Tag: Obamacare

Obamacare Survives in 6-3 Vote – Supreme Court Issues Opinion on King v. Burwell

This morning, the Supreme Court of the United States issued its final decision on King v. Burwell regarding the survival of Obamacare. The decision, issued by Chief Justice Roberts and joined by Justices Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan, effectively allows millions of people to to keep the tax subsidies provided so they can afford health insurance.

The Affordable Care Act (ACA) explicitly states that the tax subsidies were provided for individals to purchase insurance through state-based changes. The Court was charged with determining whether they could be used to purchase insurance through the federally run Healthcare.gov marketplace as well. The creators of the law contend that the law’s intent is to make affordable care available to people across the country through both channels by providing a federal exchange where states did not establish one.

The Court agreed -federal government can subsidize health insurance premiums for residents of states that did not establish a state health insurance exchange. In the Court’s opinion, Chief Justice Roberts wrote “The combination of no tax credits and an ineffective coverage requirement could well push a State’s individual insurance market into a death spiral… It is implausible that Congress meant the Act to operate in this manner.”

Chief Justice Roberts reinforces the role of the Court – as an interpreter of the law, not its creator:

[I]n every case we must respect the role of the Legislature, and take care not to undo what it has done. A fair reading of legislation demands a fair understanding of the legislative plan. Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. (emphasis added)

This is a developing story. Please stay tuned for more updates and legal commentary.

SCOTUS Upholds Exchange Subsidies – King v. Burwell

Supreme Court Upholds Affordable Care Act Insurance Subsidies

Copyright ©2015 National Law Forum, LLC

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

Amy N. Moore
OF
Covington & Burling LLP

Mergers and Acquisitions and the Affordable Care Act

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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

Ari G. Burd
Patrick S. Convery
OF
Giordano, Halleran & Ciesla, P.C.

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.

ARTICLE BY

Lauren D’Agostino
J. Peter Rich
 
OF 
McDermott Will & Emery

Proposed Legislation Introduced to Override Hobby Lobby Ruling

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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:

Tina A. Syring
Of:
Barnes & Thornburg LLP

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

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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:

Alden J. Bianchi
Of:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

 

Dewonkify – Risk Corridors Re: Affordable Care Act

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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

The Affordable Care Act—Countdown to Compliance for Employers, Week 47: The Reporting Conundrum

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The Affordable Care Act establishes three new, high-level, reporting requirements:

  • Code § 6051(a)(14)

Employers must report the cost of coverage under an employer-sponsored group health plan on an employee’s Form W-2, Wage and Tax Statement;

  • Code § 6055

Entities that offer minimum essential coverage (i.e., health insurance issuers, certain sponsors of self-insured plans, government agencies and other parties that provide health coverage) must report certain information about the coverage to the employee and the IRS; and

  • Code § 6056

Applicable large employers must provide detailed information relating to health insurance coverage that they offer.

The W-2 reporting rules have been in effect for a while, and I do not address them in this post. This post instead addresses Code §§ 6055 and 6056, which were originally slated to take effect in 2014, but which were subsequently delayed by one year in IRS Notice 2013-45.

The Treasury Department and IRS issued proposed regulations under both rules on September 30, 2012. (For an explanation of the proposed regulations, please see our October 21, 2013 client advisory. Although garnering far less attention than the Act’s pay-or-play rules, the rules under newly added Code §§ 6055 and 6056 should not be overlooked. Both provisions require a good deal of specific information about covered persons and the particular features of the group health plan coverage such persons are offered. Required reports must be furnished to both the government and covered individuals.

  • Under Code section 6055, plan sponsors must report to the IRS who is covered by the plans and the months in which they were covered. Plan sponsors must also provide this information to the employees who are enrolled in their plans along with additional contact information for the plan.
  • Under Code section 6056, applicable large employers must report to the IRS, and provide to affected full-time employees, information that includes:

(i) The employer’s contact information;

(ii) Whether the company offered minimum essential coverage to full-time employees and their dependents;

(iii) The months during which coverage was available;

(iv) The monthly cost to employees for the lowest self-only minimum essential coverage;

(v) The number of full-time employees during each month; and

(vi) Information about each full-time employee and the months they were covered under the plan.

