise whether this coverage constitutes “minimum essential coverage” that satisfies the mandates.

Self-Insured Arrangements. A self-insured group health plan offered by an employer to an employee qualifies as minimum essential coverage regardless of where the plan is located. Accordingly, if an expatriate is covered by a self-insured group health arrangement maintained by a foreign employer, the arrangement will satisfy both the employer mandate and the individual mandate.

Insured Arrangements. An insured employer group health plan also qualifies as minimum essential coverage if the insurance is offered in the group insurance market within one of the 50 states or the District of Columbia, even if the policy covers U. S. expatriates. In contrast, however, an employer group health plan that is insured by a policy issued outside the U. S. market must meet a complicated set of requirements in order to qualify as minimum essential coverage.

HHS issued informal guidance in 2013 stating that foreign group health insurance would qualify as minimum essential coverage with respect to a covered individual for a given month as long as the insurer was regulated by a foreign government and the covered individual either (1) was physically absent from the U.S. for at least one day in the month, or (2) if physically present in the U. S. for the entire month, was covered while in expatriate status. In 2014 the agency proposed to modify this rule and apply it to foreign self-insured plans as well as foreign insured plans; but the proposal was not included in the final regulation.

The informal guidance states that the employer must notify all covered U.S. citizens and U.S. nationals that the plan constitutes minimum essential coverage, and must satisfy IRS reporting requirements under Internal Revenue Code section 6055 for those individuals, even if they are not subject to the individual mandate. (The term “U.S. nationals” includes, in addition to U.S. citizens, certain persons born in outlying possessions of the U.S. and their descendants.) The notice and reporting requirements are easily overlooked by a foreign employer that is not otherwise subject to the Affordable Care Act.

New Legislation. The Expatriate Health Coverage Clarification Act of 2014 (the “Act”), enacted in December 2014 as Division M of the Consolidated and Further Continuing Appropriations Act (H.R. 83), states that any plan that qualifies as an “expatriate health plan” is deemed to provide minimum essential coverage. Like HHS’s informal guidance, the Act requires the sponsor of an expatriate health plan to meet the IRS reporting requirements for minimum essential coverage under Internal Revenue Code section 6055, and it also requires a large employer to satisfy the reporting requirements under Internal Revenue Code section 6056. The Act permits expatriate health plan sponsors to furnish participants with electronic versions of the section 6055 and 6056 statements as long as a participant has not explicitly refused electronic delivery.

In most cases, an employer group health plan will qualify as an “expatriate health plan” for purposes of the Act only if substantially all of the covered employees are either (1) employees who work outside the U.S. for at least 180 days in a 12-month period that overlaps the plan year, or (2) employees who are temporarily assigned to the U.S. for job-related reasons and who receive other multinational benefits (such as tax equalization or moving allowances). Foreign nationals who reside in their home country are ignored for purposes of applying the “substantially all” test. Accordingly, for example, a foreign employer that maintains a group health plan in its home country cannot satisfy the test solely by reason of the fact that its entire local workforce meets the 180-day condition. Instead, substantially all of the expatriates covered by the plan must satisfy the test without taking local citizens into account. If the plan meets the “substantially all” test with respect to covered expatriates, however, it can qualify as an “expatriate health plan” even though it also covers a large proportion of local citizens.

In addition to covering eligible expatriates, a group health plan must meet a number of substantive requirements in order to qualify as an expatriate group health plan under the Act. For example, the plan must:

  • provide significant health coverage (hospitalization, outpatient facility, physician, and emergency services) that is not limited to excepted benefits such as dental and vision coverage;

  • satisfy the applicable pre-ACA requirements for health plans, such as HIPAA nondiscrimination, genetic nondiscrimination, minimum maternity stay, and mental health parity requirements;

  • cover at least 60% of the costs covered under a typical large group health plan;

  • cover dependent children until they turn age 26 if the plan provides dependent coverage; and

  • be insured, or if self-insured be administered, by an insurer or administrator that is licensed to sell insurance in more than two countries and has a global presence prescribed by the Act (such as maintaining network agreements with providers in eight or more countries).

Under the Act, the term “expatriate health plan” applies both to a group health plan and to health insurance coverage issued in connection with a group health plan. Accordingly, U. S.-insured, foreign-insured, and self-insured plans can qualify as expatriate health plans if they meet the Act’s requirements.

Effective Date. The Act applies only to expatriate health plans issued or renewed on or after July 1, 2015. When the Act becomes applicable, it is not clear how it will coordinate with existing guidance concerning expatriate health plans. It is likely that the regulatory agencies will address this point in the coming months.

