Healthcare Law -- Jul 15, 2013

by Manatt, Phelps & Phillips, LLP

In This Issue:

How Does the DOMA Defeat Impact Healthcare Reform and Health Insurance Access?

Authors: Kinda Serafi, Anne Karl, Jocelyn Guyer, Deborah Bachrach

NOTE: The Supreme Court's 5-4 decision to invalidate the Defense of Marriage Act (DOMA) will affect more than 1,000 federal statutes—and have far-reaching implications for healthcare reform implementation and health insurance access. The Obama Administration is expected to release a full interpretation of the DOMA decision's impact on federal healthcare statutes in the coming months. To help you prepare, Manatt has created an initial assessment of how the DOMA defeat will affect Insurance Affordability Programs under the Affordable Care Act (ACA). You can read the summary below—and click here to download the complete assessment free.

In a sharply divided ruling on the United States v. Windsor released on June 26, 2013, the Supreme Court invalidated DOMA, clearing the way for federal recognition of same-sex marriages. Within hours of the decision, Kathleen Sebelius, Secretary of the Department of Health and Human Services (HHS), announced that her team will begin reviewing all relevant federal statutes to ensure the Court's decision is implemented swiftly and smoothly in the healthcare arena.

In the majority opinion, Justice Kennedy identifies both the practical and symbolic impact of DOMA on individuals in same-sex marriages, citing several health-focused examples. For instance, the Court noted that, because of DOMA, same-sex spouses of government employees could not access healthcare benefits, as heterosexual married couples could. In addition, DOMA raised the cost of healthcare for same-sex couples and their families by taxing employer-provided health benefits as income—a practice not followed for heterosexual couples.

What Are the Implications for Healthcare Reform Eligibility and Implementation?

With the invalidation of DOMA, states that recognize gay marriage must treat married, same-sex couples as part of the same household. To determine whether an individual is eligible for Medicaid/CHIP, states assess a household's composition and countable income as a percentage of the federal poverty level.

Treating same-sex couples as spouses can make it more likely that they are eligible for Medicaid/CHIP by increasing the size of their households and, therefore, raising their household income eligibility threshold. Conversely, it can make a household less likely to be eligible by increasing the total family income. Ultimately, in terms of Medicaid/CHIP eligibility, whether a same-sex couple benefits or loses from being treated as one household depends on the amount of income each spouse contributes.

Married taxpayers must file a joint return to be eligible for APTCs/CSRs. Therefore, with the demise of DOMA, gay married couples who are applying for subsidized Qualified Health Plans (QHPs) and living in states that recognize same-sex marriages must file jointly to have their eligibility assessed.

The amount of APTCs/CSRs a household receives is based on calculating the household's income as a percentage of the Federal Poverty Level for its family size. With DOMA invalidated, the family size of gay married couples now will include both spouses. As with Medicaid/CHIP eligibility, this can be a benefit or a detriment, making some same-sex couples eligible for more financial assistance while reducing or eliminating subsidies for others. If one partner's income is significantly lower than the other partner's, counting both increases household size and, therefore, can improve eligibility options. In contrast, if both partners have high salaries, combining their incomes may decrease the amount of subsidies they can access—or even put them over the threshold, so they are no longer eligible for assistance.

Individuals may not be eligible for APTCs/CSRs, if their employers offer affordable minimum essential coverage. In addition, if they do have access to affordable coverage, they are subject to the mandate requiring them to have health insurance. The test to determine whether employer-sponsored health insurance is affordable for a family is based on the cost of self-only coverage for the employee—not whether coverage is affordable for the entire family. As a result, with the defeat of DOMA, same-sex couples who have access to coverage through their spouses may not be eligible for APTCs/CSRs—and may face the individual mandate penalty, if they are not insured.