Absent regulatory simplification, the costs of compiling, processing, and distributing the required reports will be substantial. But the regulators are in a difficult position, since they must remain true to the requirements of the law. The proposed regulations do offer some suggestions for simplification. For example:

  • Employers might be permitted to report coverage on IRS Form W-2, rather than requiring a separate return under Section 6055 and furnishing separate employee statements. But this approach could be used only for employees employed for the entire calendar year and only if the required contribution for the lowest-cost self-only coverage remains stable for the entire year.
  • The W-2 method could also be extended to apply in situations in which the required monthly employee contribution is below a specified threshold (e.g., 9.5% of the FPL) for a single individual, i.e. the individual cannot be eligible for the premium assistance tax credit.
  • Employers might be permitted to identify the number of full-time employees, but not report whether a particular employee offered coverage is full-time, if the employer certifies that all employees to whom it did not offer coverage during the calendar year were not full-time.

Industry comments filed in response to the proposed regulations have seized these suggestions to ask for further relief. Some commenters suggested replacing the reporting process with a certification process under which an employer could simply certify that it has made the requisite offer of coverage. Others have asked that information be provided to employees only on request, on the theory that not all employees will need to demonstrate that the employer either failed to offer coverage or that the coverage was either unaffordable or did not constitute minimum value.

While many of the comments submitted in response to the proposed regulations were both thoughtful and practical, many are also difficult to square with the terms of the statute. As a result, the most likely outcome is that the final rules under Code §§ 6055 and 6056 will look a lot like the proposed rules—which look a lot like the statute.

Article by:

Alden J. Bianchi

Of:

Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

A Look Ahead: Top 5 Health Law Issues for 2014

vonBriesen

 

From Affordable Care Act implementation to the continued transition to quality and evidence-based medicine, we expect to see a host of new regulatory and industry changes in 2014. Moreover, federal and state governments will continue to ramp up detection and enforcement of fraud, abuse, and other laws. These changes provide ample opportunities for lawyers to represent and counsel health care industry clients.

In addition to health lawyers, these changes and new opportunities will also affect lawyers who practice in other areas, including business, antitrust, technology, employee benefits, and elder law. Below is an overview of five hot issues in health care law that practitioners – new and seasoned – should monitor in 2014.

1. Affordable Care Act Implementation

Exchanges and the Individual Market. As millions of Americans obtain insurance on the individual market through Exchanges (a.k.a. the “Marketplace”), the ACA individual mandate and the individual insurance market will create a host of issues for health lawyers in 2014. Beginning early in the year, health lawyers will be called on to address coverage, enrollment, and compliance issues. Attorneys and firms looking to expand their ACA practice should consider employee benefits regulations and related legal issues as ACA implementation continues and employers look for help understanding and complying with coverage requirements and pay or play rules.

Medicaid. The ACA’s expansion of Medicaid will also bring increased attention to the Medicaid program in 2014. Attorneys should be prepared to see increased scrutiny of program integrity in the coming year, including inspector general attention at the state and federal levels (e.g., program audits). Attorneys may be called upon to address these and other Medicaid issues in 2014, including issues with eligibility, covered benefits, and movement between Exchanges and Medicaid.

Tax Exemption. Section 501(r) of the Internal Revenue Code, introduced as part of the ACA, requires, among other things, that tax-exempt hospitals conduct a community health needs assessment and adopt a written financial assistance policy. Hospitals that do not meet the 501(r) requirements risk an excise tax, taxing of hospital revenue, and revocation of exempt status. Proposed regulations outlining the 501(r) requirements were released in 2013, and final rules are expected in 2014.

2. Health Information Privacy and Security

This year is shaping up to be another big year for health information privacy and security and the Health Insurance Portability and Accountability Act (HIPAA), as providers, payers, and businesses that support the health care industry (including lawyers) adapt to new compliance requirements and increased liability under the Omnibus Rule regulatory scheme.