At present, it appears that all U.S.-based self-insured employer group health plans and insured plans covered by insurance issued in the U.S. group market will continue to qualify as minimum essential coverage whether or not they meet the definition of “expatriate health plans” under the Act. As explained in the next section, the bigger question for these plans is whether they can avoid some of ACA’s substantive requirements and fees by qualifying as expatriate health plans.

Which ACA Provisions Apply to Expatriate Plans?

Employers often provide health coverage to U.S. expatriates under a foreign health plan maintained by the local business where they work, or under a special group health policy for expatriates and third-country nationals issued outside the U.S. insurance market by a U. S. or foreign issuer. In either case, the plan or policy must comply with local rules governing group health coverage. In some cases, these rules are incompatible with ACA’s mandates; and foreign insurers often are not equipped to comply with ACA’s intricate reporting and participant disclosure requirements.

A plan maintained outside the U.S. for employees substantially all of whom are nonresident aliens is exempt from ERISA’s substantive requirements, including the group health plan mandates added by the Affordable Care Act. Accordingly, an employer that includes a few U. S. expatriates in a foreign group health plan that predominantly covers local nationals generally does not have to worry about compliance with ERISA. Unfortunately, however, the parallel group health plan mandates in the Internal Revenue Code do not include a similar exemption for foreign plans. As a result, an employer that is subject to tax in the U. S. might incur substantial excise taxes if it fails to comply with applicable group health plan mandates.

The regulatory agencies issued temporary guidance in FAQs XIII and FAQs XVIII exempting some expatriate plans from most of ACA’s mandates through the end of 2016. The exemption applies only to insured plans with enrollment limited to primary insureds who live outside their home country or outside the United States for at least 6 months during a 12-month period and their dependents. The temporary guidance provides no relief for self-insured plans. In order to qualify for the exemption, an insured plan must comply with a number of pre-ACA mandates, such as the mental health parity provisions, the HIPAA nondiscrimination requirements, the ERISA claims procedures, and ERISA reporting and disclosure obligations.

The Act expanded the definition of “expatriate health plans” to include self-insured plans, and it made the temporary relief permanent. If an insured or self-insured plan qualifies for relief under the Act, it is broadly exempt from most ACA mandates and fees.

The Act also modified the requirements that an insured or self-insured group health plan must meet in order to qualify for the relief, as described in the preceding section. For example, unlike the temporary guidance, the Act requires a group health plan to comply with certain ACA requirements—such as the requirement to provide minimum-value coverage, the requirement to cover dependents until age 26, and the reporting and disclosure obligations in Internal Revenue Code sections 6055 and 6056—in order to qualify for the relief. In addition, the Act provides that expatriate plans will be subject to the so-called Cadillac tax on high-cost health coverage (effective in 2018) with respect to employees assigned to work in the U.S.

Multinational employers will wish to evaluate the requirements for relief under the Act between now and July 1 and to consider whether to revise and re-issue plans covering U.S. expatriates so that they will qualify for relief under the Act.

ARTICLE BY

OF

Mergers and Acquisitions and the Affordable Care Act

Giordano Halleran Ciesla Logo

As most employers already know, the Affordable Care Act (a/k/a ObamaCare or the ACA) now imposes health care insurance coverage requirements upon certain employers which have a certain number of full time and full time equivalent employees (“FTEs”).  Therefore, it is imperative that consideration be given to whether parties involved in any merger or other acquisition transaction are currently subject to the requirements of the ACA (and if so, whether they are in compliance with such requirements), or will otherwise be subject to the requirements of the ACA following the consummation of the transaction.

If the buyer or seller company is a “small business,” meaning the company has less than 50 FTEs, it should not be subject to the ACA.   However, a determination has to be made as to whether or not individuals who are treated as independent contractors are, for the purposes of the ACA, truly independent contractors, or rather are deemed to be employees.  While the ACA makes reference to certain federal statutes with respect to this determination, it is clear that the Obama administration has uniquely and aggressively interpreted the ACA to accomplish its objectives.  In those circumstances where the seller or buyer company is below 100 FTEs for the year 2015, the company will be exempt from the requirements of the ACA for the year 2015, but subject to the ACA thereafter.  Even in those circumstances where companies clearly are subject to the ACA, the question then becomes whether or not all of the individuals who provide services to that company are classified appropriately (employees v. independent contractors), and whether the requirements of the ACA have been complied with regarding those individuals.

