HEALTH REFORM ADVISORY PRACTICE
Health Reform
M t th
Meets
the
Supreme Court:
“The Day After”
Presented by
Compliance Services Division
Lockton Benefit Group
© Lockton Benefit Group 2012
Images courtesy of Thinkstock
Click the Lockton Logo
to Access the Presentation
1
6/29/2012
HEALTH REFORM ADVISORY PRACTICE
Health Reform
Meets the
Supreme Court:
“The Day After”
Presented by
Compliance Services Division
Lockton Benefit Group
© Lockton Benefit Group 2012
Images courtesy of Thinkstock
Click the Lockton Logo
to Access the Presentation
1
Agenda
™
“What Just Happened?”
™
What Exactly is the “Individual Mandate” and Why is it Important?
™
The Issues and Questions Before the Court
“Individual Mandate” Challenge…is it Ripe?
Is the Mandate Constitutional under the Commerce Clause
h Is the Mandate Constitutional under the Congress’s General Taxing Power?
h If the Mandate is Unconstitutional, Can it be Severed from the Rest of the Law?
h May the Federal Government Deny All Medicaid Funding to a State that Refuses to
Expand Medicaid Eligibility?
h
h
™
Where Do We Go From Here?
Left to Do for 2012
What’s Coming for 2013?
h What’s on the Horizon for 2014 and Beyond?
h
h
™
Additional Challenges and Threats to the Health Reform Law
h
h
2012 Elections
Legislative Repeal?
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6/29/2012
“What Just Happened?”
“What Just Happened?”
™
The Supreme Court upheld the constitutionality of the Health Reform law’s
“Individual Mandate”
h
h
Vote was 5-4
Surprises:
—
—
The reason the Court upheld the Individual Mandate
Who cast the deciding vote (the swing voter)
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6/29/2012
“What Just Happened?”
™
Supreme Court said Congress cannot hold a state’s federal Medicaid funding
hostage, as a condition to the state expanding Medicaid eligibility
Health reform requires states to expand eligibility to households with income <133% of
Federal Poverty Level
h Implications to providers, individuals and employers not immediately clear…more on this
later
h
5
What Exactly is the Individual
Mandate, and Why is it Important?
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6/29/2012
“What is the Individual Mandate?”
™
The Individual Mandate is Intended to
Mitigate Massive Cost Shifting
h
h
™
Occurs when the uninsured obtain medical care
The cost of that care is “shifted” to those who do
pay, through insurance or otherwise
Part of a 3-Legged Stool
Guarantee issue
No pre-existing condition restrictions
h Individual Mandate
h
h
—
“Must get everyone in the boat”
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The Issues and Questions Before
the Court
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6/29/2012
Is the Individual Mandate Ripe for Review?
™
Federal “Anti-Injunction Act”
h
™
The Individual Mandate “Penalty”
h
h
h
™
Can’t challenge a U.S. tax law until you pay the tax
It’s payable beginning in 2015
Is to be collected by the IRS “as a tax”
But is it a tax? Or merely collected “as” a tax (i.e., “like a tax”); taxes are
designed to raise revenue; this penalty is designed to compel behavior
The Court’s ruling:
The Individual Mandate is NOT a tax for purposes of the
Anti Injunction Act; Congress labeled it as a “penalty
Anti-Injunction
penalty,” not a
“tax”…Congress’s label controls here…therefore the
Court may take up now the question of the mandate’s
constitutionality.
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Is the Individual Mandate Constitutional?
™
Background to the Constitutionality Issues:
Jefferson, Madison, Adams and other framers of
the Constitution intended the federal government
to be a government of limited powers
h Congress has only the powers granted to it in the
Constitution
h One power is the right to regulate commerce
between the states (Proponent’s #1 argument)
h
—
—
—
What we anticipated
Prior precedent
Oral arguments in March
Ù
Ù
Ù
Both sides agreed Congress may require that when someone
obtains medical care, they MUST pay for that care with
insurance
Both sides disagreed about whether Congress may require
individuals to go out and buy insurance—buy a commercial
product—before they receive or intend to receive medical
care
Proponents: Everyone needs medical care some time, and
the cost shifting has a massive effect on the interstate
economy
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6/29/2012
Is the Individual Mandate Constitutional?
™
Background to the Constitutionality Issues:
h
Another power is Congress’s power to “tax and
spend” (Proponents’ #2 argument)
—
—
General power to levy taxes for the general welfare
Oral arguments in March
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Is the Individual Mandate Constitutional?
