2012 CW RISK FORUM
Keynote: Around the World of Contingent Workforce Risk
September 19, 2012 | Hilton San Diego Bayfront Hotel, San Diego, CA
Alden Bianchi | Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
Organization and Overview
•Overview of Supreme Court decision in NFIB v. Sebelius
• Impact on employers and employer-based health plans
– Hidden employer tax under Medicaid
– The next challenge: the reach of Code § 36B
– Summaries of benefits and coverage
– Form W-2 reporting
– MLR rebates
– $2500 medical FSA limit
– PCORI fees
Organization and Overview (cont’d)
•Employer issues—2014 and Beyond
•Selected upcoming guidance of interest to employers
•American Health Benefit Exchanges
– HHS Blueprint
– Status of Maine compliance
NFIB vs. Sebelius: Background and Summary of Holdings
•The cases that the court accepted are:
– National Federation of Independent Business v. Sebelius (No. 11-393)
– U.S. Department of Health and Human Services v. Florida (No. 11-398)
– Florida v. Department of Health and Human Services (No. 11-400)
•The decision is entitled:
National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al.
Questions Certified
•The Initial Barrier – the Anti-Injunction Act
•The Individual Mandate – Can the Government Require Individuals to Get Health Insurance?
•Severability — Can the Rest of the Act Stay Intact if the Individual Mandate Fails?
•Medicaid Expansion – Can the Government Require States to Expand?
The Anti-Injunction Act
• The Anti-Injunction Act provides that “no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court by any person . . . .”
• The challenge seeks to restrain the collection of the shared responsibility payment from those who do not comply with the individual mandate
• According to the Court
– Congress did not intend the payment to be treated as a “tax” for purposes of the Anti-Injunction Act
– The Act describes the payment as a “penalty,” not a “tax”
– That label does not control whether the payment is a tax for purposes of the Constitution, but it does determine the application of the Anti-Injunction Act
Act Fails under Commerce Clause
• The power to regulate commerce presupposes the existence of commercial activity to be regulated
• The individual mandate, however, does not regulate existing commercial activity; it instead compels individuals to become active in commerce by purchasing a product
• “Construing the Commerce Clause to permit Congress to regulate individuals precisely because they are doing nothing would open a new and potentially vast domain to congressional authority”
• The Framers knew the difference between doing something and doing nothing. They gave Congress the power to regulate commerce, not to compel it.
• Ignoring that distinction would undermine the principle that the Federal Government is a government of limited and enumerated powers
Act Fails “Necessary & Proper”
• The individual mandate cannot be sustained under the Necessary and Proper Clause as an integral part of the Act’s other reforms
• Prior cases upholding under that Clause involved exercises of authority derivative of, and in service to, a granted power
• The individual mandate, by contrast, vests Congress with the extraordinary ability to create the necessary predicate to the exercise of an enumerated power and draw within its regulatory scope those who would otherwise be outside of it
• Even if the individual mandate is “necessary” to the Affordable Care Act’s other reforms, such an expansion of federal power is not a “proper” means for making those reforms effective
The Taxing Power
• Administration's argument that the mandate should be upheld as within Congress’s power to “lay and collect Taxes” must be considered since, “every reasonable construction must be resorted to, in order to save a statute from unconstitutionality,” Hooper v. California, 155 U. S. 648, 657
• Question: “fairly possible” to interpret the mandate as imposing such a tax . . .”
