Tuesday, July 22, 2014

Federal appeals court axes federally-run health insurance Exchange subsidies

Internal Revenue Code Sec. 36B limits the availability of premium tax credit subsidies only to insurance purchased under state-established Exchanges and not to insurance purchased under Exchanges established by the federal government on behalf of the states, according to a three judge panel of the federal appeals court for the District of Columbia circuit. Thus, the appeals court, in a 2 to 1 decision in Halbig v. Burwell, reversed the district court’s ruling that the subsidies apply to both state-operated and federally-established Exchanges and remanded the case with instructions to vacate the IRS regulation that allows for the subsidies to apply to individuals purchasing coverage under both state-established Exchanges and federally-run Exchanges. 

Background. Internal Revenue Code Sec. 36B, enacted as part of the Patient Protection and Affordable Care Act (ACA), makes tax credits available as a subsidy to individuals who purchase health insurance through the Exchanges. However, the IRS broadly interpreted Internal Revenue Code Sec. 36B to authorize the subsidy to include insurance coverage purchased on an Exchange established by the federal government under ACA Sec. 1321, as well as to coverage purchased via a state-operated Exchange under ACA Sec. 1311.
The parties challenging the IRS’s interpretation of Internal Revenue Code Sec. 36B are a group of individuals and employers residing in states that did not establish Exchanges. The IRS’s broad interpretation of the subsidies, they claimed, made these individuals subject to penalties under the ACA’s individual and employer mandates.
The district court rejected the challenge to the IRS’s interpretation of the Exchange subsidies, ruling that the ACA’s text, structure, purpose, and legislative history made it clear that Congress intended to make the premium tax credits available on both state-run and federally-facilitated Exchanges. The appellants appealed the district court’s ruling.
State vs. federally-established Exchanges. ACA Sec. 1311 delegates primary responsibility for establishing Exchanges to the states. However, where a state refuses, or is otherwise unable to establish an Exchange, ACA Sec. 1321 provides that the federal government, through the Secretary of Health and Human Services (HHS) may establish and operate such Exchanges within the state. Currently, only 14 states and the District of Columbia have established Exchanges and the federal government has established Exchanges in the remaining 36 states, in most cases without state assistance.
Under Internal Revenue Code Sec. 36B, tax credit subsidies are available to insurance purchased on an Exchange established by the state under ACA Sec. 1311. However, in May of 2012, the IRS issued a rule broadly interpreting Internal Revenue Code Sec. 36B to allow tax credit subsidies for insurance purchased on either a state or federally-established Exchange. 
Impact on individual and employer mandates. According to the appellate court, by making credits more widely available, the IRS rule gives the individual and employer mandates broader effect than they would have if the credits were limited to state-established Exchanges. Under the individual mandate, for example, individuals must maintain minimum essential coverage or face a penalty, but this penalty does not apply to individuals for whom the annual cost of the cheapest available coverage, less any tax credits, would exceed 8 percent of their projected household income. By making tax credits available in the 36 states with federal Exchanges, the court stressed, the IRS rule significantly increases the number of individuals who must purchase health insurance or face a penalty.
A similar result applies as to the employer mandate, said the court, where large employers are induced to purchase health insurance for their full-time employees through the threat of penalties. Specifically, the ACA penalizes any large employer who fails to offer its full-time employees suitable coverage if one or more of those employees enroll in a qualified health plan for which an applicable tax credit is allowed or paid with regard to the employee. Thus, even more than with the individual mandate, said the court, the employer mandate’s penalties “hinge on the availability of credits.” If credits were unavailable in states with federal Exchanges, employers in those states would not face penalties for failing to offer coverage. According to the court, by allowing credits in such states, employers in those states are exposed to penalties, thereby giving the employer mandate broader reach.
Plain language of Internal Revenue Code Sec. 36B. The appellate court concluded that a federal Exchange is not an Exchange established by the state and Internal Revenue Code Sec. 36B does not authorize the IRS to provide tax credit subsidies for insurance purchased on federally-established Exchanges. The court reached this conclusion by examining Internal Revenue Code Sec. 36B, in light of ACA sections 1311 and 1321, which authorizes the state and federal Exchanges. Internal Revenue Code Sec. 36B plainly distinguishes Exchanges operated by states from those established by the federal government. 
Nothing in ACA sec. 1321 deems federally-established Exchanges to be Exchanges established by the state, said the court, which stressed that this omission is particularly significant since Congress knew how to provide that a non-state entity should be treated as if it were a state when it sets up an Exchange. In fact, Congress did so in “nearby sections” of the ACA. The absence of such language in ACA sec. 1321 suggests that, even though the federal government may establish an Exchange within the state, it does not stand in the state’s shoes when doing so. The court also rejected the dissent’s argument that, because federal Exchanges are established under ACA sec. 1311, they are by definition established by a state.
Dissent. In a lengthy dissent, Judge Harry T. Edwards strongly suggested that this case is about a “not-so-veiled attempt to gut” the ACA, calling the appellants’ claims that Congress intended to condition subsidies on whether a state, as opposed to the federal government, established the Exchange, “nonsense” and “made up out of whole cloth.” Judge Edwards further indicated that there is no credible evidence that any state even considered the possibility that its taxpayers would be denied subsidies if the state opted to allow the HHS to establish an Exchange on its behalf. The majority opinion, he says, “ignores the obvious ambiguity in the statute and claims to rest on plain meaning where there is none to be found.” In doing so, he emphasizes, the court issues a judgment that “portends disastrous consequences.” The court’s decision, he concludes, “defies the will of Congress.”
Expert insight. In response to the appellate court's decision in Halbig v. Burwell, Thomas M. Christina, Shareholder, Ogletree Deakins, stressed that nothing is final and might not be final until after January 1, 2015. As a result, he suggested that he “would expect that prudent employers in states that have not established an Exchange will continue following their compliance strategies until the ruling in Halbig is final.” He noted, too, that there are three other cases in different federal courts raising the same issue. 