The IT systems that both state-based and federally-facilitated marketplaces developed to support enrollment were not designed to account for same-sex marriages. For example, the logic built into the system of the federally- facilitated marketplace splits a couple apart to determine eligibility for an Insurance Affordability Program, if both partners are the same gender. States that recognize same-sex marriage must revise their eligibility logic or implement manual processes to accommodate the DOMA defeat.

  1. Impact on Medicaid/CHIP Eligibility
  2. Impact on Advance Premium Tax Credits (APTCs)/Cost-Sharing Reductions (CSRs) Eligibility
  3. Impact on Minimum Essential Coverage Assessments
  4. Impact on Marketplace Information Technology Systems

What Are the Implications for Government Programs and Employer-Sponsored Coverage?

In addition to its impact on the ACA, the DOMA decision will affect the access married, same-sex couples have to many government programs, as well as to employer-sponsored health insurance. With DOMA no longer in place:

  • Same-sex spouses of federal employees will be entitled to federal healthcare coverage.
  • Same-sex spouses of military personal will be eligible to receive TRICARE coverage.
  • Individuals in same-sex marriages—like those in heterosexual marriages—will be able to qualify for Medicare based on a spouse’s work history. 
  • Employer-sponsored coverage for same-sex spouses will no longer be considered taxable income.
  • Same-sex spouses will receive COBRA benefits.  In addition, employees may add a same-sex spouse to their health coverage outside of the open enrollment period, if they marry or if the spouse loses coverage due to a job loss or change.  


Over the next several months, federal agencies will be reviewing statutes affected by the DOMA decision and undoubtedly will identify additional healthcare implications. Manatt will continue monitoring any new guidance and providing you with the analyses and advice you need to understand and prepare for the changes.

What Are the Key Takeaways from the ACA Employer Mandate Delay?

Authors: Joel Ario, Patti Boozang, Ian Spatz, Sharon Woda

Only July 2, 2013, the U.S. Department of the Treasury announced that the Affordable Care Act (ACA) employer mandate—requiring businesses with 50 or more employees to offer their workers affordable health coverage that provides minimum value—will be delayed until 2015. The news caught most observers by surprise, and initial reactions have varied widely. The Treasury notice indicates that the agency expects to publish proposed rules this summer "after a dialogue with stakeholders" aimed at "minimizing" employer reporting requirements and providing "time to adapt health coverage and reporting systems." The proposed rules will provide important information about the long-term implications of the delay, but Manatt has identified a few key takeaways at this point: 

  • The delay of the employer mandate is welcome news for employers who have raised increasing concerns about the complexity and burden of ACA reporting requirements, especially for the vast majority of organizations that already offer ACA-compliant coverage.  A recent Kaiser report shows that 98% of large firms (200 or more employees) offered health benefits in 2012, and 94% of firms with 50 – 199 workers also offered benefits.
  • The delay of the employer mandate provides a one-year break for those employers who do not meet ACA requirements.  They now have some breathing room to consider their options for extending coverage to more employees, beefing up existing coverage to meet minimum standards, reducing full-time employee head counts to minimize coverage obligations or paying penalties for non-compliance.
  • Employers are not likely to reduce coverage during the one-year delay, so employees with coverage today probably will not see any change as a result of the postponement.   At the same time, uninsured employees will be able to purchase coverage through the new marketplaces.  In addition, if their income is below 400% of the Federal Poverty Level, they will be able to access premium tax credits.
  • The delay in implementing the employer mandate does not change tax credit eligibility requirements for employees.  To be eligible for a tax credit, individuals cannot have access to employer-sponsored health insurance that meets minimum coverage and affordability standards.  The delay in employer reporting requirements should not impede eligibility determinations, since the HHS already issued guidance directing marketplaces to rely on applicants’ attestations about their access to employer coverage. Applicants still will be obligated to provide information about their access to employer-sponsored coverage—and still will need their employers’ assistance with that process.  The degree to which employers must cooperate remains an open question.
  • It is unclear whether employers will be entitled to—or have an incentive to—appeal their employees’ eligibility for tax credits, given that the employer mandate and its related penalties will not be in place for 2014.   It would come as a welcome relief to marketplaces working to establish the employer appeals function to have it deferred for 2014.


