Supreme Court Validation
The U.S. Supreme Court's surprise ruling on the Affordable Care Act was a landmark judgment, but since the decision threw the fate of the ACA back into the hands of the electorate, it did little to remove uncertainty for employers. With Republicans calling for repeal and Democrats standing their ground, what's an employer to do until the fall election?
IB put that question to local health care experts, all of whom advised employers to proceed as though the law is, as President Obama says, "here to stay." That means respecting short-term deadlines and preparing for full implementation on Jan. 1, 2014, even though the law remains unpopular and could still, pending the results of this fall's election, be repealed or dismantled.
"The Supreme Court case, up until the time its decision was released, permitted people to hold out the possibility that any planning up to now would have been in vain, so it's been kind of a distraction," said attorney Charles Stevens, a partner with Michael Best & Friedrich. "Now that we know the Supreme Court has upheld the law, employers no longer have the luxury of saying it may soon go away."
With the threat of repeal, the forthcoming presidential and congressional elections could affect employers' ability to plan. Stevens is among those who speculate the pace of regulatory guidance had slowed because of the uncertainty created by the legal challenge, which has now passed, and because of the fear that a costly new regulation could be politically explosive, which is still in play.
However, there are known obligations and accompanying deadlines. In the short term, employers or insurance carriers must provide a detailed summary of benefits and coverage (SBC) to employees. Under the ACA, health insurers and group health plans must provide people with private insurance with clear and comparable information about their health plan benefits and coverage. Consumers will have access to two forms – the SBC and a uniform glossary of health insurance terms such as "deductible" and "co-payment" – to help them understand their consumer choices.
The summary is potentially eight pages long with a lot of fine print and certain mandated, use-specific language. "It's more of an administrative burden on the part of insurance carriers and employers, and there is a risk there will be inconsistencies between the summary and the actual plan terms," Stevens noted. "The summary of benefits and coverage contains a huge amount of information that the government mandates, and if the employer or the insurance carrier doesn't get it exactly right, it will cause inconsistency between the plan and what employees were told, and that creates greater risk for employers. It's hard for me to see a silver lining to it."
Attorney Todd Cleary, a shareholder with Godfrey Kahn, also called the SBC a complicated requirement. "It can be complicated because employers have to provide it for every benefit package they offer," Cleary stated. "If they offer an HMO and a PPO, they could be required to provide all this information with respect to both options. The rules about who has to receive what type of notice are complicated. The rules for how they have to receive it can be complicated. Sometimes, you have to provide it electronically, sometimes you can't."
The penalties for noncompliance are likely to be steep, Cleary added, although the applicable agencies have indicated that as long as employers make a good faith effort to comply in the first year or so, there won't be repercussions. "My inclination is to remind clients to make sure they are completely on top of it," Cleary counseled.
In addition, employers who issued 250 or more W-2 forms for 2011 are required to report, on next January's W-2s, the total value of the coverage individual employees receive in 2012. Employers of that size must do this for any employee who received health insurance coverage in 2012, which will require some collaboration between payroll, which typically prepares the W-2, and human resources, which administers employee benefit plans, to meet the requirement by the time W-2s are mailed in January. This is for reporting purposes only and does not mean that the value of health coverage received from employers is taxable.
The mandate only applies to W-2 forms mailed at the end of the year; there is no reporting requirement for mid-year W-2s.
"Employers need to make sure their payroll and reporting systems are in position so they will be in compliance by January, when they have to issue W-2s," Cleary noted. "This won't go into effect prior to the election, but employers that wait too long will be behind the eight ball."
In the long term, meaning the period from Jan. 1, 2013, to Jan. 1, 2014, which is the date of full implementation, the key consideration is the pay-or-play provision for companies with 50 or more full-time employees. Effective in 2014, employers with 50 or more full-time workers have to either provide health insurance coverage to employees or pay a penalty on employees for whom they don't provide coverage. For companies that decide not to offer coverage, the annual penalty is $2,000 times the number of full-time employees minus 30.
"Yes, it's a year and a half away, but my sense is that it will require relatively sophisticated financial planning to crunch the numbers and make a decision as to whether the employer will want to continue to provide health-insurance coverage to employees on or after Jan. 1, 2014, or whether it's going to just pay the penalty and let employees get coverage under the state exchanges," Cleary explained. "The longer employers wait, the less time they have to plan for those kinds of things. It will take time to plan and to explain to employees what they are doing. These are all things that can't be left to the last minute."