Monday, July 21, 2014

Unified Agenda sets forth proposed rules for upcoming 12 months


The Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) has promulgated 14 proposed rules and 17 final rules expected to be issued within the next 12 months, according to a Congressional Research Service (CRS) report detailing the contents of the most recent Unified Agenda of Federal Regulatory and Deregulatory Actions (Unified Agenda), published on May 23, 2014. The most economically significant proposed rules expected would make adjustments to the payment of premium tax credits, update the requirements for long-term care facilities, and apply mental health parity to Medicaid.

Unified Agenda. The Unified Agenda helps Congress to get “a sense of what rules agencies are going to issue and when they are going to issue those rules,” which gives Congress the ability to effectively oversee the process. The Unified Agenda lists upcoming activities according to agency and based on three categories—active actions (expected to be issued in the next 12 months), completed actions (have been withdrawn since the last Unified Agenda), and long-term actions (for which agencies do not expect to take action in the next 12 months).

Upcoming proposed rules under ACA. “Economically significant” and/or “major” proposed rules expected to be issued in the next 12 months are:

·        “Reform of Requirements for Long-Term Care Facilities and Quality Assurance and Performance Improvement (QAPI) Program,” expected in May 2014, which would remove obsolete or unnecessary provisions and, under the ACA, would propose to expand the level and scope of QAPI activities to allow the continuous identification and correction of deficiencies and the promotion of performance improvement;

·        “CY 2016 Notice of Benefit and Payment Parameters,” expected in November 2014, which would make changes to the advance payment of premium tax credits, as well as for reinsurance and risk adjustment programs under the ACA; and

·        “Application of the Mental Health Parity and Addiction Equity Act to Medicaid Programs,” expected in December 2014, which would implement Mental Health Parity in Medicaid, managed care, the Children’s Health Insurance Program (CHIP), and alternative benefit plans.

