HEALTH CARE REFORM UPDATE
The major health care reform update is the changes to the system implemented by the Patient Protection and Affordable Care Act, better known as Obamacare (“PPACA”). Many discussions of this law seem to devolve into defense of the law or predictions of the failure of the law. My goal will be to attempt to avoid the politics and provide just an outline of those changes that have been implemented and what is still to come.
PPACA was signed into law on March 23,2010. It was designed to phase in provisions over time, with the majority of the major provisions phasing in by January 2014 and some remaining provisions to be phased in by 2020. The basic concept of the PPACA is to require every person to have insurance through the “individual mandates” and then to provide subsidies and programs to allow access to individuals who may otherwise not have access. While it is often called health care reform, it is more realistic to think of the law as “health insurance reform” since the law focuses primarily on the health insurance market.
For many consumers, the PPACA will allow needed access to health insurance and subsidies to make it possible to afford this health insurance, but, for many other consumers, there will be an additional cost for the health insurance. Beyond these baseline concepts, predictions have been all over the map and the purpose of this article is not to get involved in those predictions.
The groups that are primarily impacted by PPACA are:
- Consumers: Will have access to health insurance through Marketplaces and will have access to new models for coverage and care delivery. The goal is for consumers to be able to shop for different coverages through a single location (either a state run or federally run website).
- Health Insurance Companies: Have to abide by several new regulations in making insurance available. Many of the regulations will be discussed below.
- Health Care Providers: Facing new market priorities, i.e. encouraging wellness visits and greater focus on medical screenings and other preventive care, while being pressured to control costs.
- Employers: If having 50 or more employees, required to provide a certain level of coverage to specified employees or face a penalty.
The PPACA has been involved in litigation basically from its passing. Last summer, in National Federation of Independent Business v. Sebelius, 648 F.3d 1235 (U.S. 2012), the United States Supreme Court upheld the Constitutionality of the law, but allowed states to opt out of the expansion of the Medicaid program. At this point, barring unexpected developments (which may occur between the writing of this piece and the presentation), it appears the Patient Protection and Affordable Care Act will continue to go into effect with the bulk of its rules to be completed in 2014.
ALREADY ENACTED “PRELIMS”
Since the enactment of the law, certain “prelims” have already phased into effect. These changes include:
- Preventive services are offered with no cost-sharing: 45 recommend preventive services are required to be covered with no deductible or co payment or otherwise sharing the costs. The recommended preventive services are recommended by the United States Preventive Services Task Force and, if accepted, implemented through theUnited States Health and Human Services.
- The most controversial “preventive service” has been the contraceptive coverage which has sparked lawsuits by private companies asserting that requiring it to provide health insurance for employees including contraceptive coverage violates the private companies’ religious beliefs.
- The Third Circuit, in Conestoga Wood Specialties Corp. v. Sebelius, No. 13-1144, 2013 U.S. App. 15238 (3d Cir. July 26, 2013), held that a for-profit private corporation can not engage in the exercise of religion and the company, not the owners, were being obligated to provide insurance, so the requirement did not violate anyone’s exercise of religion.
- The Tenth Circuit, in Hobby Lobby Stores, Inc. v. Sebelius, No. 120-6294, 2013 U.S. App. 13316 (10th Cir. June 27, 2013), came to the opposite conclusion that a for-profit corporation could exercise religion and the corporation here was substantially likely to succeed on the merits of showing contraceptive coverage constituted a substantial burden on Hobby Lobby Stores’ exercise of religion.
- Other circuits are beginning to weigh in, but this issue will likely be resolved before the United States Supreme Court.
- Lifetime Limits prohibited: Insurance companies used to apply a limit on the amount of insurance available to an individual over his or her lifetime. The end result was people with catastrophic illnesses or injuries could run out of insurance and not have access to other insurance.
- No pre-existing condition exclusion for children under 19
- Limitations on rescissions of coverage
- Dependent coverage up to age 26: Parents can keep their children on the parent’s insurance up to the age of 26.
- Minimum Medical Loss Ratio (MLR) for health care plans: Insurance companies are required to use at least 80% to 85% of premiums received on medical care or provide a rebate to their customers.
- Discounts in Medicare Part D coverage: Part D is the Medicare prescription drug benefit and the discounts have resulted in subsidies for prescription drugs being made available.
- Summary of Benefits and Coverage Documents: These SBC’s must be provided to all customers. Insurance companies claim the requirements for the SBC’s are burdensome. One insurance company claims to took 45 people six months to comply with the summary requirements.
- W-2 reporting: The Ml value of an employee’s health insurance is required to appear on W-2’s.
- Notice of marketplace options: Employers are required to send out, either electronically or first-class mail, notices of the marketplaces. It is a short document and everyone should have received it. Also, for those people who have a household employee, the notice requirement applies to them.
- Annual salary reduction for Flexible Spending Accounts (FSA) is capped at $2,500.
- No pre-tax reimbursement for over-the-counter medications: People with FSA, HRA, or HAS accounts won’t be able to use it for over-the-counter medications without a letter of medical necessity.
- Increased excise tax on non-qualified distributions from FSA, HRA, and HSA
As discussed above, the “major steps” under the PPACA have not been enacted yet. These steps are rolling out with a majority beginning soon. Here are some of the major steps which will be coming soon:
- OnOctober 1, 2013, the public marketplaces will go live, meaning they will be available for people to utilize. However, the majority of the insurance provisions don’t kick in untilJanuary 1, 2014, so it is mostly informational for this first period. These marketplaces are supposed to offer the following services:
- Certify health plans – meaning plans offered will be certified and the services provided should meet minimum standards and receive a “metal” grade.