This is an area that will be important for health lawyers, as the Omnibus Rule outlines clear compliance requirements for lawyers providing legal services to providers and payers. (For more information on lawyers as business associates, see “Casting a Wider Net: Health Information Privacy is Not Just For Health Lawyers” in the September 2013 Wisconsin Lawyer).

Health lawyers are also awaiting the 2014 release of another major HIPAA rule – expected to outline requirements for tracking uses and disclosures of health information – as well as legislative changes in Wisconsin dealing with confidentiality of mental health records (an in-depth Wisconsin Lawyer article on this is forthcoming).

Lawyers that deal with health information should be familiar with HIPAA and other federal and state laws protecting the confidentiality of health information to address an increased emphasis on HIPAA audits, security, and technology issues in 2014.

3. Provider Reimbursement and Emphasis on Quality Care

Medicare Billing and Payment. As of this writing, Congress is still debating options for repealing the sustainable growth rate (SGR), which is part of a reimbursement formula used to calculate Medicare physician payments. For years, the SGR has resulted in cuts to physician payments. However, Congress has always used SGR “doc fixes” to extend and delay the cuts (most recently, on Dec. 18, 2013, a 23.7 percent cut set to take effect Jan. 1, 2014, was delayed until March).

However, bipartisan efforts in Congress may make 2014 the year of the SGR repeal. Health care attorneys should take note because the SGR repeal will mean significant changes in how Medicare physician reimbursement is calculated, and the wide-spread effect will touch any number of contractual arrangements that use Medicare reimbursement to set compensation terms.

Quality-based Reimbursement. We have seen a steady change from productivity-based compensation models, which pay for volume, to quality-based reimbursement models, and 2014 will continue this progression. Attorneys that represent physicians and physician practices should be prepared for the introduction (or addition) of quality metrics in physician compensation arrangements, as well as an increase in co-management arrangements and opportunities, which engage physicians in hospital management to better align physicians and hospitals.

Narrow Networks. With additional products available in the individual insurance market in 2014 and an increased focus on performance-based contracting, payers are tying rate increases to quality metrics and tightening provider networks. Attorneys representing physician groups may see an increase in narrow network products and, as a result, their clients’ exclusion from networks.

Changing reimbursement concepts are not new but some methodologies will affect physician behavior, require more patient engagement, and influence efficiency as the industry demands accountable care and continues to introduce quality-based incentives.

4. Increased Joint Venture Activity and Market Consolidation

We expect to see increased joint venture activity and market consolidation in 2014. Increasing market share and patient population allows providers and payers to introduce and monitor their quality care initiatives to a broader base of patients and standardize care with the hope of better outcomes and efficiency. Attorneys representing parties in these transactions should be mindful of fair market value and other fraud and abuse requirements, leasing and construction considerations, and potential antitrust implications.

5. Government Enforcement

The health care industry has seen increased government scrutiny, including emphasis on payment, program integrity, and compliance. From Medicare and Medicaid compliance audits, Strike Teams, increased HIPAA penalties, overpayment recoupment, to fraud and abuse self-disclosures and intervening in whistleblower suits, the federal government is improving its enforcement mechanisms used against hospitals and providers. The federal agencies and their contractors have increased their damages and penalty recoveries over the last few years, and we expect this to continue in 2014.

The primary goal of the U.S. Department of Health and Human Services Office of Inspector General’s (OIG) strategic plan for 2014 to 2018 is fighting fraud, waste, and abuse. In order to achieve its goal, the OIG intends to build upon existing enforcement models, refine self-disclosure protocols, and use all appropriate means (including exclusions and debarments) to maximize recovery.

If you are new to health care, or if you want to expand your practice into health law, these areas of strict liability and increased enforcement will be fundamental to your practice in 2014. Understanding the complex regulations and strict liability statutes is fundamental to providing sound legal and business advice to health care clients.

Honorable Mentions

Retail health clinics and on-site health services, changes in medical malpractice standards, increased emphasis on post-acute care, non-physician health care professionals, and the corporate practice of medicine will also be hot topics in 2014.

This article was first published in WisBar Inside Track, Vol. 6, No. 1, a State Bar of Wisconsin publication.

Article by:

Meghan C. O’Connor

Of:

von Briesen & Roper, S.C.