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Early 2011 Dates for HCR Rollout/Repeal

This very good summary of early 2011 developments in implementing health care reform looks at the issues from the perspective of the Obama administration, Congress and state legislatures, and the courts. Some of the key 2011 dates it mentions are as follows:

January 12: House of Representatives vote on a bill to repeal health care reform, which I discussed in a bit more detail an earlier post. Though the overall vote may fail, piecemeal revisions could succeed, with expanded 1099 reporting being the most-often listed popular target for repeal. The linked article, from national health insurance association AHIP (America’s Health Insurance Plans), evaluates some other potential “low hanging fruit” that may be slated for more targeted repeal efforts.

January 12-14: The Institute of Medicine will hold a 2-day meeting devoted to discussion of the “essential health benefits” standard under the PPACA, which will determine which benefit packages may be offered on state exchanges. The IOM’s findings will no doubt have significant impact on the Department of Health and Human Services, which intends to issue regulations on this point by the end of the year. The Department of Labor will also work towards defining a “typical employer plan” against which to measure the “essential health benefits” concept.

February 15: By this date, HHS will announce the five states that will receive grants towards development of information technology systems for the state-based insurance exchanges. The AHIP article contains more details on the insurance industry’s steps to prepare for the exchanges.

And continuing through 2011, federal courts will continue to hear constitutional challenges to health care reform, specifically the individual mandate. The decision of Florida district court Roger Vinson is still pending in a challenge to the mandate brought by 20 state attorneys’ general, which currently is the highest-profile case of this type. As the AHIP article mentions, in December oral argument Vinson questioned whether the government could also control health care by requiring Americans to eat their vegetables. Proponents of health care reform might want to start hoping that, unlike a former American president, Judge Vinson loves broccoli.

Benefits Provisions of the Tax Relief Act of 2010

On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the “Tax Relief Act” or “Act”). The Act was the result of painful compromise between fiscally conservative and liberal factions in Washington, D.C. Basically the Obama administration agreed to a two-year continuation of certain income and other tax cuts dating back to 2001, in exchange for an additional 13 months of continued unemployment benefits.

You can read the 74-page text of the Act here, and the 177-page Congressional explanation of the Act here.

The Act significantly changes the estate planning landscape through 2012. For more information on the specific opportunities that exist during this brief window of time, contact an attorney in Mullen & Henzell LLP’s Estate Planning Group.

The Act also makes a 2% reduction in employees’ share of FICA taxes for 2011 (the Old Age, Survivors and Disability component, not the Medicare component), from 6.2% down to 4.2%. The employer’s portion is unchanged, at 6.2%. A comparable change is made to self-employment taxes. Even before the Act became law, the IRS issued new income tax withholding tables reflecting the 2% reduction.

The Act also affects a number of employer-provided, tax-qualified benefits, as listed below, by lifting the December 31, 2010 expiration date that otherwise would have applied under 2001 and subsequent tax laws. Unless otherwise stated all changes expire on December 31, 2012:

• Educational assistance plans under Internal Revenue Code (“Code”) Section 127 are given another two-year lease on life. The maximum dollar amount that employers can provide (whether as direct payment for education or in the form of an employee reimbursement) remains $5,250 per calendar year. Unlike education reimbursements provided as “working condition fringe benefits” under Code Section 132(d), benefits provided under Section 127 may cover study that is not necessarily limited to improving the employee’s existing skill set.
• The Act extends certain adoption benefits through 2012. The maximum adoption tax credit, and the maximum tax-exempt employer reimbursement for adoption expenses under Code Section 137, will remain at indexed rates (subject to phase-out for adjusted gross income starting at $182,500). The 2010 dollar limit was $13,170. For 2011, the maximum dollar amount of the credit or exclusion from income will be $13,360 however this will drop to $12,170 in 2012 because the Act did not extend a $1,000 increase in the limit made under the health care reform bill. For this same reason, the adoption tax credit is not refundable after 2011.
• Qualified transportation benefits under Code Section 132(f) are also continued at current levels, through December 31, 2011. Employees may exclude up to $230 from income each month in employer-provided mass transit and/or vanpool benefits; this combined dollar limit was linked to the separate $230 dollar limit that applies to employer-provided parking benefits under the 2009 recovery act. Thus, up to $460 is available per employee, per month for transportation and parking expenses. The $230 dollar limit that applies to mass transit and vanpool benefits only (not parking) was slated to drop to $120 per month on January 1, 2011.
• Tax-free IRA distributions to charitable organizations are extended through 2011. Although the Act permits 2010 IRA distributions to be made to a charitable organization through January 31, 2011, the IRS recently announced that there is no “re-do” available for individuals who took 2010 distributions prior to passage of the Act on December 17, 2010. The Wall Street Journal discusses the IRS announcement, and predicament to taxpayers, here.