Other significant topics of proposed rules include the revision of civil money penalties for Medicare fraud, revisions of the Office of the Inspector General’s exclusionary authority, and nondiscrimination under the ACA.

Employers. The Unified Agenda contains a number of new regulations that would make changes for employers. One such regulation would amend the regulation regarding whether and to what extent employers may (under the Americans with Disabilities Act’s nondiscrimination provisions) offer financial inducements or impose penalties as part of wellness programs. Another proposed regulation would set forth the requirements for small employers to claim a tax credit for providing their employees with insurance coverage through a Health Insurance Exchange.

 

Friday, July 18, 2014

Americans continue to view Obamacare through a political lens

Responses to a recent survey by Morning Consult show that Americans' attitudes toward the future consequences of the passage of health care reform are tied closely to Americans’ political leanings. The online survey, conducted June 19-21, 2014, and taken from a national sample of 1,240 likely voters, showed that 17% of respondents strongly approve of the Patient Protection and Affordable Care Act (P.L. 111-148: ACA), 25% somewhat approve, 16% somewhat disapprove, and 39% strongly disapprove. Among staunch Democrats, however, 34% strongly approved and only eight percent strongly disapproved. Only two percent of staunch Republicans strongly approved, and 69% strongly disapproved.

What employees think. When asked how concerned they were that their employers might shift their health coverage to the ACA's exchanges, or Markteplace, 40% of likely voters were "extremely" or "very" concerned. More than half of Democrats (53%) were at least somewhat concerned (11% "extremely," 15% "very" and 27% "somewhat). Age seemed to play a part in how many voters were "extremely" concerned; 29% of those between the ages of 18-29 gave this answer, compared to 21% of respondents in the 30-44 age bracket, and 15% of those aged 45-64.

More than half (51%) of likely voters thought that a shift of their health insurance to the Marketplace would have a negative effect on the quality of coverage. Employers might be interested in the responses given when Morming Consult asked how seriously they would look for other employment if their coverage was shifted to the exchanges. Forty-two percent of those aged 18-29 responded "extremely seriously" or "very seriously" compared to 39% of respondents aged 30-44 and 22% of respondents aged 45-64.

Some advocates in Tea Party. Predictably, 63% of Tea Party supporters strongly disapproved of the ACA, although a full ten percent registered strong approval. What is surprising, though, is that, within the same group, a full 24% of Tea Party supporters registered approval, although 73% registered disapproval. Among non-supporters of the Tea Party, feelings seemed to be split fairly evenly. Fifty percent approved, and 47% disapproved. Twelve percent of Tea Party supporters reported that they had been denied health insurance based on a pre-existing condition and 17% of Tea Party supporters had purchased health insurance from the Marketplace.

Party affiliation seemed to be connected to whether or not respondents thought the ACA is fine as-as, is beyond redemption, or is in need of repair. For example, when asked what they would like to see Congress do with health care legislation, 23% of Democrats and only two percent of Republicans thought the law should be expanded, with 30% and seven percent, respectively, stating that Congress should just let the law take effect. Only five percent of Democrats, as opposed to 51% of Republicans, thought Congress should repeal the law.

With regard to Congress making improvements to the ACA, the parties were more evenly split, with 41% of Democrats making this choice, along with 31% of Republicans, and, when responses were broken down differently, the survey showed that 25% of Tea Party supporters and 42% of Tea Party non-supporters opted for improvements. Very few respondents chose delaying and defunding the law as optimal choices, which might be something for both Congress and the White House to take note of, since delays of various deadlines have been prevalent since the law’s passage, and many in Congress have spent the last few years looking for ways to defund the ACA. Only two percent of Democrats chose this option, along with eight percent of Republicans, six percent of Tea Party supporters, and four percent of Tea Party non-supporters. Of all the likely voters who took the survey, only five percent, in total, thought Congress should delay and defund the law.