A new level of complexity has been added in this area by a relatively recent interpretation of the National Labor Relations Board (NLRB) in a franchise case dealing with the classification issue, in which the NLRB found that the various employees of the franchisees were also employees of the franchisor.  This could automatically create, for any national franchise, a situation where the local franchisee meets the large employer threshold of the ACA, and therefore would be liable to comply with the requirements of the ACA.  Obviously, the position taken by the NLRB will be contested and is a long way off from being established as binding law upon all employers.  Notably, this very issue has already been addressed in various state courts.  For instance, in contrast to the NLRB decision, the California State Supreme Court recently determined in a 4 to 3 decision that the employees of a franchisee are also not employees of the franchisor.

While the ACA references certain federal statutes for determining whether or not an individual is an employee, in the recent case of Sam Hargrove, et al. v. Sleepy’s, LLC , the New Jersey Supreme Court has advised the Third Circuit that for the purposes of the wage and hour laws, the interpretation should follow New Jersey case law, which provides a much stricter definition for independent contractors than the federal law.  Only time and litigation will tell what interpretation will be made under the ACA for the purposes of determining whether an individual is an employee or an independent contractor with respect to the determination as to whether the employer is a small business subject to the ACA and whether or not an individual is entitled to health care coverage.

In summary, careful consideration must be made in any merger or acquisition transaction as to whether the seller company in an asset purchase or equity purchase is, or the combined company in any merger, consolidation or similar combination will be, subject to the onerous requirements of the ACA based on the number of FTEs of the company.   In order to make such a determination, further consideration will need to be made into applicable case law as to whether or not individuals who are designated as independent contractors of the company are truly independent contractors, or rather should be deemed to be employees of the company for purposes of the ACA.  However, because the law in this area is not entirely settled and continues to evolve, companies involved in merger or acquisition transactions and companies contemplating merger or acquisition transactions will need to stay informed on these issues.

ARTICLE BY

OF

Nation’s Highest Court Schedules Oral Arguments in King v. Burwell re: Affordable Care Act

Sheppard Mullin Law Firm

A Supreme Court of the United States (SCOTUS) spokesperson announced on December 22, 2014, that the Court will hear oral arguments in King v. Burwell on March 4, 2015. This means that not only could the highest court soon resolve the circuit split on the case’s key issue, but that the future course of the landmark Affordable Care Act (ACA) could be decided as soon as June 2015.

At issue in King is whether a May 2012 IRS rule should be upheld or stricken.[1] The rule provides that health insurance premium tax credits are available to all U.S. taxpayers, irrespective of whether they obtain coverage through a state or federal exchange. Challengers to the IRS rule contend that the plain language of the ACA restricts the availability of the tax credits to health insurance policies purchased through state exchanges and not through the federal exchange. Reading the ACA statutory language strictly, challengers note that there is no alternative interpretation to the words noting that premium tax credits are available for plans obtained “through an Exchange established by the State under section 1311” of the Act.[2] (italics added).

The government has countered that other provisions of the ACA support the legislative intent of Congress—that the premium tax credits are meant to be made available for all taxpayers nationwide, including those who purchase plans on the federal exchange. It has noted that the IRS rule should not be invalidated because of a simple drafting error.

Earlier this year in July, the U.S. Court of Appeals for the Fourth Circuit had unanimously concluded in King that the ACA was ambiguous on the question of whether the tax credits applied to plans purchased through the federal exchange. Because of this, it allowed for the government to have a “reasonable interpretation” of the ACA via the IRS rule.[3]This decision directly conflicted with the July 2014 U.S. Court of Appeals (District of Columbia) decision in Halbig v. Burwellon the same issue.

The D.C. Court sided with the plain language interpretation and restricted the tax credits to plans purchased through the state exchanges. The Court subsequently vacated the decision and is not expected to render its opinion until Spring 2015.

If SCOTUS resolves the circuit split in favor of the challengers, there are several potential implications that could leave millions of Americans without health insurance:

  • Coverage would be less affordable for those on the federal exchange;

  • Without the tax credit, individuals would be exempt from the individual mandate;[4] and

  • The ACA employer “pay-or-play” provision would not apply to as many employers.

The latter implication is likely due to the fact that pay-or-play penalties are triggered only if a covered employer fails to offer health insurance coverage and an employee takes advantage of a tax subsidy by purchasing an exchange plan.  Without premium tax credits or subsidies available through the federal exchange, fewer employers would be penalized for failure to provide coverage in the first place.

The Supreme Court’s decision in the summer of 2015 may set the tone for the longevity of the ACA in light of the most recent mid-term elections.