- Toll-free hotline
- Website – right now, there is substantial concern about how the Federal website will work. The website has not been tested and it is likely to have significant bugs to be worked out.
- Assign quality ratings – Insurance coverage will be graded by metal ratings: Bronze, Silver, Gold, and Platinum. These plans are graded based on their “actuarial value”, which indicates the percentage of health costs that would be covered by the health plan for an average population. Bronze requires an actuarial value of 60%, Silver 70%, Gold 80%, and Platinum 90%. Plans that are within 2% percentage points will fall within the metal grade, so a plan with an average of 68% will be considered silver. In addition, while the average may be 70% for a silver, certain enrollees could end up covering more than 30% in a given year. These are community averages, not promises.
- Uniform enrollment forms and a common format for presenting plans
- Connect consumers to other government programs
- Eligibility for federal subsidies and cost-sharing reductions
- Electronic calculator
- Navigator/In-person assistors – while required under the law, many states are severely restricting where these individuals can offer help and how much information they can volunteer.
- Pennsylvania and New Jersey are using the federally facilitated marketplace.
- EffectiveJanuary 1, 2014, small business (SHOP) marketplace must be available.
- For 2014-2015 – small business with 50 or fewer employees are eligible, depending on state choice.
- For 2016 – small businesses with 100 or fewer employees are eligible.
- For 2017 – states can opt to allow groups with more than 100 employees or leave it as is.
- EffectiveJanuary 1, 2014, individual mandate for coverage.
- Most people are required to have insurance (exempt individuals include religion exemption, Native Americans, incarcerated, undocumented immigrant, family income below threshold for filing ($10,000 for individual and $20,000 for a family in 2013), and individuals who would pay more than 8% of income for health insurance).
- Acceptable insurance is: Medicare, Medicaid, CHIP, TRIG ARE (for service members, retirees, and their families), veteran’s health program, employer offered plan, grandfathered health plan, or a Bronze (or higher) level plan purchased on own.
- If not exempt and don’t have insurance, the penalty for 2014 is $95 per adult and $47.50 per child (up to $285 for a family) or 1.0% of family income, whichever is greater. The penalty expands in 2015 to $325/$162.50/$975 or 2.0 % of income. The penalty finalizes in 2016 and beyond (or until amended ) and will be $695/$347.50/$2085 or 2.5% of income.
- Effective on January 1,2014, no pre-existing condition exclusions for adults.
- Effective on January 1, 2014, no annual limits on coverage.
- Effective on January 1, 2014, deductible limits in the small group market – In 2014, it will be $2,000 for individual and $4,000 for family. The small group market does not include self-insured employer plans or large group health plans. The government is discussing regulations to expand this deductible limits to all plans.
- EffectiveJanuary 1, 2014, standardized essential health benefits, cost-sharing limits, and actuarial values. Some examples of the regulations affecting large and self-insured employers in 2014 are:
- The 60% actuarial value minimum
- Maximum out of pocket rules limit employee out of pocket to approximately $6,350
- Effective January 1,2014, subsidies may be available for individuals purchasing insurance. Generally, subsidies are not available if you have the option of insurance through an employer and the calculations for subsidies are complex. The calculators on the marketplace website (and other locations on the Internet) can be used to determine the amount of subsidy an individual may receive.
- Effective January 1,2014, Medicaid expansion
- Newly eligible participants – individuals aged 19 through 65 with income below 138% of federal poverty level, who are citizens, not incarcerated, and not entitled to Medicare
- Changes to calculation of income (Modified Adjusted Gross Income (MAGI)) and deductions
- Simplified application and renewal process
- States can opt-out and many states have done so, meaning that some individuals may not be eligible for Medicaid, not eligible for subsidies, and exempt from the individual mandate. The end result is that many people in opt-out states may remain uninsured and those states will not receive federal subsidies to assist with Medicaid. However, the federal government appears to be providing relief from certain cost restrictions on health care providers in the opt-out states.
- Pennsylvania is attempting to work out an alternative arrangement that effectively expands Medicaid. New Jersey and Delaware are participating.
- Effective January 1, 2018, “Cadillac” excise tax on high-cost insurance plans
- Effective January 1, 2015, employer mandate for coverage.
- Employees with 50+ full-time employees are required to provide insurance with the minimum 60% actuarial value and must be “affordable” meaning that it is less than or equal to 9.5% of income. This requirement is called LAM – large, affordable, and minimum value.
- If no plan is offered, employers owe $2,000 per full time employee (minus first 30).
- If a plan that is not affordable or below minimum value, the penalty is lesser of $3,000 per full time employee receiving tax credit or $2,000 per full time employee (minus first 30).
Many questions remain about the impact of the PPACA changes and what the long-term impacts will actually be. Stories of employers lowering hours to avoid having 50 full-time employees, employers opting to pay the penalty (which is substantially below the average cost of insurance, but does not include tax breaks), and similar stories will persist and reflect business decisions made by employers throughout the country. Similarly, individuals may opt to pay the penalty over obtaining health insurance. Alternatively, businesses may find that the market demands providing insurance and the end result is greater coverage and a bending of the cost curve as health care providers are left with fewer scenarios of unpaid expenses. The PPACA reflects a substantial change to how people get insurance and its long-term impact is decidedly unknown.
About William PiLlsbury
Mr. Pillsbury is a principal and member of Offit Kurman’s Insurance Recovery Practice Group. He represents businesses in a wide range of litigation issues, including efforts to recover money owed to them from their insurers. His clients include state transportation agencies, hotels, restaurants, nursing homes, bio-tech firms, school district joint insurance funds, and individuals.
Please contact Mr. Pillsbury with questions or to request further information at firstname.lastname@example.org or at 267.338.1321.