Concerns about costs, availability. That doesn’t not mean that likely voters aren’t concerned about long-term ramifications of the ACA on their families and their wallets. When asked how health care reform would affect their families, 68% of Tea Party supporters said it would make things either a little or a lot worse, and 37% of Tea Party non-supporters, still a substantial number, reported the same thing. Overall, 47% of likely voters thought the ACA would make things worse for their families in the long run.

With regard to changes in health care expenses, 62% of likely voters thought the ACA would make their total health care costs much more or somewhat more expensive, and 40% of Democrats answered the same way, as did 85% of Republicans. Only five percent of Democrats, one percent of Republicans, and three percent of likely voters overall thought the ACA would make health care much less expensive.

Forty-three percent of likely voters overall, along with 14% of Democrats and 67% of Republicans, thought that the ACA would negatively affect their access to such medical benefits as doctors appointments, medical treatments, and prescription drugs. Forty-two percent of likely voters thought that the medical care they will receive will be of lower quality, as did 11% of Democrats and 67% of Republicans.


Wednesday, July 16, 2014

MLR didn't cause pivot in health insurers' business practices

According to an October 2013 to July 2014 study by the Government Accountability Office (GAO), federal minimum medical loss ratio (MLR) standards were only one of many requirements that affected health insurers’ business practices since 2011. Of the eight insurers included in the GAO study, all of whom increased their premium rates since 2011, three reported that the MLR requirements were only one of several factors influencing their decisions with regard to premium rates. Four of the eight stated they had changed the amounts of payments to their agents and brokers. Only one insurer reported that the MLR requirements were a primary driver behind its business decisions.

The MLR standards were established by the Patient Protection and Affordable Care Act (P.L. 111-148; ACA) as the percentage of premiums private health insurers must spend on enrollees’ medical care claims and health care quality improvements versus administrative, or “non-claims” costs. The greater the share of enrollees’ premiums spent on medical claims and quality initiatives, the higher the MLR. Starting in 2011, private insurers have been required to pay rebates back to enrollees and policyholders who paid premiums, if the MLR standards have not been met, and every year, insurers must report their MLRs to the Centers for Medicare & Medicaid Services (CMS).

Disagreement on effect of MLR. According to the GAO study, the possible effects on consumers and the health insurance industry of the MLR requirements, (including the requirement that insurers count compensation paid to agents and brokers as a non-claims cost), has been the subject of debate among health insurance professionals. Consumer advocates assert that the MLR requirements have resulted in greater transparency for enrollees regarding how their premium dollars are used, and that counting agent and broker compensation as a non-claims cost provides incentive for insurers to keep those compensation payments low.

On the other hand, insurance industry representatives state that the MLR requirements could cause some insurers to leave certain state markets, causing market instability. They have also contended that a reduction in agent and broker compensation could reduce the availability of agents and brokers to assist consumers in choosing appropriate health plans.

None of the eight insurers in the GAO study said that the MLR requirements affected their decisions to stop offering health plans in certain markets. Also, the MLR requirements had no affect or a very limited one, they said, on their quality improvement spending. This is despite the fact that the $1.1 billion and $520 million in rebates paid by insurers in 2011 and 2012, respectively, would have decreased by about 75%, says the GAO, if agent and broker fees and commissions had been excluded from the MLRs, assuming that no other changes in business practices had occurred.

Financial impact of MLR varies by size of insurer. The GAO also reports that it was insurers in the large group market that paid the highest total amount of rebates ($405 million) in 2011. In 2012, though, it was insurers in the small group market that paid the highest total amount ($207 million). Rebates were likely to be paid more often by insurers in the individual market.

Monday, July 14, 2014

HHS is 1 year overdue on interstate compact guidance-will your state create its own?

