Affordable Care Act Review

Affordable Care Act Review

Courts Split in Round 2 of the Subsidy Smack-down

Posted in Affordable Care Act, Exchanges, Taxes

Do you recall any of the appellate opinions preceding the Supreme Court’s June 2012 affirmance of the ACA’s individual mandate?  Come June 2016, you’re no more likely to remember the two decisions that dominated the news last night.  To be sure, the issue – whether purchasers are eligible for subsidies – is a big deal.  But we’re a long way from a final answer.  Here’s our explanation and forecast.

First, some consequences of a successful challenge to subsidies are clear.  If only ACA Exchanges “established by the State” – the ACA’s precise language – may subsidize purchasers, then these things are true in the 36 states not running their own Exchanges in 2014:

  • awarded subsidies unlawfully this year and will do so again for 2015, creating a ball of confusion perhaps too big to unwind;
  • Applicants for whom unsubsidized insurance is “unaffordable” (above 8% of household income) should be exempted from the individual mandate if they don’t buy insurance;
  • No employer mandate taxes should be assessed for 2015 or subsequent years.

Whether these challengers should win is less clear.  For our non-lawyer readers, here’s an oversimplified analogy that we hope will help.  Suppose  that  you are on a team assigned to build a new prototype vehicle to match an owners’ manual written in the form of an epic poem, one line of which specifies an automatic transmission, but one stanza of which, when discussing brake wear, commends the practice of downshifting while descending long hills.  Do you install an automatic, a manual, or some hybrid transmission?  The IRS says in these cases, “Leave it to us, and hybrid is the obvious choice.”  The pro-subsidy judicial answer is, “Better you than us, and by the way, great choice.”  The anti-subsidy judicial answer is, “When the manual says ‘automatic,’ you have no choice.”

The anti-subsidy Halbig (D.C. Cir. July 22, 2014) and pro-subsidy King (4th Cir. July 22, 2014) decisions were made by three-judge panels of large appeals courts.  The entire (“en banc”) court may rehear either case, or both.  So, what now seems to be a significant circuit split might be reconciled before the Supreme Court weighs in.  This matters because circuit splits raise the odds of Supreme Court review.  We consider en banc reversal of the Halbig panel opinion more likely than en banc reversal of the King opinion.

Between now and any Supreme Court opinion, lots of water will go under the ACA bridge.  We’ll have at least one Congressional election, maybe two.  Celebrants on both sides should wait a while to whack their piñatas.

Immediate updateNews is breaking that the Administration will seek en banc review of the Halbig panel decision and Senator Reid seemingly confirms that he ”nuked” a judicial filibuster to add to the D.C. Circuit the votes needed to reverse that decision.  As we said, this is a long way from over.

What’s the Minimum “Minimum Essential Coverage”?

Posted in Affordable Care Act, Coverage Mandates, Private Employers, Taxes

Beginning January 1, 2015, “Applicable Large Employers” will be exposed to non-deductible tax liability for each month that they fail to offer affordable, qualifying coverage.  Avoidance measures include:

  • File for and obtain “transitional relief” in early 2016 based on certification that, among other things, fewer than 100 full-time employees and equivalents were employed, thus avoiding Internal Revenue Code § 4980H(a) and § 4980H(b) taxation for 2015;
  • Offer at least “Minimum Essential Coverage” (“MEC”) to at least 70% of full-time employees and their dependents, thus avoiding the “sledgehammer” tax under § 4980H(a) (about $174 monthly for each full-time employee in excess of the first 30);
  • Offer at least MEC that also provides at least Minimum Actuarial Value (“MAV”) coverage and that is “affordable” – (i.e., self-only coverage that costs the employee no more than 9.5% of household Modified Adjusted Gross Income), thus also avoiding § 4980H(b) taxation (about $265 monthly per employee who instead buys a subsidized Exchange policy for that reason).

But suppose that you’re too large for transitional relief yet too cash-strapped to provide full value, affordable coverage.  What’s the rock bottom for “Minimum Essential Coverage”?  We and our broker friends are being asked that with increasing frequency and urgency.  As is typical for a blog, our short answer necessarily must ignore many complexities that may matter to particular readers.  And, we must narrow our analysis to private employer plans.  Here goes.

A MEC plan is “a group health plan or group health insurance coverage offered by an employer to the employee which is . . . offered in the small or large group market within a State.”  So says Code § 5000A(f)(2).  Code § 5000A(f)(3) pares that back by excluding “excepted benefits” – e.g., certain accident insurance and health event indemnity insurance.  Roughly translated, this means that MEC must be either –

  • an employer-sponsored, self-funded, ERISA employee welfare benefit plan providing what the Code deems “medical care” beyond ”excepted benefits” or,
  • an employer-sponsored, fully-insured group health plan that provides such medical care and that also meets all requirements of applicable state insurance law.

Careful:  a plan might be MEC (thus avoiding § 4980H(a) taxation) and yet fall short of ACA coverage mandates, exposing the employer to PHS Act civil money penalties of up to $100 per day per affected individual.  For that reason, we must also determine which ACA mandates apply.  Too, we’ll assume that the plan will be new, so that the applicable mandates are those for non-grandfathered plans.

Here, self-insurance has a small advantage.  Applicable ACA mandates (again, described too simply) are: no pre-existing condition exclusion, no health status discrimination, no discrimination against licensed providers, cost-sharing cap compliance, maximum waiting period compliance, clinical trial coverage compliance, no annual or lifetime limit, no rescission except for fraud, preventive services without cost sharing, adult child coverage to age 26, SBC and appeals process compliance.  A fully-insured plan must add  guaranteed issue, guaranteed renewal and MLR compliance, plus all coverages mandated by state insurance laws.

