Kilpatrick Townsend Health & Welfare Blog

Legal, Regulatory and Policy Perspectives regarding employer-sponsored health and welfare benefits, including the impact of the Affordable Care Act.

Posted on Thursday, July 24 2014 at 12:43 pm by

Dueling Court Cases Issued on Same Day

On Tuesday morning the U.S. Court of Appeals for the District of Columbia Circuit ruled that an IRS rule for a key piece of the 2010 Affordable Care Act is invalid. The ruling invalidates tax credits/subsidies for low income individuals who purchase health insurance coverage on the federally-run exchange (but does not affect credits for those purchasing coverage under a state-run exchange). Later that day, the U.S. Court of Appeals for the Fourth Circuit came to a contrary decision, upholding the IRS rule and, with it, the credits for individuals who purchase coverage through a federally-run exchange.

As background to these two similar cases, the Affordable Care Act provides in Section 36B of the Tax Code that tax credits (often referred to as subsidies) are available to certain low income individuals to purchase coverage through an exchange “established by the State.” On its face, the statute authorizes tax credits for insurance purchased on an exchange established by one of the fifty states or the District of Columbia. At the time of the ACA’s passage, the Administration thought that most states would establish their own state exchange. However, as it turned out, only approximately 1/3 of the states established their own exchange, leaving 2/3 of the states to be included in the federal exchange.

Because of questions raised by the wording of Section 36B, the Internal Revenue Service issued a rule interpreting the above statute broadly and determining that that tax credits are available to eligible individuals who purchase coverage through both a state or federal exchange. This was an important ruling because, without these tax credits, many other pieces of the Affordable Care Act do not work: employer penalties are triggered by the subsidies, individual penalties depend on coverage being affordable which in turn may depend on the subsidies, and the current pricing of insurance policies assume a certain level of broad-based participation which is not sustainable without the subsidies.

In the D.C. case, Halbig v. Burwell, No. 14-5018 (D.C. Cir. July 22, 2014), four individuals and three employers argued that the ACA only allowed tax credits for insurance purchased through a state exchange, not the federal exchange, and that the IRS exceeded its regulatory authority in issuing a different interpretation. A three-judge panel of the US Court of Appeals sided with the challengers based on the plain reading of the statute which refers to exchanges “established by a State”. You can read the case here.

In the Fourth Circuit case, King v. Burwell, No. 14-1158 (4th Cir. July 22, 2014), Virginia residents who did not want to purchase health coverage also challenged the authority of the IRS to issue this rule which, they believe, contradicts the statute. Without the tax credit, they would not be subject to the individual mandate because the policies would be unaffordable. A three-judge panel ruled against the plaintiffs and upheld the IRS rule, after concluding that the same statute and legislative history were ambiguous, which then required that the court to defer to the IRS’s determination, as long as the IRS rule was based on a permissible construction of the statute. You can read the case here.

The Administration is expected to request a review of the decision by the full D.C. Circuit Court; the plaintiffs in the Fourth Circuit case are not expected to make a similar request because they would likely prefer to appeal their decision to the US Supreme Court. It’s unclear how the Supreme Court would rule, but as pointed out in the D.C. ruling, it may be hard for them to get past the plain reading of the statute, even though without this reading, the rest of the law will be difficult, if not impossible, to implement. But, as the prior Supreme Court case has shown, the court has an uncanny ability to issue opinions, while remaining apolitical. A legislative change is also possible, but highly unlikely if the current make-up of Congress remains the same after the November elections.

It will take many months to sort this out, but in the meantime, tax credits will continue for those buying coverage on the federal exchanges, and employers and insurers will need to continue their compliance efforts for 2015.