While the analysis is ongoing, initial indications are that the employer mandate delay is a "win" for business. More individuals may be eligible for and/or receive tax credits than would have if the mandate went into effect on schedule.

Perhaps the most significant impact of the announcement is the inevitable commentary that will re-ignite skepticism about the successful implementation of the ACA. Proponents of the law are pointing to the Obama Administration's flexibility with large employers and willingness to work collaboratively to get the process right. Opponents are using the chance to criticize the law and question the Administration's ability to implement its major features, including the Marketplace Open Enrollment on October 1, 2013.

Additional guidance and regulations about the employer mandate and appeals process are expected to be released. Manatt will continue to monitor new information and keep you informed as details emerge.

As Pharmacy Compounding Hits the Headlines with a String of Negative News, What Does the Future Hold?

Author: Michelle McGovern

NOTE: Last year, compounding became major news when approximately 55 people died and 740 became ill after receiving injections of a drug prepared at a Massachusetts compounding pharmacy—and we've continued to see compounding issues in the headlines. Last month, seven infections were tied to steroid injections from a Tennessee compounding pharmacy, and the U.S. Department of Justice revoked the permit of a New Jersey compounding pharmacy after discovering that some of its products were contaminated with mold. What regulation is likely to come? Find out in Manatt's new article, just published in Pharmaceutical Executive, "Pharmacy Compounding: What Lies ahead for Manufacturers?" You can read the summary below—and click here to read the full article.

Compounding pharmacies are currently regulated at the state level. Although some states have been working to tighten regulations—including Massachusetts, New Jersey and Florida—shrinking budgets leave them ill-equipped to regulate compounding facilities, many of which act more like manufacturers.

There was an attempt at federal regulation of compounders in 1997 under the FDA Modernization Act (FDAMA). A provision in the law prohibiting soliciting prescriptions and advertising any particular compounded drug led to a challenge, however, that the Supreme Court upheld in 2002. While the Supreme Court agreed that the soliciting and advertising restrictions were not permissible, it did not rule on other key portions of the law, including prohibitions preventing compounders from acting as manufacturers and from copying FDA-approved products. As a result, the decision of the Ninth Circuit (which had heard the case prior to the Supreme Court appeal) to strike down the compounding regulations became the standard. 

In 2008, the Fifth Circuit took up the issue and decided that the compounding regulations not related to advertising were enforceable. This new conclusion, however, applied only in states within the Fifth Circuit—Texas, Louisiana and Mississippi. For the rest of the country, the FDA's authority over compounders is detailed in a compliance policy guide, issued after the Supreme Court case in 2002.

What's Next for Federal Regulation?

On May 15, 2013, the FDA, public health officials and members of the Senate Health, Education, Labor and Pensions Committee introduced the Pharmaceutical Compounding Quality and Accountability Act. The proposed legislation creates a new class of compounders called "compounding manufacturers," that prepare drugs for interstate commerce. The proposed law:

  • Prohibits compounding manufacturers from producing copies of FDA-approved drugs
  • Requires compounding manufacturers to register with the FDA and pay establishment fees starting at $15,000 in 2015
  • Clarifies that compounded products are new drugs subject to the Federal Food, Drug and Cosmetic Act (FDCA) and specifies the applicable provisions
  • Holds compounding manufacturers to FDA standards and requires them to report adverse events

Who Is at Risk in Product Liability Claims?

When patients are harmed by a compounded product, the compounding pharmacy can be sued for product liability. In some states, however, liability can extend to the manufacturer, if the compounder is declared insolvent. Drug manufacturers who provide active ingredients to compounders also could be at risk.

The Debate Continues…

With compounding pharmacies in the news, the debate around the proper level of oversight is likely to continue. While the passage of federal legislation remains uncertain, it is probable that we will see both new state regulations and increased FDA focus.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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