ARTICLE BY


[1] See 26 C.F.R. § 1.36B–1(k); Health Insurance Premium Tax 7 Credit, 77 Fed.Reg. 30,377, 30,378 (May 23, 2012) (collectively the “IRS Rule”).

[2] See ACA § 1401(a), codified at 26 U.S.C. § 26B(c)(2)(A)(i).

[3] The Fourth Circuit U.S. Court of Appeals opinion can be found here.

[4] As a matter of law, health insurance would be “unaffordable” and the individual mandate would be waived. See 26 U.S.C. § 5000A.

The Affordable Care Act—Countdown to Compliance for Employers, Week 1: Going Live with the Affordable Care Act’s Employer Shared Responsibility Rules on January 1, 2015

Mintz Levin Law Firm

Regulations implementing the Affordable Care Act’s (ACA) employer shared responsibility rules including the substantive “pay-or-play” rules and the accompanying reporting rules were adopted in February.  Regulations implementing the reporting rules in newly added Internal Revenue Code Sections 6055 and 6056 came along in March. And draft reporting forms (IRS Forms 1094-B, 1094-C, 1095-B and 1095-C) and accompanying instructions followed in August.

With these regulations and forms, and a handful of other, related guidance items (e.g., a final rule governing waiting periods), the government has assembled a basic—but by no means complete—compliance infrastructure for employer shared responsibility. But challenges nevertheless remain. Set out below is a partial list of items that are unresolved, would benefit from additional guidance, or simply invite trouble.

1.  Variable Hour Status

The ability to determine an employee’s status as full-time is a key regulatory innovation. It represents a frank recognition that the statute’s month-by-month determination of full-time employee status does not work well in instances where an employee’s work schedule is by its nature erratic or unpredictable. We examined issues relating to variable hour status in previous posts dated April 14July 20, and August 10.

An employee is a “variable hour employee” if—

Based on the facts and circumstances at the employee’s start date, the employer cannot determine whether the employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period because the employee’s hours are variable or otherwise uncertain.

The final regulations prescribe a series of factors to be applied in making this call. But employers are having a good deal of difficulty applying these factors, particularly to short-tenure, high turnover positions. While there are no safe, general rules that can be applied in these cases, it is pretty easy to identify what will not work: classification based on employee-type (as opposed to position) does not satisfy the rule. Thus, it is unlikely that a restaurant that classifies all of its hourly employees, or a staffing firm that classifies all of its contract and temporary workers, as variable hour without any further analysis would be deemed to comply. But if a business applies the factors to, and applies the factors by, positions,  it stands a far greater chance of getting it right.

2.  Common Law Employees

We addressed this issue in our post of September 3, and since then, the confusion seems to have gotten worse. Clients of staffing firms have generally sought to take advantage of a special rule governing offers of group health plan coverage by unrelated employers without first analyzing whether the rule is required.

While staffing firms and clients have generally been able to reach accommodation on contractual language, there have been a series of instances where clients have sought to hire only contract and temporary workers who decline coverage in an effort to contain costs. One suspects that, should this gel into a trend, it will take the plaintiff’s class action bar little time to respond, most likely attempting to base their claims in ERISA.

3.  Penalties for “legacy” HRA and health FSA violations

A handful of promoters have, since the ACA’s enactment, offered arrangements under which employers simply provided lump sum amounts to employees for the purpose of enabling the purchase of individual market coverage. These schemes ranged from the odd to the truly bizarre. (For example, one variant claimed that the employer could offer pre-tax amounts to employees to enroll in subsidized public exchange coverage.) In a 2013 notice, the IRS made clear that these arrangements, which it referred to as “employer payment plans,” ran afoul of certain ACA insurance market requirements. (The issues and penalties are explained in our June 2 post.) Despite what seemed to us as a clear, unambiguous message, many of these schemes continued into 2014.

Employers that offered non-compliant employer-payment arrangements in 2014 are subject to penalties, which must be self-reported. For an explanation of how penalties might be abated, see our post of April 21.

4.  Mergers & Acquisitions

While the final employer shared responsibility regulations are comprehensive, they fail to address mergers, acquisitions, and other corporate transactions. There are some questions, such as the determination of an employer’s status as an applicable large employer, that don’t require separate rules. Here, one simply looks at the previous calendar year. But there are other questions, the answers to which are more difficult to discern. For example, in an asset deal where both the buyer and seller elect the look-back measurement method, are employees hired by the buyer “new” employees or must their prior service be tacked? The IRS invited comments on the issue in its Notice 2014-49.