Posted on Wednesday, July 23 2014 at 4:03 pm by

ACA Application to US Territories

Since the passage of the Affordable Care Act, it has always been a mystery as to how the Affordable Care Act applies in the United States Territories.  Particularly, in Puerto Rico where many mainland U.S. corporations have operations, and who has its own separate Tax Code.  Late last week, the Centers for Medicare & Medicaid Services issued letters to the insurance commissioners of the United States Territories (Puerto Rico, the Virgin Islands, Guam, American Samoa and Northern Mariana Islands).  The letters indicated that the ACA requirements for guaranteed availability, community rating, single risk pools, rate reviews, the medical loss ratio and essential health benefits would not apply to the individual and group health insurance markets.

At the same time, the letters make clear that they do not apply to ERISA plans.  Specifically, the letters say – “Our analysis applies only to health insurance that is governed by the PHS Act. It does not affect the PHS Act requirements that were enacted in the Affordable Care Act and were incorporated into the Employee Retirement Income Security Act (ERISA) and the Internal Revenue Code (Code) and apply to group health plans (whether insured or self-insured), because such applicability does not hinge on, or rely upon the term ‘state’ as it is defined in either the PHS Act or in the Affordable Care Act.”  In other words, group health plans under ERISA are not affected by the exemption and still must comply with the applicable Affordable Care Act provisions.

For more information see the following website under the title “Health Market Reforms.”

http://www.cms.gov/CCIIO/Resources/Letters/index.html

Posted on Friday, May 23 2014 at 1:03 pm by

Additional IRS Guidance on Individual Policy Premiums

The IRS has released additional guidance regarding an employer’s ability to pay for individual policy premiums on a pre-tax basis. This follows up on IRS Notice 2013-54 that provided any “employer payment plan” would violate the ACA market reforms, if it was paying for individual policy premiums on a pre-tax basis. Due to the somewhat odd wording of the Notice, some employers questioned whether it applied to reimbursement of individual policy premiums on a pre-tax basis. The additional guidance in the form of a FAQ on the IRS website, answers that question and closes the door on an employer’s ability to reimburse or pay for individual policy premiums on a pre-tax basis. Of course, as the FAQ also notes, and employer may pay for such premiums on an after-tax basis, thereby treating the premium as additional taxable wages.

http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements

Posted on Wednesday, April 23 2014 at 12:27 pm by

2015 HSA Limitations

 This morning the IRS released the health savings account (HSA) inflation adjusted amounts for the 2015 calendar year. Both the current 2014 amounts and the new 2015 amounts are set forth below.

 The HDHP minimum annual deductible for self-only coverage increases from $1,250 in 2014 to $1,300 in 2015. The HDHP out-of-pocket maximum for self-only coverage increases from $6,350 in 2014 to $6,450 in 2015.

 The HDHP minimum annual deductible for family coverage increases from $2,500 in 2014 to $2,600 in 2015. The HDHP out-of-pocket maximum for family coverage increases from $12,700 in 2014 to $12,900 in 2015.

 The HSA maximum contribution limit for self-only coverage increases from $3,300 in 2014 to $3,350 in 2015. The HSA maximum contribution limit for family coverage increases from $6,550 in 2014 to $6,650 in 2015.

 The maximum catch-up contribution remains at $1,000 for 2015.

Posted on Wednesday, April 9 2014 at 11:37 am by

Provider Nondiscrimination

Section 2706 of the Public Health Service Act (as amended by the ACA) provides that a group health plan shall not discriminate with respect to participation under the plan or coverage against any health care provider who is acting within the scope of that provider’s license or certification under applicable state law. This provision was effective for 2014 and applies to non-grandfathered group health plans. In FAQ guidance issued by the Agencies last year, the Agencies took the position that this provision was “self-executing” and that they would not issue any guidance on this requirement. Since that time, many group health plans have ignored this requirement, feeling that it was really an issue for their third party administrators who are responsible for maintaining the networks and handling provider issues.

However, in a curious turn of events, the Agencies are now asking for public comments on this issue. Typically, the Agencies do not request information from the public unless they plan on issuing detailed guidance in the near future. Interested parties must submit comments by June 10, 2014. A link to the request is below.

Link to RFI

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