• The Act describes the “shared responsibility payment” as a penalty, not a tax
• While fatal to the AIA, it does not control whether an exaction is within Congress’s power to tax
• Instead, the Court follows a functional approach, disregarding the designation of the exaction, and viewing its substance and application
The Taxing Power (cont’d)
• Thus, the shared responsibility payment may for constitutional purposes be considered a tax
– The payment is not so high that there is really no choice but to buy health insurance
– The payment is not limited to willful violations, as penalties for unlawful acts often are
– The payment is collected solely by the IRS through the normal means of taxation
• While the payment is intended to induce the purchase of health insurance, the mandate need not be read say that failing to do so is unlawful
• The Act attaches no negative legal consequences to not buying health insurance, beyond requiring a payment to the IRS
• It may also be read as imposing a tax on those who go without insurance
Direct Tax
•Even if the mandate may reasonably be characterized as a tax, it must still comply with the Constitution's Direct Tax Clause, which provides:
– “No Capitation, or other direct, Tax shall be laid, unless in Proportion to the Census or Enumeration herein before directed to be taken.” Art. I, §9, cl. 4
•A direct tax is one imposed upon an individual person or on property, as distinct from a tax imposed upon a transaction
•A tax on going without health insurance is not like a capitation or other direct tax under this Court’s precedents
• It therefore need not be apportioned so that each State pays in proportion to its population
Medicaid Expansion
• The Medicaid expansion violates the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion
• The Spending Clause grants Congress the power “to pay the Debts and provide for the . . . general Welfare of the United States.” Art. I, §8, cl. 1
• Congress may use this power to establish cooperative state-federal Spending Clause programs, provided that a State voluntarily and knowingly accepts the terms of such programs
• When Congress threatens to terminate other grants as a means of pressuring the States to accept a Spending Clause program, the legislation runs counter to this Nation’s system of federalism
Medicaid Expansion (cont’d)
• The Act gives HHS has the authority to penalize States that choose not to participate in the Medicaid expansion by taking away their existing Medicaid funding, but—
– The threatened loss of over 10% of a State’s overall budget the States with no real option but to acquiesce; therefore the Act’s expansion accomplishes a shift in kind, not merely degree
– The Act transforms Medicaid into a program to meet the health care needs of the entire non-elderly population with income below 133% of the FPL
• The Medicaid expansion thus violates the Constitution by threatening States with the loss of their existing Medicaid funding if they decline to comply with the expansion
• The constitutional violation is fully remedied by precluding the Secretary of HHS from applying the act so as to withdraw existing Medicaid funds for failure to comply with the Act’s requirements
Impact on Employers
• Immediate consequences
– For employers who delayed taking action under the Act until the Supreme Court ruled, the wait is over; its time to act
– To date, in the bulk of the compliance effort has been on the carriers (for insured plans) and to TPAs (for self-funded plans)
– The focus now shifts to employers, particularly with respect to key 2014 requirements
• Pressure on the regulators (i.e., IRS, DOL and HHS) to issue rules under the following key provisions of the Act:
– Guidance under the insurance non-discrimination rules
– Guidance under the “employer shared responsibility” rules
– Guidance under the 90-day waiting periods
Hidden Employer Tax under Medicaid
•Additional taxes under Code § 4980B
– Exchange eligible full-time employees with HI between 138% and 400% of FPL
– But in states that declined the Medicaid expansion, full-time employees with HI from 100% to 138% of HI will be exchange eligible
•Greater chance of triggering Code § 4980B(a) (no-coverage prong) penalty; and potentially higher exposure under Code § 4980B(b)
The Next Challenge (?): The Reach of Code § 36B
•PPACA opponents claim that Code § 36B premium tax credits are available only in states that affirmative establish an exchange
• Code § 36B does applies a broader rule
• If opponents are challenge and prevail, then in states the opt for a Federally-facilitated exchange have no Code § 4980B exposure, since no FT employee has access to the subsidy
Summaries of Benefits and Coverage
•Effective for open enrollments (or for plans without open enrollment, plans years) commencing after September 23, 2012
•SBC requirements apply to
– Group health plans (whether insured or self-insured)
– Health insurance issuer offering group health coverage
•Plan offering only “excepted benefits” excluded (e.g., stand-alone dental or vision plan)
•Medical FSAs
– If integrated, included with GHP
– If not integrated, separate SBC required
SBCs—Distribution to Employer
•An issuer must provide an SBC to the plan or plan sponsor:
–Within 7 business days after receipt of an application for health coverage, or
–By the first day of coverage, if there are any changes in the initial SBC
•In connection with written application
•If renewal is automatic, at least 30 days before the beginning of the new plan or policy year
•Within 7 business days after receipt of request
SBCs—Distribution to Participants
•Plan administrator or health insurance issuer must provide an SBC to a participant or beneficiary (including a COBRA qualified beneficiary) with respect to each benefit package for which the participant or beneficiary is eligible:
–As part of the written application or enrollment materials
– If the plan does not distribute written enrollment materials, no later than the first date eligibility for coverage
–By the first day of coverage, if there are any changes
–Within 90 days from enrollment for any special enrollee
•In the case of mid-year enrollment by special enrollees, with 90 days following enrollment
SBCs—Distribution to Participants
•Where a participant is required to actively elect to maintain coverage, or has the opportunity to change coverage options during an annual open enrollment period, an SBC must be distributed as part of the open enrollment materials
• If renewal of coverage is automatic (i.e., under and evergreen election), SBC must be distributed no later than
– 30 days before the beginning of the plan or policy year; and
– Within 7 business days after receipt of
SBC—Delivery
•Both the health insurance issuer and the plan administrator of a group health plan are required to furnish an SBC to plan participants
•This obligation is discharges as to any one party if the other furnishes the SBC
• In an insured arrangement, the parties should specify by contract who will prepare and distribute the SBCs
•Non-distributing party should
– Review the form and content of the SBC to ensure accuracy
– Periodically monitor whether SBCs requirements are being complied with
SBCs—Multiple Benefit Packages
• In the case of initial enrollment, where plan provides for multiple benefit packages (e.g., high- medium- and low-options), employees must be given SBCs for all options
• In connection with renewal during open enrollment period, the employer need only provide only the SBC for option in which the participant is enrolled
• If the participant wants information on other options, he or she can request copies
•This rule prevents unnecessary duplication
Form W-2 Reporting
•Employers must report the aggregate cost of applicable employer-sponsored group health plan coverage on Form W-2 for taxable years beginning on or after January 1, 2011
•Notice 2012-09 (replacing Notice 2011-28) provides guidance
•Rule applies to 2012 reporting, which will take place in January 2013
•Employers can voluntarily choosing to comply in 2011
Form W-2 Reporting (cont’d)
•Notice 2011-28 which further delayed the mandate for employers issuing fewer than 250 W-2s
•Nor do employers have to report the health care costs of employees on their W-2s if they left mid-way through the calendar year until the IRS offers more guidance
Notice 2012-09 Clarifications
•Coverage under Employee Assistance Program (EAP) or Similar Program
•Third Party Sick Pay Provider
•Reporting Benefits Exempted Under Interim Relief
•Reporting Programs That Include Non‐Covered Benefits
•Impact of Employee Status Changes After Year‐End
•Coverage Periods Spanning Two Taxable Years
•Hospital Indemnity/ Specified Disease or Illness Insurance
MLR Rebates
•By August 1, 2012 carriers must have procedures in place and process 2011 plan year rebates
•Rebates are generally subject to ERISA plan assets rules
•DOL Tech. Rel. 2011-04
– If employer pays all, rebate is not a plan asset; employer retains
– If employee pays all, rebate is a plan asset; must be returned to employees
– Special rules apply in the case of fixed employer or employee contributions
•May be cash payment, premium holiday or benefit enhancement
MLR Rebates
•Rebate must be applied to the plan that generated the rebate, but may be limited to current employees
•Rebate must be fully deployed with three months in order to avoid ERISA trust requirement
•Tax treatment
– If employee contributions are pre-tax, i.e., made under a cafeteria plan, then employee portion is taxable to the employee in year of receipt (most common scenario)
– Premium holidays automatically result in an increase in taxable compensation
•Similar rules apply to non-ERISA plans
Notices to Employees re: Exchange Options
•Effective date is March 1, 2013
•Employers must provide to employees notice of:
– Availability of coverage under a state-based or Federally facilitated health insurance exchange
– Related items (e.g., tax credits or cost-sharing reductions)
•Effective date is March 1, 2013
•Model notice is not yet available
$2500 Medical FSA Limit
•Beginning January 1, 2013, total contributions to FSAs will be limited to $2,500 per year, subject to adjustment for annual cost of living increases
– Limit applies to health FSAs; dependent care FSAs
– Health Reimbursement Arrangements (HRAs) and Health Savings Accounts (HSAs) are excluded
•The $2,500 limit on health FSA salary reduction contributions applies on to “taxable years”—not clear whose
$2500 Medical FSA Limit—Notice 2012-40
•The $2,500 limit on health FSA salary reduction contributions applies on a plan-year basis
•Plans may adopt the required amendments to reflect the $2,500 limit at any time through the end of calendar-year 2014
• In the case of a plan providing a grace period, unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year
•Relief is provided for certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect, and that are corrected by the employer
PCORI Fees •Effective July 31, 2013
•Patient-Centered Outcomes Research Institute (PCORI) fee
• Imposed on plan sponsors and issuers of individual and group policies
•Fees fund comparative effectiveness research
•Fee must be filed by July 31 of the calendar year immediately following the last day of the plan year
PCORI—Calculating the PCORI Fee
•The fee is equal to the average number of covered lives for the policy year times the applicable dollar amount
– For policy years ending on or after Oct. 1, 2012, and before Oct. 1, 2013 - the applicable dollar amount is $1.