Taking a page from the COBRA rules, the IRS could require employers to treat sales of substantial assets in a manner similar to stock sales, in which case buyers would need to carry over or reconstruct prior service. While such a result might be defensible, it would also impose costly administrative burdens. Currently, this question is being handled deal-by-deal, with the “answers” varying in direct proportion to the buyer’s appetite for risk.

5.  Reporting

That the ACA employer reporting rules are in place, and that the final forms and instructions are imminent should give employers little comfort. These rules are ghastly in their complexity. They require the collection, processing and integration of data from multiple sources—payroll, benefits admiration, and H.R., among others. What is needed are expert systems to track compliance with the ACA employer shared responsibility rules, populate and deliver employee reports, and ensure proper and timely delivery of employee notices and compliance with the employer’s transmittal obligations. These systems are under development from three principal sources: commercial payroll providers, national and regional consulting firms, and venture-based and other start-ups that see a business opportunity. Despite the credentials of the product sponsors, however—many of which are truly impressive—it is not yet clear in the absence of actual experience that any of their products will work. It is not too early for employers to contact their vendors and seek assurances about product delivery, reliability, and performance.

Full D.C. Circuit to Rehear ACA Premium Tax Credit Case

Mcdermott Will Emery Law Firm

The full U.S. Court of Appeals for the D.C. Circuit has vacated the 2-1 panel decision issued July 22, 2014, in Halbig v. Burwell, which struck down the Internal Revenue Service (IRS) Rule providing for Affordable Care Act (ACA) premium tax credits to be available to lower income exchange customers, regardless of their state of residence.  The government’s brief is due October 3, 2014, and the plaintiffs’ opposing brief is due a month later on November 3, 2014, to precede oral arguments on December 17, 2014.  It is likely that the full D.C. Circuit would not render its opinion before mid- to late Spring 2015.  This has the effect of preserving the status quo with respect to the availability of premium tax credits, at least until the full D.C. Circuit renders its decision.

Meanwhile, the plaintiffs have sought review by the Supreme Court of the United States in King v. Burwell, Halbig’s sister case in which the U.S. Court of Appeals for the Fourth Circuit upheld that same IRS Rule.  The Clerk of the Supreme Court has granted the government an extension until October 3, 2014, to respond to the petition for certiorari.  The plaintiffs have urged the highest court render its decision as quickly as possible to resolve the circuit split.  If the Supreme Court accepts King for review before mid-January, it could issue a ruling in the current term, which is scheduled to end in late June 2015.

Among the highest profile legal challenges to the ACA, Halbig and King seek to invalidate a May 2012 IRS Rule providing that health insurance premium tax credits will be available to all taxpayers nationwide, regardless of whether they obtain coverage through a state-based exchange or a federally facilitated exchanges (FFE).  The plaintiffs (represented by the same lawyers in both cases) argued that the plain language of the ACA limits the availability of premium tax credits to only those taxpayers who reside in the 14 states (plus the District of Columbia) that set up their own exchanges, and thus nullifies the IRS Rule’s application to the 36 states operating exchanges through the FFE.  Plaintiffs’ argument is based on language providing that premium tax credits are only available for plans “enrolled in through an Exchange established by the State under section 1311 of the [ACA].”  ACA § 1401(a), enacting 26 U.S.C. § 36B(c)(2)(A)(i) (emphasis added).  The government counters that other provisions of the ACA make clear that the subsidies are to be made available in the FFE states as well.  

There are also two similar cases awaiting decisions by federal trial courts on motions for summary judgment.  First, in Pruitt v. Burwell, pending in federal district court in Muskogee, Oklahoma, the state complains that the availability of the premium tax credit in FFE states forces the state to choose between the costs of providing coverage to its employees or paying the IRS a significant financial penalty.  Second, in Indiana v. IRS, pending in federal district court in Indianapolis, the state and 39 of its public school districts argue that the IRS Rule directly injures the state and school districts in their capacities as employers by subjecting them to increased compliance costs and administrative burdens.  On August 12, 2014, the plaintiffs survived the government’s motion to dismiss based upon lack of standing inIndiana v. IRS, although the court dismissed one aspect of the case because of the delay in enforcing the employer mandate.  Oral arguments on the merits are set for October 9, 2014.

 
OF 

Proposed Legislation Introduced to Override Hobby Lobby Ruling

Barnes Burgandy Logo

On July 9th, Senator Democrats introduced proposed legislation known at the Protect Women’s Health from Corporate Interference Act (Act) in an effort override the U.S. Supreme Court’s Hobby Lobby decision, which was previously discussed in our June 30th Alert.