Additional Easing of PPACA Compliance

In December 2010 the troika of governmental agencies in charge of implementing the PPACA (the DOL, HHS, and IRS – here, the “Departments”) issued more “soft guidance” in the form of Frequently Asked Questions, the fifth such set the Departments have published. The FAQs offer more clarity and deadline relief, as summarized below:

Percentage of Comp Cost Sharing Formulas Under Grandfathered Plans: The FAQ provides that a health plan may continue to determine employee cost sharing based on a percentage of compensation formula, without losing grandfathered status, so long as the formula (the percentage level) does not increase, even if the employee’s increasing rate of compensation will result in cost increases that exceed the thresholds set forth in the grandfathering regulations. The example in the FAQ was an out-of-pocket spending limit, such as an out-of-pocket limit or deductible, but not a copayment.
60-Day Prior Written Notice Rule Postponed: The PPACA includes a requirement that, by March 23, 2011, the Departments develop standards for use by plan sponsors and insurers in creating a “summary of benefits and coverage explanation” to be provided to plan participants no later than March 23, 2012. The PPACA also provides that if a plan sponsor or insurer makes any material modification in that summary of benefits/coverage explanation, it must provide written notice of the change at least 60 days prior to its effective date. Prior to this rule, ERISA required written notice of a material reduction in health benefits be provided 60 days after corporate action (e.g., adoption of board resolutions) to make the reduction. The prior notice rule under PPACA created some confusion, with some believing that it applied to any change to a health plan or policy, not just to changes to some new form of disclosure document that had not been fully defined yet. The FAQ makes it clear that the prior notice rule only applies to the summary of benefits/coverage explanation and that prior notice of a benefit change will not be required until the Departments issue guidance on this new type of disclosure. The 60-day “after” notice under ERISA still applies.
Auto-Enrollment for Large Plans: PPACA requires employers with more than 200 full-time employees to automatically enroll new full-time employees in the employer’s group health plan. There is no set deadline for this requirement and the definition of “full-time” for purposes of the rule is unclear. The FAQ states that compliance with auto-enrollment will not be required until regulations are issued by the DOL, and that EBSA (the DOL’s benefits division) will work with the Treasury Department to develop rules defining full-time status for this purpose. Regulations are expected to issue by 2014.
Dependent Coverage to Age 26: The FAQs state that, although health care reform prohibits distinctions in dependent coverage based on age (except for children aged 26 or older), it does not prohibit distinctions based on age that apply to all coverage under the plan. Therefore it is permissible for a plan to charge a copayment for an office visit for non-preventative services to all covered participants aged 19 and over, whether employee, spouse, or dependent, but not to participants under age 19.
Value-Based Insurance Design: Although the PPACA requires non-grandfathered health plans to provide “first-dollar” coverage for recommended preventive services, the FAQ states that this rule is tempered by the need for “reasonable medical management techniques” to steer patients towards more efficient treatment settings. Thus, the FAQ sanctions an arrangement in which a group health plan waives a copayment for a preventative screening when it is performed in an ambulatory surgery center, but charges $250 when the same screening is performed in a hospital outpatient setting, except in instances where the patient’s medical condition rules out the lower-cost treatment setting. The Departments are requesting public comments on “value-based insurance design” of this type as a prelude to issuing regulations or other written guidance.

Repeal of the “Job-Killing Health Care Law”: Political Theater or Legitimate Threat?

Today the Republican-controlled House of Representatives begins debate on H.R. 2 – a bill titled “Repealing the Job-Killing Health Care Law Act.” The provocative title of the bill signals that this is political theater, although proponents of the bill sincerely, for dollar-and-cents reasons, want to roll back reform, specifically the Patient Protection and Affordable Care Act of 2010 (PPACA) and its companion reconciliation act.

The full, two-paragraph text of the bill is available here.

The chances repeal will happen are slim. The Democrats still control the Senate. The President has put in writing his intention to veto H.R. 2. Even the Democrats who voted against enactment of PPACA (and who remain in office) don’t intend to support repeal. For a more trenchant analysis of the repeal movement’s chances at success, read Alvin D. Lurie’s piece here.

Even without full repeal, health care reform in the U.S. will almost certainly not unfold precisely according to the PPACA. The House of Representatives can thwart appropriations measures need to fund reform implementation. The rapidly increasing national debt will continue to dominate political discussions and make costly reform look like extravagance. The debate over health care reform may continue to be divisive, but I would like to think that it will more closely resemble the compromise (however uneasy) that the two parties recently reached on extending Bush-era tax cuts. Time will tell and I will continue to keep you apprised.

