[author: Douglass A. Farnsworth, J.D., M.B.A.]
The Supreme Court issued its long-awaited ruling on the Patient Protection and Affordable Care Act (“PPACA,” commonly known as the health reform law). The Court, in a majority opinion written by Chief Justice John Roberts, upheld PPACA in its entirety as Constitutional, albeit with a narrowing of the Medicaid expansion.
With regard to the most-anticipated portion of the opinion – that regarding what is commonly referred to as the “individual mandate” – Chief Justice Roberts joined the 5-4 majority in holding that the mandate was a constitutional use of Congress’ taxing authority. At the same time, Roberts joined Justices Alito, Thomas, Scalia, and Kennedy in a 5-4 decision that the mandate could not be upheld as an exercise of Congress’ powers under the Commerce Clause. Because a statute only needs to have firm footing under one of Congress’ powers, the Commerce Clause portion of the decision does not have any bearing on the outcome of this case – because the mandate can be upheld as a tax, it is therefore Constitutional. Of course time will tell if the decision has an impact on subsequent Commerce Clause cases.
What this means for individuals going forward is that, in 2014, when the mandate is set to take effect, each non-exempt person will be required to either maintain medical insurance that meets certain minimum standards, or pay a penalty. Those exempt from the requirement include individuals whose income is below the federal income tax filing threshold, or if the cost of coverage would exceed 8% of his or her income. For those subject to the mandate, the actual penalties are much lower than the cost of insurance coverage – starting at the greater of $95 or 1% of income for an individual and $47.50 per child (capped at $2,085 per family) in 2014. Thus, it is expected that many will choose to pay the penalties rather than purchase the insurance.
Additional provisions coming into effect include two new taxes, effective on January 1, 2013, that are intended to pay for the federal government's additional costs to provide coverage for low-income persons under the mandate. These are the additional Medicare payroll tax of 0.9% on individuals whose annual income exceeds $200,000 ($250,000 if married and filing jointly), and the health care surtax of 3.8%, which applies to the lesser of investment income or the amount by which an individual’s adjusted gross income exceeds $200,000 ($250,000 if married and filing jointly).
The decision also means that the provisions of PPACA that have already gone into effect will remain in effect. This includes the high-risk pool program for those who have been unable to obtain insurance due to pre-existing conditions. It also means that requirements imposed on insurers and group health plans remain in effect, including the requirement that dependents remain eligible to the age of 26, the prohibition on lifetime and annual dollar limits, and the requirement to provide certain preventive care without cost-sharing (e.g., deductibles or copayments).
Businesses need to be aware of several provisions that have not yet become effective that need to be attended to going forward. While many deferred compliance pending the Court’s ruling, now is the time to ensure that plans are in place to comply with upcoming issues, including the following PPACA provisions that are applicable to employers that sponsor group health plans:
• Proper handling of MLR rebates. Rebates will be received by many plans from insurers pursuant to the “minimum loss ratio” (“MLR”) rules and those rebates are due on or before August 1, 2012. Sponsors of those plans have a fiduciary responsibility under ERISA to ensure that a portion of the rebate (proportionate with the amount of employee contributions toward the total premiums) is treated as plan assets, and thus would be for the benefit of plan participants.
• Summaries of Benefits and Coverage (SBC) documents. Beginning with the first open enrollment period on or after September 23, 2012, both insurers and employer plan sponsors are responsible for providing four-page summaries (“SBCs”) to individuals covered under health plans. SBCs must be provided during enrollment, on request, and at certain other times, such as during HIPAA special enrollment periods. A standard template has been created that must be used, and in most cases the plan’s insurer or third-party administrator will provide the SBC. However, it is important for employers to have the conversation early, to ensure that the SBCs go out when the deadline hits.
• Comparative Effectiveness Fees. All insured and self-insured plans will be required to pay a fee, beginning with plan years with end dates on or after September 30, 2012. The fee will generally be $1 per covered individual for the first year, $2 per covered individual during the second year, and increase in later plan years. The fees will be used to fund studies to determine which treatments are more effective for given conditions.
• W-2 Reporting. Beginning with coverage provided during the 2012 calendar year, employers will be required to report the value of health plan coverage provided to employees on W-2s issued in January 2013. This reporting is informational only (i.e., there is no tax charged or due on the value of the coverage reported).
• Health FSA $2,500 limit. For plan years beginning on or after January, 2013, employees will be limited to contributing no more than $2,500 to their health flexible spending account (“FSA”) per year. FSA balances from the prior plan year’s election remaining as part of the plan year grace period are not counted toward the $2,500 limit. This change should be communicated to employees during open enrollment. In addition, both health FSA and cafeteria plan documents will need to be amended accordingly.
It is not expected that the Court’s decision will have an immediate impact on how physicians and other health care providers operate, other than to remove the uncertainty that has existed, as we now know that PPACA will continue to be implemented. Thus, unless Congress acts, the government will continue in its current move toward increased fraud enforcement and changes in provider reimbursement methodologies. The government’s actions, in turn, will continue to push hospitals, health care networks and others to purchase physician practices, physicians will continue to merge into larger groups, and the push to build “Accountable Care Organizations” and the like will continue.
Additional PPACA provisions taking effect in 2014 include:
• Insurance Reforms. Additional insurance reforms take effect, including the prohibition on pre-existing conditions applying to all participants, and waiting periods limited to 90 days.
• Employer “play or pay” provision. Employers with 50 or more employees will be required to pay a per-employee penalty for failure to offer coverage or provide coverage on an affordable basis.
• Health care exchanges. The exchanges will allow individuals and small groups to purchase coverage from among available options, with available tax credits for low-income participants applied to the cost of coverage.
• Essential benefits required. Small, insured plans will be required to provide at least certain “essential benefits,” which will include emergency care, inpatient care, prescription drugs, lab testing, maternity and newborn care, and pediatric care.
Please contact a member of the Trenam Kemker employee benefits group if you have questions or would like assistance with preparing to comply with the changes required by PPACA. If you have questions regarding the impact of PPACA on health care providers, please contact a member of the Trenam Kemker health law group.