Cleary said the decision isn't cut and dried, even though studies on the potential impact of the pay-or-play rule have suggested that many employers will drop out of the insurance market and decide to pay the penalty because they will conclude it's much cheaper. However, it's not a simple matter of comparing the penalty to the potential cost of coverage. First, the penalty is not tax deductible, whereas health insurance coverage is. Secondly, if one result of dropping coverage is higher employee salaries, increased pay is subject to income taxes on the employee and to payroll taxes on both the employer and employee.
"Many employers view employee health insurance coverage as a recruitment tool, and they might believe they can structure their health plan in conjunction with a wellness program in a way that helps control absenteeism and improve the health and productivity of employees," Cleary added.
If an employer that is subject to the pay-or-play rules does not provide what the government defines as "minimum essential coverage" to full-time employees, and any full-time employee receives federal premium assistance for coverage purchased under a health insurance exchange during a given month, the employer is subject to a penalty for that month of $166.67 times the number of the employer's full-time employees, minus 30.
In addition, if the employer does provide minimum essential coverage to full-time employees, but that coverage is deemed "unaffordable" for a given month, then the penalty for that month is $250 times the number of employees who receive the premium assistance for that month.
The penalty on an employer who does provide minimum essential coverage may not exceed the penalty that would apply if the employer did not provide minimum essential coverage. The health plan coverage will be considered "unaffordable" if an employee's share of the health plan premium exceeds 9.5% of his or her household income or the plan's share of the total allowed costs provided under the plan is less than 60%.
Employers with fewer than 50 full-time workers are not subject to the pay-or- play requirement.
Another provision that should be on employers' radar is the comparative effectiveness fee. Under this new rule, Cleary said insurers and employers that sponsor self-funded plans will be required to pay $1 multiplied by the average number of covered lives for plan years ending after Sept. 30, 2012, but before Oct. 1, 2013. The fee rises to $2 for the following year – after that, it is indexed for inflation – and the fees will fund the Patient Centered Outcomes Research Institute.
Larger employers should note a potentially expensive surprise from the Supreme Court's decision: the narrowing of the Medicaid expansion, which was a key element of the ruling that changes the way the law will be implemented. Mike Gotzler, general council for QTI Human Resources, said it would increase costs for large employers in states that decide not to accept the Medicaid expansion funding in 2014.
"What the Supreme Court did is make that piece of the ACA optional," Gotzler explained. "That piece of the act was intended to extend coverage to somewhere between 20 and 30 million Americans. Congress, when they drafted the act, clearly thought no state would turn that down."
Gotzler said the Medicaid expansion and other pieces of the law were intended to fit together. Medicaid expansion was intended to work hand-in-hand with the large employer pay-or-play, which was intended to work with the individual mandate, which was intended to work with the state exchanges. Now, if any one of those is altered or eliminated, there will be "serious challenges" with the way the entire system works to provide affordable care and access to health insurance.
"If a state says no thanks to those federal dollars, the potential consequence of that rejection is that the number of full-time employees for which that large employer has to pay a penalty has dramatically increased," Gotzler explained.
Within the ACA's framework, Congress gave federal agencies the responsibility to write administrative rules that govern its provisions. For several ACA provisions, such as dependent coverage, the prohibition against denying coverage for pre-existing conditions, and the summary of benefits and coverage, federal regulatory guidance has been finalized. However, for several other provisions that affect employers, interim guidance has to suffice for now.
For example, there are some non-discrimination testing rules that will apply to non-grandfathered insurance plans, and the consequence of employers failing to comply with those rules is a $100-per-day excise tax per person discriminated against.
This refers to the ACA's prohibition of disparate treatment between rank-and-file employees and top executives when it comes to offering benefit packages. The Internal Revenue Service is grappling with enforcement of this provision and has suspended enforcement until it can issue further guidance.
With a potentially significant tax burden connected to this provision, there are a number of unanswered questions. "The federal agencies in charge of them have indicated they are not going to impose the excise tax until they issue explanatory guidance," Gotzer stated. "That is one area where I would expect to see guidance in the next six months, but that will be complicated and I suppose it is possible they may hold off until after the election."
For the purposes of the pay-or-play requirement, the definition of a full-time employee will be crucial, but a definition still is being "scrubbed out" by federal agencies, Gotzler said. "We have a rough idea, but there are a host of practical questions that come with it," he stated. "For example, if you are a seasonal employer and you let some employees go at end of the busy season and hire them back a few months later, and they were full-time employees under the Act, will you continue to be on the hook under the pay-or-play requirement during the time when they are not technically your employee?"
Jane Clark, COO of QTI Human Resources, said that for states like Wisconsin, which are not working on the state health exchanges established under the ACA pending the results of the election, exchanges will have to be completed well before the law goes into effect on Jan. 1, 2014. She said that if President Obama is re-elected and the law stands, Wisconsin will, in effect, have six months to set up the exchange because an open enrollment period will start in mid-2013.