Top 12 Key Players in 2011 Health Care Reform Debate

Employee Benefit Adviser, a website/blog targeted at benefit brokers and other advisors, just published a slideshow of the top 12 players in Washington D.C. on the health care reform debate that has already begun in this new year. (One time registration for the EBA site may be required to view.) I briefly summarize the list, below; more analysis is available in the slideshow itself:

• Sen. Fred Upton (R-Mich.) – Chair to House Energy and Commerce Committee.
• Rep. John Kline (R-Minn.) – Chair of the House Education and Labor Committee.
• Rep. Dave Camp (R-Mich.) – Chair of the House Ways and Means Committee
• Rep. Paul Ryan (R-Wis.) – Chair of the House Budget Committee (this committee will oversee funding of health care reform; if House Republicans stymie appropriations needed to implement reform, as is widely expected, Rep. Ryan will be instrumental in this process).
• Sen. Chuck Grassley (R-Iowa) – Ranking minority member of the Senate Finance Committee.
• Rep. John Boehner (R-Ohio) – Speaker of the House.

• Donald Berwick – Head of the Centers for Medicare and Medicaid Services
• Sen. Harry Reid (D-Nev.) – Senate Majority Leader.
• Jacob Lew – Director of the Office of Management and Budget, replacing Peter Orszag
• Sen. Max Baucus (D-Mont.) – Chair of the Senate Finance Committee
• Kathleen Sebelius, Secretary of Health and Human Services
• President Obama (natch).

Nondiscrimination Rules for Insured Health Plans Put On Hold

The Internal Revenue Service just issued Notice 2011-1 today, stating that compliance with nondiscrimination rules for insured group health plans, otherwise slated to go into effect on January 1, 2011 for non-grandfathered plans, will not be required (and no excise tax for failure to comply need be reported) until after regulations or other administrative guidance on the nondiscrimination rules issues.   The Notice has the support of the other agencies that enforce health care reform, the Department of Labor and the Department of Health and Human Services.

Further, the Service anticipates that any such regulations or guidance will not apply until plan years beginning after a specified period following publication of the new guidance (often this is a 6-month period).   Before the beginning of those plan years, employers will not need to file IRS Form 8929 reporting excise taxes as a result of plan designs that discriminate in favor of highly compensated individuals.   

This is extremely welcome relief for plan sponsors and advisors.   In essence, the Notice appears to bring back the status quo before the Patient Protection and Affordable Care Act by essentially stating that employers with insured health plans cannot realistically be expected to comply with laws that are “similar to” existing nondiscrimination rules for self-funded plans.  For employers that maintained executive carve-out plans prior to the Affordable Care Act, maintenance of those plans in 2011 would not appear, from the Notice, to subject them to any enforcement efforts or excise taxes. 

What does this mean for employers going forward? Employers who already redesigned their group health plan in anticipation of the January 1, 2011 compliance deadline should hesitate before rolling back any newly-compliant, nondiscriminatory plan designs.  Reversing steps taken in order to comply with the law is never a good idea, and nondiscrimination rules eventually will apply so it is unwise to get re-attached to a plan design that ultimately will be obsolete, especially now that employees may be aware that discriminatory plan designs are disfavored.  For employers with a discriminatory insured plan that was never redesigned, maintenance of the plan “as-is” should not result in any excise tax penalties or other enforcement action. Again, however, this grace period will end as of the first day of the plan year first following the year in which nondiscrimination regulations are published, and if regulations issue later this year then nondiscrimination compliance could be required as soon as January 1, 2012. Employers that are subsidizing former executives’ COBRA or other continuation group health coverage through this year and into the next (e.g., under a severance plan) should be aware that maintenance of the plan into 2012 could violate the nondiscrimination rules and result in excise taxes.

As an indication of how complex the nondiscrimination issue is, the Notice requests further commentary from the public on no fewer than 13 different topics, ranging from “safe harbor” plan designs for automatic compliance, application of different rules for plans offered in different geographic regions by the same employer, what constitutes “benefits” for purposes of nondiscriminatory plan design (e.g., rate of employer contributions, versus percentage or amount of employee contributions), and whether compliance can be met merely by making coverage available to employees, whether or not they enroll (as applies in the 401(k) context).  Notably, none of the requests for commentary refer to the transition period beginning with publication of the Notice, and ending with publication of final regulations on nondiscrimination rules for insured plans.  This further confirms that, for pre-existing, discriminatory plans, we are entering a “no enforcement” zone for the immediate future at least.