The Act would reinstate the Affordable Care Act’s contraceptive coverage obligations imposed on employers, requiring employers to provide such health insurance. The Act specifically is targeted at the Supreme Court’s 5-4 Hobby Lobby decision, which held closely-held companies (those that are family-owned or have a limited number of shareholders) can exercise their freedom of religion protections to avoid paying for such contraceptive coverage.  Senator Tom Harkin (D-Iowa), one of the three Senators who introduced this legislation, explained that houses of worship and religious non-profits would remain exempt from providing contraceptive coverage under the Act.

The introduction of this legislation in the Senate follows the announcement by two House Democrats last week, indicating they would introduce similar bills in response to the Hobby Lobby decision. If the legislation were to pass the Senate, many experts anticipate it will fail in the Republican-controlled House.

Article By:

Of:

Hobby Lobby: The Supreme Court’s View and Its Impact

Proskauer

For the second time in two years the United States Supreme Court (the “Court”) hasruled against the Obama Administration with respect to elements of the Affordable Care Act (the “ACA”).  In a 5-4 decision announced today in Burwell v. Hobby Lobby Stores, Inc.  (“Hobby Lobby”) (f/k/a Sebelius v. Hobby Lobby Stores, Inc.), the Court ruled that the federal government, acting through Health and Human Services (“HHS”), overstepped its bounds by requiring faith-based private, for-profit employers to pay for certain forms of birth control that those employers argued contradicted their religious beliefs, in violation of the Religious Freedom Restoration Act of 1993 (“RFRA”).

In Hobby Lobby, the Court found that for-profit employers are “persons” for purposes of the RFRA.  The Court, assuming that the government could show a compelling interest in its desire to provide women with access to birth control, ultimately held that the government could have met this interest in a less burdensome way.

Background

Among its many insurance mandates, the ACA requires non-grandfathered health insurance plans to cover “preventive services” at no cost to participants.

As part of its implementation of the ACA, HHS added 20 contraceptives that were required to be included as preventive services, including four that may have the effect of preventing a fertilized egg from developing.

Hobby Lobby argued that requiring the company to pay for or provide pills and procedures that they believe terminate life—so-called abortifacients—intrudes intrudes on their religious beliefs.   Hobby Lobby sued HHS, asserting that requiring them to pay for or provide abortifacients violated their First Amendment rights to freedom of religion and also violated the RFRA.

The RFRA provides that the federal government “shall not substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling governmental interest.  The Administration argued, however, that neither Hobby Lobby nor Conestoga or any other for-profit, faith-based employer was a person for purposes of the RFRA or the First Amendment.

The Decision

Writing for the majority, Justice Samuel Alito held that private—as opposed to publicly traded—employers could be considered “persons” for the RFRA.  The Court noted that the law imposed a substantial burden on religious beliefs, requiring the owners of Hobby Lobby to engage in conduct that “seriously violates their sincere religious beliefs.”

The Court noted that for the government to prevail it needed to demonstrate a compelling state interest and that its application was the least restrictive means to achieve its goals.  The Court assumed (with Justice Kennedy providing the swing vote in his concurrence) that the government does, in fact, have a compelling interest to, among other things, promote “public health” and “gender equality” by providing contraceptive coverage for women. However, the Court found that even assuming a compelling interest there were less restrictive alternatives for the government. The government could, the four-person majority noted, simply provide these benefits to all, without charge to the individuals; in his concurrence, Justice Kennedy questioned this, and noted the Court’s opinion does not decide this issue.  But Kennedy and the four-person majority agreed the government could extend the accommodation it made religiously affiliated employers:  they do not have to provide the benefit but their insurers or third-party administrators would without charge to either the employers or the employees.

Because there are less restrictive alternatives, the Court found that HHS had violated the RFRA as applied to these faith-based, for profit, private employers.

The Impact

The Hobby Lobby ruling has a direct impact on a relatively small number of employers—as a percentage of total employers across the country there are very few that can be considered faith-based employers.

However, the ruling is significant in that it signals an ongoing willingness by the Court to exercise its checks-and-balances power.  The Court indicated it may not provide the Administration much leeway in its implementation of the ACA, when implementation impacts and is limited by other federal rights.

The ruling may also be significant for certain religious-affiliated non-profit employers who are operating under the accommodation discussed above.  By identifying the accommodation as a less restrictive alternative, the Court may be signaling it believes that the exception HHS provided them suffices to meet any concerns they may have.  The Court, however, noted it was not deciding this issue, and the “government-pay” approach tendered by four justices may provide a possible opening for relief for the religious-affiliated non-profit employers.