™
Does Congress have the authority under the
Commerce Clause to impose the Individual
Mandate?
h The Court’s ruling:
No. The Commerce Clause allows Congress to regulate
economic activity that affects interstate commerce or is part
of a class of activities that affect interstate commerce. It
does not give Congress the right to regulate inactivity (i.e.,
not buying insurance).
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6/29/2012
Is the Individual Mandate Constitutional?
™
Does Congress have the Power Under its Broad Taxing
Power to Impose the Individual Mandate?
h
Requires the Court to conclude the mandate is a tax law
h
Wait just a minute! Didn’t
Didn t the Court just say the Mandate is
not a tax?
h
The Court’s ruling:
Yes, the Individual Mandate is sustainable under Congress’s
broad taxing power.
Although the law labels the sanction for not honoring the
mandate as a “penalty,” and although that label requires
the Court to conclude that the mandate is not a “tax” for
purposes of the Anti-Injunction Act, that label doesn’t
control for purposes of deciding whether the
mandate is a “tax” for purposes of the Constitution.
Court follows a “functional approach,” and concludes the
mandate is a tax, within Congressional power to levy.
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How They Voted…
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6/29/2012
Is the Individual Mandate Constitutional?
™
How is it a tax?
Payment not so high that there is no choice but to buy
insurance
h Payment not limited to willful violations
h Payment collected solely by IRS through “the normal
means of taxation”
h
™
Irony
Ironic because the President and other Democrats had
sold the law as not imposing new taxes on ordinary
Americans
h Doubly ironic because the Court also ruled the
mandate is not a tax for purposes of the federal AntiInj nction Act,
Injunction
Act which
hich bars
ba s suits
s its in opposition to taxes
ta es
until after the tax is paid
h
15
If the Individual Mandate is Unconstitutional, Can it be Severed?
™
Can the Mandate be Severed, or Must the Entire
Ball of Yarn Be Unwound?
h
Not applicable (moot point)
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6/29/2012
May the Federal Government Deny Medicaid Funding for Not
Expanding Medicaid Eligibility?
™
States: Congress can’t hold gun to our
heads
Feds make massive federal funding contingent
on state expansion of Medicaid eligibility to
133% off FPL
h Medicaid spending already accounts for about
25% of state budgets
h Court’s ruling:
h
States are correct. The Medicaid
provisions of the law are unconstitutional
if the federal government denies states
their Medicaid funding for not complying
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Where Do We Go From Here?
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6/29/2012
Where Do We Go From Here?
™
Full Speed Ahead! Agencies will crank up
regulatory activity
19
Where Do We Go From Here?
™
2012: Summary of Benefits Coverage
h
Final regulations issued in early February
—
h
h
h
h
2 sets of FAQs since then
“Plain
Plain English
English” summary in standard format of
no more than four double-sided pages, 12-pt
font; free of charge
Obligation: Carriers and “Plan Administrators”
Up to a $1,000 fine, per violation
Effective Date: SBC requirements apply:
—
—
For those enrolling or re-enrolling: Open
enrollments beginning on or after September 23,
2012
Enrollments by newly eligible individuals, special
enrollees and late enrollees in plan years beginning
on or after September 23, 2012
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6/29/2012
Where Do We Go From Here?
™
Who Must Receive Them?
h
Current enrollees
—
—
h
Actual delivery; may be electronic if enrollment is
online, i.e. not bound to difficult DOL rules (new
safe harbor)
When: with enrollment materials if re-enrollment
is not automatic; not later than 30 days before
new plan year (generally) if re-enrollment is
evergreen
Individuals eligible for coverage, but not yet
enrolled
—
—
Must merely have access to the SBCs – may be
Internet access – unless they request an SBC
SBC…
Must let them know how to access the
information
Ù
DOL suggests mailing post card; supplied model
language
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Where Do We Go From Here?
™
Wrinkles
h
Carve-outs, Utilization Review, Disease
Management
—
™
Work with the vendor,, and do your
y
best
More Information
h
Look for our “Employer’s Guide to SBCs”
out soon!
—
—
Overview of rules
Detailed instructions for compiling/reviewing
an SBC
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6/29/2012
Where Do We Go From Here?
™
Medical Loss Ratio Refunds
h
h
Apply to fully insured plans
Health reform requires insurers in the large
group market to attain a medical loss ratio
of 85% (80% in small group market)
—
—
h
h
MLRs measured on book of business in a state, not
client-by-client
Essentially, ratio is medical claims paid divided by
premium (net of taxes)
Insurers must issue refunds to clients in
states where the insurer does not meet the
MLR target
First Refunds: August, 2012
23
Where Do We Go From Here?