There are still no regulations on interstate health care choice compacts, and they were supposed to be issued by the Department of Health and Human Services (HHS) by July 1, 2013. Interstate health care choice compacts, which may take effect January 1, 2016, would allow two or more states to join together to facilitate the purchase of qualified health plans in the individuals markets across state lines. Section 1333 of the Patient Protection and Affordable Care Act (P.L. 111-148; ACA) required the issuance of regulations by the Secretary of the HHS, whose approval is to be given if a proposed compact:

● Provides coverage at least as comprehensive as coverage defined in ACA section 1302(b) (which sets forth the ten essential health benefits, including hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, and pediatric services (including oral and vision care) and offered through Exchanges;
● Provides affordable coverage and cost-sharing protections against excessive out-of-pocket spending;  
● Provides coverage to at least a comparable number of residents as would other ACA provisions;
● Does not increase the federal deficit; and
● Does not weaken enforcement of laws and regulations in any state included in such compact.

According to Obamacarefacts.com, ACA Sec. 1333 provides that qualified health plans can be offered via interstate health care choice compacts, but insurers would still be subject to the consumer protection laws (such as unfair trade practice and network adequacy) of the purchaser’s state, although consumers would have to be notified that a particular health plan would not necessarily have to comply with all the laws and regulations of the purchaser’s state. Insurers would generally have to be licensed in all participating states.

It’s hard to see how the HHS would deny approval of any proposed interstate health care choice compact that meets the above requirements if regulations are not issued by the 2016 effective date. So far, the HHS website, HHS.gov, is silent with regard to when the regulations will really be issued. ACA Sec. 1333 also provides that insurers in the individual and small group markets could offer a single qualified health plan nationwide that would only be subject to the benefit mandate laws of the state in which the plan is issued, although the plan would have to provide the ACA’s ten essential benefits, and other states could opt out of allowing the offering of the nationwide plans.

Is a compact coming to a state near you anyway?

In the meantime, there is a plan underway to dilute an assortment of ACA requirements by creating inter-state compacts, which would be a completely different creation from the ones envisioned in ACA Sec. 1333. Various Republican-led states (with the exception of Missouri, which has a Democratic governor) have agreed to join together to form health care compacts of their own, which would, they say, override federal health care law and give authority for health insurance decisions back to the states. The Health Care Compact, a 501(c)(4) organization opposed to the ACA, is basing its argument for the creation of inter-state health care compacts on Article 1, section 10 of the Constitution, which authorizes states to enter into agreements with other states for their common benefit. Approval of the compact by Congress (and perhaps, necessarily, by the President), would empower a state to suspend by legislation the operation of all federal laws, rules, regulations, and orders regarding health care that are inconsistent with the law adopted by the Compact’s member states.

The Compact does not appear to provide for the purchase of health care insurance across state lines. Instead, it is an agreement between various states for each to come up with different health care systems for their own citizens. The only coordination between states appears to be their agreement to override the ACA’s provisions. Members do pledge to improve health care in their respective states, and to confirm their level of federal health care funding, but, otherwise, health care coverage decisions appear to be largely left up to individual states. In other words, the provisions required for interstate health care compacts under ACA Sec. 1333, as set forth above, such as the requirement that health care coverage include the ACA’s required ten essential health benefits (ACA Sec. 1302(b)), would not necessarily be available to a citizen of a Compact member state.

Would your state benefit? Whether or not an interstate compact is a good idea for your state depends, of course, at least in part upon which state you live in. While a proposal for joining the Compact was still being debated, the Utah Health Policy Project (UHPP) published a position paper, entitled “SB208: Health Care Compact is a Poor Choice for Utah – Are these the states Utah wants to hang with?” The UHPP looked at health statistics of other states that had already joined the Compact, and noted that they had worse rates of teen births, infant mortality, overweight citizens, cancer, pre-term births, breast cancer deaths, and the number of adults receiving certain preventive measures as colonoscopies and dental visits. What would Utah have to gain, the UHPP asked, by collaborating with the other states?

The UHPP also pointed out that joining the Compact would commit Utah to asking Congress for a block grant of virtually all federal health care funds, and theorized that, under a Medicaid block grant, low-spending states like Utah would probably scale back provider rates just when it had created (in 2011) a process for reducing Medicaid cost growth and improving health outcomes by paying providers for keeping people well and holding them accountable for meeting those goals. Normally, Medicaid has provisions for increases during economic downturns, the UHPP said, and a block grant would only provide the state with a set dollar amount from the federal government, meaning that, in hard times, Utah would have to fund any increased demand for services. The UHPP added that other block grants of federal funds have had a checkered history, with federal funding for them falling an average of 11% over time.