"There are a lot of moving parts to this law," Clark said, also noting that the federal government will establish an exchange for states that don't.
Despite the advice to proceed as though the ACA is a done deal, employers should keep an eye on the election results and congressional action should Mitt Romney win the presidential election and Republicans control both houses of Congress. If the GOP gains control without the 60 votes needed to overcome a Senate filibuster, the Supreme Court's decision to construe the individual mandate as a tax, not a penalty, opens the door for Republicans to pick it apart through the reconciliation process, which requires only 51 votes.
And then there is the fact that Wisconsin, under the direction of Gov. Scott Walker, is one of the states that will not move to implement the law, pending the result of the election. Despite the lingering uncertainty, our experts say the best course of action is for employers to assume the law will be implemented as drafted.
"They need to sit down and figure out what they want to do going forward in this environment," said Barbara Zabawa, an attorney with Whyte Hirschboeck Dudek, "and then start communicating with their employees about their intentions as an employer."
There's No Turning Back Now
Dr. Frank Byrne of St. Mary's Hospital says the train has left the station. James Woodward, president and CEO of Meriter Health Services, agrees. What train are they riding?
Actually, it's more of a sentiment that the long-overdue changes in the health care industry, changes that the Affordable Care Act helped to reinforce, are here to stay. No matter what political threats the ACA still faces – congressional repeal or state waivers promised by presidential candidate Mitt Romney – there is no turning back now.
Now that change is on a locomotive track, what will the health care system of the future look like? Woodward said the business community would see a focus on improving access so that patients see a primary care physician and have their care issues addressed early on, before they become complicated and costly.
He also predicted that teams of providers, not necessarily physicians, would care for patients. Patients might see a practicing nurse for routine annual physical exams or a physical therapist for lower back pain, and people who are pre-diabetic might see a nutritionist and an exercise physiologist.
"The people who will be seeing the physician will be the sickest, or those who have complicated medical histories, or who have full-blown diabetes and need more intensive medical treatment," Woodward said. "That will be a big change."
Woodward said hospitals would be paid based on the outcome of treatment provided, rather than the volume of tests or procedures. They will be responsible for keeping populations of people well, and there will be a huge emphasis on wellness, prevention, and chronic disease management to keep costs down and avoid expensive in-patient care.
"We will be rewarded based on how well we do that," he said. "If we don't do a very good job, our reimbursement is not going to be very good, so the incentives are to continually look for ways to improve, reduce cost, and create value."
Attorney Barbara Zabawa noted the ACA has quite a number of health care quality and delivery initiatives, including pilot programs and Accountable Care Organization status for providers, which St. Mary's and Dean have attained.
"I'm very optimistic that coverage reforms and delivery reforms will ultimately reduce the cost of care," Zabawa stated. "One caveat is that we have to prepare all stakeholders, as well as providers, for this shift, and that we try to hold everyone accountable and responsible for keeping those costs down."
Michael Barbouche, founder and CEO of Forward Health Group, a health care data and measurement business, has written about the need to move away from the pay-for-service model. He said the country is finally coming to terms with the fact it has too many financial problems to continue with an antiquated system that is based on "the more you do, the more you make."
"The right answer," he said, "is to allow the people who purchase care to be able to know, with some transparency and confidence, that what they are buying reflects rudimentary evidenced-based standards, so they can have some sense that what they are buying adheres to what is broadly viewed by clinicians as the appropriate care."
Consumer spending on health care is moderating, with many citing the slow economy and provider focus on cost control. Stevens said a free-market approach might explain it, noting that over the past several years, many employers have shifted costs to employees in the form of larger deductibles, where employees have more skin in the game.
"If an employee is covered by a high-deductible health plan and the first $1,500 of spending in any year is on the employee, there is a strong incentive to be careful about how much you spend on an MRI," he explained.
In addition, Stevens said hospitals are reacting to high-deductible health plans, understanding that unless they are careful about the spending for patients covered by high-deductible health plans, they might not get paid. "They are being more careful in making sure the care that is prescribed is cost effective and provides value," he said. "This is, in fact, a market-driven approach to providing more consumer-oriented thinking into health care spending."
As a health system executive, Woodward can't wait to see how things unfold. "It's going to be fascinating to see," he said. "I'm really excited that I'm going to be able to finish my career over the next 10 years being able to work on something that is a redesign of the whole health care system. We'll probably get a lot of things wrong, and we won't get everything right, but it's going to be very evolutionary."
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