A New Era in Health Care
The landmark Patient Protection and Affordable Care Act (PPACA) was signed into law by President Obama on March 23, 2010. Two days later the Health Care and Education Affordability Reconciliation Act, which includes modifications to PPACA, was approved by the U.S. Senate. The scope of this new law and the related legislation subsequently passed is significant and presents compliance issues for employers, insurers, health maintenance organizations, providers, and others. The government is now focused on writing the implementing regulations, which is a complex process and one in which interested parties -- employers, insurance companies, providers, and others -- have an opportunity to participate, but the timelines are aggressive and the deadlines are short.
Members of Miller & Chevalier's Health Reform team are providing strategic advice regarding a number of broad issues related to health reform.
Scope of Health Reform
We are assisting clients in analyzing what's covered in PPACA and what's not -- it is important to examine each type of plan and each health reform provision individually. As a general rule, there are no blanket exemptions, and there is every indication that Congress intended to cast a wide net. There are also a number of drafting glitches and gaps that result from Congress' failure to enact an "integrated" bill, such as numbering issues and missing or unclear effective dates for some aspects of PPACA. We are also assisting clients with questions in connection with PPACA's preemption of state and other federal laws.
Employer Responsibility
PPACA has far-reaching consequences for employer-sponsored benefit plans. Employers are particularly concerned with how to strategically approach health plan sponsorship in light of the free rider penalty and free choice vouchers. There also seems to be confusion about provisions that received a lot of attention during the debate but were not enacted as part of the final bill. For example, generally any employer-sponsored group health plan coverage will satisfy the individual mandate, so self-funded employer plans offered outside of the exchange do not have to provide bronze level coverage (which would have been required under previous versions of health reform passed by the House).
Plan Design Mandates
Many employers have open questions about the application of the grandfather provisions, which provide relief from some of PPACA's plan design mandates. These plan design mandates generally apply to all self-funded and insured group health plans and individual insurance policies. In particular, plan sponsors and insurers have concerns related to:
- Implementation of pre-existing condition limits
- Lifetime limits or annual dollar limits on essential benefits
- Coverage for adult children to age 26
- Waiting periods greater than 90 days
- Prohibition of discrimination in favor of highly compensated individuals by insured plans
- Coverage of specified preventive care services without cost sharing
- New internal and external appeals requirements
Market Reform for Insured Plans
On top of the plan design mandates that apply to all types of health coverage (e.g., self-funded and insured group health plans and individual insurance policies), additional market reform provisions apply to most insured plans. We have been actively advising our clients regarding the high risk pools, rate review, and medical loss ratio reporting/rebating provisions, among others. Together these provisions are likely to have a significant impact on the way insurance companies operate their businesses in the future.
Other Provisions Impacting Plan Design
In addition to the plan design mandates and market reform provisions, the following provisions also impact employer-sponsored plan design:
- $2,500 cap on health FSA contributions
- Prohibition of pre-tax reimbursement of non-prescribed over-the-counter drugs
- Codification of HIPAA wellness rules and the increase of the 20% incentive cap to 30% with Secretary discretion to increase to 50%
- Small employer tax credit and wellness incentives
- Reinsurance program for early retiree coverage
- Elimination of the deduction for Part D subsidy
Administrative Requirements
Arguably, the provisions receiving the least attention, but that may create the most headaches for employers, are the broad range of new administrative requirements. For example, PPACA requires automatic enrollment of eligible employees, a long list of new reporting requirements (such as Form W-2 reporting of health coverage, reporting of coverage information to the IRS and covered individuals for purposes of enforcing the individual mandate, and expanded Form 1099 reporting). The excise tax on high cost plans (Cadillac tax) requires employers to calculate and report the amount subject to the excise tax allocable to each insurer and plan administrator on a per person/per month basis. PPACA also includes a number of new notice and disclosure requirements. For example, employers and/or insurers must:
- Make transparency disclosures to HHS and the public
- Use government-developed uniform explanation of coverage documents
- Provide employees with information about the exchanges
- Submit extensive annual reports to Secretary of Treasury
- Submit information to HHS to include in the internet portals
- Submit information to HHS/DOL/GAO for various reports the agencies must make to Congress
Tax and Revenue Provisions
Many of the tax and revenue provisions of PPACA also impact health plans, including the following:
- Excise tax on high cost plans ("Cadillac tax")
- Cap on Code section 162(m) executive compensation for health insurance industry
- Annual health insurance industry fees based on market share
- Increase in an individual's share of Medicare taxes and new tax on unearned income (e.g., from interest, dividends, annuities, royalties, and rents)
- Expansion of dependent (adult child) eligibility for employer-sponsored health coverage that will be excluded from an employee's income
- Prohibition of pre-tax reimbursement of non-prescribed over-the-counter drugs
- Increase in additional tax on nonqualified HSA distributions
- Modified itemized deduction for medical expenses
- Increased adoption assistance exclusion
PPACA also includes some significant tax and revenue provisions unrelated to health care, such as those affecting the economic substance doctrine (and imposition of penalties), increased payment of corporate estimated taxes, and expanded Form 1099 reporting on payments of services and property to corporations.