™
MLR Refunds - Who Owns the Refund?
¾
ERISA plans:
—
What do contract/plan documents say?
—
If plan is silent, who paid the premium?
™ Model wrap plan amendments
—
—
●
Did E’er or E’ees pay entire premium?
●
If both shared in premium, were the shares fixed?
●
If both shared in premium, did Employer have the greater risk
(such as under a minimum premium contract)?
What to do with the plan’s portion of the refund?
ERISA’s trust requirement (the “do something
within 90 days” rule)
Same ERISA rules apply
to ERISA plans receiving
MLR refunds under a
state MLR law
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6/29/2012
Where Do We Go From Here?
™
MLR Refunds - Who Owns the Refund?
¾
Governmental plans:
—
—
¾
What portion of premiums did E’ees pay?
Sa e po
Same
portion
t o must
ust be used to reduce
educe pa
participant
t c pa t
premiums in subsequent year (for current
participants, or current participants who
contributed to the refund), or returned in cash to
the latter group; nothing goes to former
participants
Church plans:
—
—
Little unclear; apparently, sponsor is to verify its
use of the refund, to the insurer; then use refund
in same way as governmental plan
Absent verification, insurer uses entire refund to
benefit the participants
25
Where Do We Go From Here?
™
W-2 Reporting of Health Coverage Values
h
h
h
h
Box 12, Code DD
Premium/COBRA cost of major medical coverage
Most (but not all) ancillary coverages are not reported
Track mid-year coverage and cost changes
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6/29/2012
Where Do We Go From Here?
™
HCR Preventive Care Benefits
h
h
Non-grandfathered plans
Initial Mandate:
—
h
Category “A”
A and “B”
B preventive services as listed by USPSTF; immunizations
recommended by CDC
Post-HCR Mandates
—
Screening and counseling for child obesity (PYs o/a Jan 31, 2011)
Expanded recomm. for HPV vaccine (including males) (PYs o/a Jan 8, 2011)
Expanded recomm. for flu shots for adults ages 19-49 (PYs o/a March 2, 2011)
Expanded recomm. for pneumococcal vaccine for adults 19-49 (PYs o/a March 12, 2011)
Expanded recomm. for MMRV vaccine (PYs o/a May 7, 2011)
Wide variety of well
well-woman
woman care
care, including contraception (PYs o/a August 1,
1 2012)
—
Expanded recomm. for obesity screening and intervention (PYs o/a June 26
—
—
—
—
—
2013)
●
Cost implications?
27
Where Do We Go From Here?
™
Comparative Effectiveness Research Fees
h
h
h
$1 per covered life (increases to $2 next year)
Due date
Guidance on how to calculate the fee (including shortcuts)
—
See our Alert: April 26, 2012
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6/29/2012
Where Do We Go From Here?
™
2013 Issues
h
Health FSA benefits capped at $2,500 per year,
beginning with the 2013 taxable year
—
—
New g
guidance: Non-calendar yyear FSAs: Apply
pp y rule
for PYs beginning in 2013 or later
Appears to apply only to employee pre-tax
contributions
●
h
Taxes on high wage earners
—
—
—
h
h
But be careful about making up the lost benefits with
employer contributions…W-2 reporting issues, COBRA,
HIPAA, health reform issues
Applies to: $200,000+ ($250,000 joint filers)
.9%
9% Medicare tax – withholding required
3.8% tax on passive investment (capital) gains,
but not qualified retirement plan benefits
Elimination of deductibility of Medicare Part D
subsidies
Excise tax on medical device manufacturers
29
Where Do We Go From Here?
™
2014 Issues – Meat and Potatoes
h
Individual mandate takes effect
—
h
—
h
h
h
Subsidies
Waiting periods limited to 90 days under group
plans
Employer “play or pay” mandate
Employer reporting requirements
—
—
h
“Minimum essential coverage”
Insurance Exchanges open (really?)
Who had minimum essential coverage
Details of plan offerings, premiums and enrollment
Excise taxes on insurers and TPAs
—
Expected to add $10-15 PEPM to insured coverage
30
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6/29/2012
Additional Challenges and Threats
to Health Reform
Additional Challenges and Threats to Health Reform
™
2012 Elections
™
Legislative Repeal
h
What do the Republicans need?
—
—
—
™
White H
Whit
House
House
Senate
Lawsuits
h
May the feds supply subsidies through a
federally-run Exchange?
32
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6/29/2012
Q
Questions?
i
?
33
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www.lockton.com
© 2011 Lockton, Inc. All rights reserved.
Images © 2011 Thinkstock. All rights reserved.
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