– For policy years ending on or after Oct. 1, 2013, and before Oct. 1, 2014 - the applicable dollar amount is $2.
– For policy years ending in any fiscal year beginning on or after Oct. 1, 2014 - the applicable dollar amount is the prior fiscal year's dollar amount plus an adjustment for medical inflation
PCORI—Determining Average Number of Lives •Fully Insured Plans
– Actual Count
– Snapshot Method
– NAIC Member Months Method
– State Form Method
•Self-funded Plans
– Actual Count
– Snapshot dates
– Form 5500 Method
PCORI–Special Rules
• If the plan sponsor of a self-funded plan has more than one self-funded plan (e.g., one for medical, another for pharmacy) it may treat them as a single self-funded plan (avoids double counting of members)
– Applies to self-funded plans only
•FSA only: plan sponsor may treat each participant's account as covering a single life
• If FSA/HRA is coordinated with a self-funded plan, the two arrangements may be treated as one plan
• If FSA/HRA is coordinated with an insured plan, the two arrangements are treated as two plans
Employer Issues—2014 and Beyond • 2014 – Employer shared responsibility excise tax
• Other requirements:
– Notices regarding whether the health coverage offered qualifies as MEC
– Automatic enrollment required for employers with more than 200 full-time employees
– Restricted annual limits on essential health benefits do not apply beginning in 2014
– Cafeteria plans of employers with 100 or fewer employees may offer coverage of full-time employees through an Exchange
– Preexisting condition exclusions for adult enrollees and other discrimination based on health status must not be permitted
– Wellness program restrictions not permitted
– Waiting periods over 90 days not permitted
• 2018 – High cost health plan or “Cadillac plan” tax
Selected Upcoming Guidance of Interest to Employers
•Code § 4980 Employer-Shared responsibility
– Definition of “full-time employee”
– Minimum value determinations
– Assessable payment calculations
• Insurance non-discrimination (delayed by Notice 2011-1)
•Waiting periods
•Essential health benefit definition
•Automatic enrollment
•Wellness program design
American Health Benefit Exchanges
•States are required to establish American Health Benefit Exchanges by 2014 to facilitate:
– Individuals purchasing Qualified Health Plans and
– Must include a Small Business Health Options Program (SHOP)
• Individuals and small businesses may enroll in Qualified Health Plans through the exchange (and states may allow large employers to do so after 2016)
•Secretary to establish standards and operational requirements for Health Benefit Exchanges
American Health Benefit Exchanges (cont’d)
• If state does not establish an exchange, HHS will do so
• HHS establishes criteria for Exchange certification of Qualified Health Plans, including
– Marketing requirements
– Network adequacy standards
– Quality accreditation
– Rating system
– Uniform open enrollment periods
• Extensive disclosure requirements apply
HHS Exchange Blueprint—State-Based Exchanges
•State operates all exchange activities
•State may use Federal government services for the following activities:
– Premium tax credit and cost-sharing reduction calculations
– Exemptions
– Risk adjustment program
– Reinsurance program
HHS Exchange Blueprint—State Partnership Exchanges
•State operates activities for:
– Plan management
– Consumer assistance
– Both
•States may elect to perform or can use Federal Government services for the following activities:
– Reinsurance program
– Medicaid and CHIP eligibility: assessment or determination
HHS Exchange Blueprint—Federally-Facilitated Exchange
•HHS operates
•But state may elect to perform or can use Federal government services for the following activities:
– Reinsurance program
– Medicaid and CHIP eligibility: assessment or determination
Maine
•Maine Resolve Chapter 105 created an Advisory Committee on Maine's Health insurance Exchange to develop and provide recommendations
•$1 million Planning Grant
•$5,877,676 Level One Establishment Grant
•Maine was among the consortia of New England states to receive the "Early Innovator" cooperative agreement for a total of $35,591,333
•No exchange enabling legislation passed as of August 2012
Questions & Answers
Alden J. Bianchi | Member
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center | Boston, MA 02111
Phone: 617.348.3057 | Fax: 617.542.2241
E-mail: [email protected]