Fraud/Litigation Risk
From changes to the Public Disclosure Bar in False Claims Act cases to provisions for Multiple Employer Welfare Agreements (MEWAs), PPACA provides measures to ensure increased scrutiny of potential fraud and abuse, including greater enforcement. These provisions require greater attention on the part of the health care industry in terms of strengthening their compliance programs.
Impact of Constitutional Challenges
Miller & Chevalier lawyers have also been assisting clients to analyze the possible impact (and likelihood of success) of the many lawsuits challenging certain health reform requirements as unconstitutional.
Policy Advocacy
Most of health reform is not yet on the page. For many provisions, the statute simply creates a framework and directs the agencies to develop the details in regulations. Further, given the short amount of time before many of these rules take effect, the agencies have often gone straight to an interim final regulation with limited opportunity for the public to engage in the rule-making process. The agencies are actively drafting guidance interpreting the many new requirements in PPACA, which is coming out in small pieces almost each week.
Miller & Chevalier's Health Policy Practice: Counsel for Challenging Times
Employers will need to monitor legislative, regulatory, and judicial activity carefully, while keeping up with major new compliance requirements and deadlines. Miller & Chevalier is well positioned to guide clients through many aspects of this process. The firm has a unique mix of health policy and compliance, employee benefits, ERISA litigation, and tax capabilities. Our deep technical skills in these key areas are complemented by broad government experience, which provides value to our clients as they navigate and seek to influence aspects of the implementation process.
During the Congressional health reform debate, we counseled and lobbied on behalf of both employers and insurers. We were actively involved in every stage of the debate and closely analyzed each version of reform that was proposed. Having such a deep understanding of the history of the Health Reform Law gives us unique insight that adds value to our clients: While other advisors may be taking a first look at the PPACA after enactment, we have been immersed in the law and its development and are well positioned to advise clients on the actions they need to take with regard to implementation.
Historically, members of our Health Reform team have been active participants in the dialogue and evolution of health and welfare policy in Washington, and we have extensive experience helping clients advance their business objectives and mitigate risk. We provide representation in four key areas:
- Legislative Counsel: Our lawyers promote our clients' positions on health and welfare issues (and other employee benefits matters) to members of Congress and their staffs throughout the federal legislative process. We monitor pending and potential legislation, compose draft legislation, analyze legislative proposals, and prepare Congressional testimony. As appropriate, we coordinate client issues with professional and trade associations and develop coalitions supporting policy issues. We also offer strategic advice to clients on issues emerging from Congressional committees and subcommittees. Throughout, we provide clients with timely updates that describe the latest developments and analyze their impact.
- Regulatory Counsel: Once legislation is enacted, we are advocates for our clients with key officials of the relevant administrative agencies -- among them the Departments of the Treasury, Labor, and Health and Human Services, the Internal Revenue Service (IRS), Centers for Medicare and Medicaid Services (CMS), and the United States Equal Employment Opportunity Commission (EEOC) -- as they prepare corresponding regulations. We work and negotiate with these agencies to help produce guidance that best advances our clients' goals. In addition, our close working relationships with agency staff regularly yield inside-the-beltway insights that are of substantial value to our clients.
- Implementation and Compliance Counsel: Our lawyers work closely with clients to address every aspect of effective health care implementation and compliance. Among these are counseling our clients in interpreting rules, designing new plans and revising existing plans, preparing employee communications, and mitigating risk. We design plans and practices that will help reduce the risk of litigation in the future. We also conduct internal audits to gauge the effectiveness of existing compliance programs and practices.
- Long Term Strategy and Ongoing Compliance Counsel: Once implementation systems are in place, many clients rely on us for ongoing advice on emerging issues. We have extensive experience handling the full spectrum of these issues and resolving important and difficult matters on terms favorable to our clients, including plan corrections and settlement agreements, the comprehensive range of audit issues, and defending against civil and criminal claims of fraud.
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