Finally, the Hobby Lobby decision should stand as a reminder that while there may be differences of opinion about specific rules and requirements under the ACA, and some of those differences may be decided against the government, the law itself is not going away.  Employers need to continue to monitor new developments and implement strategies for complying with the ACA.

The Affordable Care Act—Countdown to Compliance for Employers, Week 29: Wellness Programs, Smoking Cessation and e-Cigarettes

MintzLogo2010_Black

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) generally prohibits discrimination in eligibility, benefits, or premiums based on a health factor, except in the case of certain wellness programs. Final regulations issued in 2006 established rules implementing these nondiscrimination and wellness provisions. TheAffordable Care Act largely incorporates the provisions of the 2006 final regulations (with a few clarifications), and it changes the maximum reward that can be provided under a “health-contingent” wellness program from 20 percent to 30 percent. But in the case of smoking cessation programs, the maximum reward is increased to 50 percent. Comprehensive final regulations issued in June 2013 fleshed out the particulars of the new wellness program regime.

Health-contingent wellness programs require an individual to satisfy a standard related to a health factor to obtain a reward. The final rules divide health-contingent wellness programs into the following two categories: activity-only programs, and outcome-based programs. As applied to smoking cessation, an “activity-only program” might require an individual to attend a class to obtain the reward. In contrast, an outcome-based program would require an individual to quit smoking, or least take steps to do so under complex rules governing alternative standards.

Nowhere do the final regulations address the role of electronic cigarettes (or “e-cigarettes”). Simply put, the issue is whether an e-cigarette user is a smoker or a nonsmoker? (According to Wikipedia, an electronic cigarette (e-cig or e-cigarette), “is a battery-powered vaporizer which simulates tobacco smoking by producing a vapor that resembles smoke. It generally uses a heating element known as an atomizer that vaporizes a liquid solution.”) But questions relating to e-cigarettes are starting to surface in the context of wellness program administration. Specifically:

  1. Is an individual who uses e-cigarettes a “smoker” for purposes of qualifying, or not qualifying, for a wellness program reward, and
  2. May a wellness program offer e-cigarettes as an alternative standard, i.e., one that if satisfied would qualify an individual as a non-smoker?

Is an individual who uses e-cigarettes a “smoker” for purposes of qualifying, or not qualifying, for a wellness program reward?

While the final rules don’t mention or otherwise refer to e-cigarettes, they do provide ample clues to support the proposition that smoking cessation involves tobacco use. Here is the opening paragraph of the preamble:

SUMMARY: This document contains final regulations, consistent with the Affordable Care Act, regarding nondiscriminatory wellness programs in group health coverage. Specifically, these final regulations increase the maximum permissible reward under a health-contingent wellness program offered in connection with a group health plan (and any related health insurance coverage) from 20 percent to 30 percent of the cost of coverage. The final regulations further increase the maximum permissible reward to 50 percent for wellness programs designed to prevent or reduce tobacco use. (Emphasis added.)

There is also a discussion in the preamble about alternative standards (79 Fed Reg. p. 33,164 (middle column)), which reads in relevant part:

The Departments continue to maintain that, with respect to tobacco cessation, ‘‘overcoming an addiction sometimes requires a cycle of failure and renewed effort,’’ as stated in the preamble to the proposed regulations. For plans with an initial outcome-based standard that an individual not use tobacco, a reasonable alternative standard in Year 1 may be to try an educational seminar. (Footnotes omitted.)

In addition, the final regulations’ Economic Impact and Paperwork Burden section is replete with references to tobacco use, as are the examples (see Treas. Reg. § 54.9802-1(f)(4)(vi), examples 6 and 7).

On the other hand, the definition of what constitutes a participatory wellness program refers simply to “smoking cessation” (Treas. Reg. § 54.9802-1(f)(1)(ii)(D)), and the definition of an outcome-based wellness program (Treas. Reg. § 54.9802-1(f)(1)(v)) simply refers to “not smoking.” In neither case is there any reference to tobacco.

The Affordable Care Act’s rules governing wellness programs are included in the Act’s insurance market reforms, which take the form of amendments to the Public Health Service Act that are also incorporated by reference in the Internal Revenue Code and the Employee Retirement Income Security Act (ERISA). By virtue of being included in ERISA, participants have a private right of action to enforce these rules. So an employer that wanted to treat the use of e-cigarettes as smoking in order to deny access to a wellness reward would likely confront arguments similar to those set out above in the event of a challenge.