Funding for health care in states that join the Compact would come, according to the Compact’s website, from the health care dollars the federal government gives each state for health care. This would presumably include grant funding received via the ACA. States that have passed legislation for health care compacts are Alabama, Georgia, Indiana, Kansas, Missouri, Oklahoma, South Carolina, and Utah. According to the Center for Healthcare Research & Transformation, grant funding from the ACA to these states has ranged from somewhere in the range of $39.3 million to $130.8 million for Utah, $130.8 million to $180.3 million for Alabama, Kansas, Oklahoma, and South Carolina, $180.3 to $267.6 million for Indiana and Missouri, and $267.6 to $406.1 million for Georgia, for fiscal years 2010 through 2013. Each state would have to declare its “Member State Base Funding Level” which would be a number equal to the total Federal spending on Health Care in the Member State during federal fiscal year 2010, adjusted annually for inflation and changes in population.

The amount of money that member states’ legislatures would be able to get their hands on to spend on health care as they see fit would be massive. In Utah, for example, total federal spending for health care in 2010, according to the Compact’s website, was four billion, one hundred and two million dollars, and for California it was 109 billion, 102 million dollars. This Base Level would be multiplied by the Member State Current Year Population Adjustment Factor (the average population of the Member State in the current year less the average population of the Member State in Federal fiscal year 2010, divided by the average population of the Member State in Federal fiscal year 2010, plus 1) and by the Current Year Inflation Adjustment Factor (the Total Gross Domestic Product Deflator in the current year divided by the Total Gross Domestic Product Deflator, determined by the Bureau of Economic Analysis of the United States Department of Commerce, in Federal fiscal year 2010).

In a section on nullification, the Health Care Compact website states that “the HCC does not put individual citizens in the middle of the conflict,” and that’s true, because a state’s citizens would have little immediate recourse if their legislature decides to join the compact. Utah, for example, eventually joined the Compact. Under the theory underlying the Health Care Compact, a Compact state’s citizens would not be eligible for insurance in the ACA’s Marketplace. In the words of the Health Care Compact, “The Health Care Compact renders Obamacare inoperable in states that join and pass replacement legislation.”

According to the website, “Federal control of health care has proven to be disastrous for our economy and our culture.” The Compact envisions increased control of federal health care funding in members states, the ability to design a regulatory regime that is more beneficial to the citizenry, increased job creation due to reduced red tape, since the compact will supposedly greatly reduce any bureaucratic issues created by the ACA, and the ability to collaborate with other states in developing innovative policy solutions.

On the other hand, while speaking before the Committee on Energy & Commerce’s Subcommittee on Health on May 25, 2011 about the health care choice compact regulations, still expected at that time to be issued by July 1, 2013, Steven B. Larsen, Deputy Administrator and Director of the Center for Consumer Information and Insurance Oversight, stated that “Without the consumer protections included in the Affordable Care Act, we run the risk of creating an environment where there is a “race to the bottom” in which insurers have an incentive to sell plans from the State with fewest consumer protections.”

The Health Care Compact website conceded that congressional approval is necessary for the compact to have legal force, stating that, “We believe that the states should reserve the right to proceed immediately after Congress consents,” but most legal scholars seem to be of the opinion that these types of health care compacts would require not only Congressional approval, but the president’s signature under the “Presentment Clause” of Article 1, section 7 of the U.S. Constitution. At this time, of course, presidential approval is highly unlikely. According to Adam Winkler, a law professor at UCLA writing on the American Constitution Society’s blog, “Historical practice also indicates that presidential approval is necessary. Compacts have long been submitted to the president for his signature.” Winkler points out that congressional acts consenting to interstate compacts were vetoed twice by Franklin Roosevelt.