May a wellness program offer e-cigarettes as an alternative standard, i.e., one that if satisfied would qualify an individual as a non-smoker?

This is perhaps a more difficult question. May an employer designate e-cigarette use as an alternative standard? Anecdotal evidence suggests that employers are not doing so, at least not yet. But could they do so? And would it make a difference whether the e-cigarette in question used a nicotine-based solution as opposed to some other chemical? (According to Wikipedia, “solutions usually contain a mixture of propylene glycol, vegetable glycerin, nicotine, and flavorings, while others release a flavored vapor without nicotine.”) The answer in each case is, it’s too soon to tell.

The benefits and risks of electronic cigarette use are uncertain, with evidence going both ways. Better evidence would certainly give the regulators the basis for further rulemaking in the area. In the meantime, the final regulations’ multiple references to tobacco, and by implication, nicotine, seem to furnish as good a starting point as any. This approach would require a wellness plan sponsor to distinguish between nicotine-based and non-nicotine-based solutions, which may prove administratively burdensome.

The larger question, which may take some time to settle, is whether e-cigarettes advance or retard the cause of wellness. Absent reliable clinical evidence, regulators and wellness plan sponsors have little to guide their efforts or inform their decisions as to how to integrate e-cigarettes into responsible wellness plan designs. Complicating matters, the market for e-cigarettes is potentially large, which means that reliable (read: unbiased) clinical evidence may be hard to come by. For now, all plan sponsors can do is to answer the questions set out above in good faith and in accordance with their best understanding of the final regulations.

Article By:

Of:

 

Dewonkify – Risk Corridors Re: Affordable Care Act

DrinkerBiddle

 

The Patient Protection and Affordable Care Act –commonly referred to as “the ACA”—is a law that reformed nearly twenty-percent of the economy through modifications to regulations and changes to existing law. Its primary goals were to expand health care coverage and control rising costs. Among a number of reforms, the ACA mandated that all citizens have health insurance for a minimum of nine months of the year (or face a penalty); allowed children to remain on their parents plan until the age of 26; created health insurance market places where anyone can shop for health insurance; and banned insurance companies from denying coverage on the basis of pre-existing conditions.

Word: Risk Corridors

Used in a sentence: “Risk corridors, a provision of the ACA, limits both the amount of money that a health-insurance plan can make and lose during the first three years it is sold on the new health-care exchanges. Related programs that mitigate risk for insurance companies are also being targeted by conservative Republicans.” –Rep. Tom Cole quoted in The Washington Post.

Definition: Risk corridors are a component of the ACA that limit the risk borne by qualified health plans on the insurance marketplaces. Risk Corridors are a mechanism to minimize the year-end losses of insurers who covered a disproportionate share of sicker, often older, insured customers. The federal government, through the Department of Health and Human Services, agrees to cover 50% of the excess costs borne by insurers if those costs exceeded premiums by 3-8%. In the event those losses amount to greater than 8%, the government will defray 80% of those losses. However, if insurance companies see similar gains then the situation is reversed and the federal government is the beneficiary of those excess funds. This is the risk adjustment portion of the ACA where “healthier” insurance companies help ones shouldering more expensive populations.

History: Ideally, insurance is a system whereby a company manages risk by distributing moneys from a sizeable portion of healthy participants—needing minimal to moderate medical services—to a much smaller portion of sicker participants that need a lot more medical services. This results in a margin or profit where premiums exceed the medical costs of the consumers participating in a given plan. This is a simplified way of explaining what actuaries do every year. They take consumers in a given plan and compare their likelihood to use medical services with the expected revenues from monthly insurance premiums and other out-of-pocket costs like yearly deductibles. However, the advent of the ACA brought on this new frontier of health insurance marketplaces where no one could be denied care due to pre-existing conditions: previous surgery, diabetes, HIV, cancers, benign tumors, hypertension, etc.

Although, risk was managed by mandating that everyone be covered, this did not completely allay the fears of private insurers. Actuaries remained nervous. Anyone from the individual market—usually those not eligible for Medicaid/Medicare or employer sponsored coverage—could enter the exchanges and purchase insurance coverage. This uncertainty could have resulted in excessive premiums to consumers. To mitigate that risk and help with the possibility that consumers would be sicker and older—and thus more likely to use many costly medical procedures—the authors of the law created risk corridors. This would be a temporary program to help insurers on the insurance market places for three years.

Article by:

José Woss

Of:

Drinker Biddle & Reath LLP