But notice the 800-pound gorilla that’s not in this room – Essential Health Benefits (“EHB”).  EHB are mandated only for individual and small group, non-grandfathered, fully-insured plans.  ACA § 1302 and HHS rules define EHB to include, among many other coverages, emergency services and hospitalization – big cost drivers.  Thus, a consensus has developed that an MEC plan need cover only preventive services without cost sharing, including related, generic prescription drugs.  If the MEC plan is fully-insured, coverages mandated by applicable state insurance laws would have to be added.

Employers sat up and took notice after the Wall Street Journal ran its “skinny med” story in May 2013.  But when the Administration delayed employer mandate enforcement, many interested employers moved along to more pressing concerns.  So, we’re back to the beginning a year later.

If you are considering rock-bottom MEC to avoid § 4980H(a) taxation, be aware that you’ll remain exposed to § 4980H(b) taxation for every full-time employee who instead buys a subsidized Exchange policy, because the IRS won’t see MAV in such skinny plans.  For that reason, we think that skinny med plans make more sense as “buy down” alternatives for your employees who don’t want to spend what you would have to charge them even for “affordable” MEC / MAV coverage.

New Questions for Employer Mandate Analysis

Posted in Affordable Care Act, Coverage Mandates, Taxes

The American Bar Association’s tax and employee benefit practice leaders periodically query IRS representatives about new or changing rules, to confirm that lawyers are reading the rules the same way that IRS reads them.  IRS responses to those queries are not official enforcement positions and do not have the force of law.  So, if an answer were to contradict a published IRS rule or the underlying statute, lawyers reasonably might advise clients to follow the published rule or statute. The ABA recently published a May 2014 Q & A exchange that casts doubt on what had been common understandings of the IRS Employer Shared Responsibility Cost Final Rules.  A full analysis would exceed the space available for this post.  Here are five noteworthy IRS answers, in short form:

  1. For determining “Applicable Large Employer” status, the 120-hours of service per month standard used to convert part-time hours to full-time equivalency also must be used to identify full-time employees, rather than the 130-hour standard;
  2. An employee hired to work full-time hours cannot be treated as a variable hour or part-time employee even if, by contract or by operation of law (e.g., a short time remaining on a visa), the employee’s tenure will be so short that he or she cannot average 130 hours per month over the course of the relevant measurement period;
  3. The stability periods associated with standard measurement periods and initial measurement periods must be the same for the same employee groups.  Though the rules do not expressly require the measurement periods to be identical, it works out that way, except for new hires formally subjected to a 12-month measurement period and a 12-month stability period;
  4. Each hour of “on-call” pay, even if lawfully paid below minimum wage (because it is not ”worked”), must be credited as a full “hour of service”;
  5. For each employee category, an employer may use the monthly measurement method or the measurement – stability method to determine the full-time status of a newly hired variable hour employee; it may not use the monthly measurement method initially, then switch to the measurement – stability method later in the year.

We shared the IRS view on points 4 and 5, and had guessed right on points 2 and 3.  Point 1 seems to us to be questionable and potentially determinative of some employers’ 2015 “bubble” status.  If you are using a software solution to determine Applicable Large Employer status, or to calculate full-time employee eligibility, you might do well to research its relevant design and how it might affect you, if inconsistent with one or more of these IRS answers.

Temp-to-Perm Staffing: Still a Solution?

Posted in Affordable Care Act, Business Organizations, Employee Leasing, Independent Contractors, Taxes

“Applicable Large Employers” are exposed, beginning January 1, 2015, to significant new taxes if they fail to offer “minimum essential coverage” to at least 70% of their full-time employees and their dependents.  Employers also must permit full-time employee coverage to become effective within a “90-day” maximum waiting period.  Unlawfully delaying coverage exposes the employer both to the new taxes and to fines of up to $100 per day per affected individual.  Puzzlingly, the enforcement agencies’ (DOL, HHS, IRS) rules on each subject fail to address their potential disruption of temp-to-perm staffing arrangements.  When callers ask for specific guidance, our contact information is taken.  We are reminded of Lewis Grizzard’s joke that the 1988 Atlanta Braves and Michael Jackson had one thing in common: they both wore one glove, for no apparent purpose.

Many employers obtain all new hourly workers from a leasing company that is their W-2 employer for, say, 90 days, at which time the customer moves some to its own payroll.  Is the employee’s first day on the new payroll Day 1 of the maximum waiting period under the customer’s group health plan, or must that plan count the employee’s 90 days with the leasing company?

The rules tell us little more than that an employer’s ACA obligations extend to every person who is its “common law employee.”  The IRS uses a 20-factor “right to control” test to determine whether a common law employment relationship exists.  No one factor determines the result, but if an employer can tell a worker what to do, when to do it and how to do it, then, generally speaking, the worker is that employer’s common law employee.  And an employee may have multiple, joint, common law employers.  If high penalties and lack of clear guidance compel leasing firms and their customers to adopt the most risk-averse rule interpretations, they might shorten the lease term to coincide with the one month “orientation period” of the maximum waiting period rules.  Some leasing firms might not be able to survive in that environment.   Some employers might not find truncated lease terms worthwhile.

If such disruption is to be minimized, leasing firms, their customers and their lawyers need clearer enforcement guidance, and we need it soon.  We’re asking our Congressional representatives to help us get the guidance that we need.  If this matters to you, please consider doing the same.

Mississippi Health Insurance Exchange Update

Posted in Affordable Care Act, Exchanges

One, Mississippi,” the state-run health insurance exchange for small employers, recently released enrollment information through the Mississippi Insurance Department.  In a prior article, we described the relatively simple enrollment process.  The State spent not quite $10 million, less than half its federal grant, on the IT build-out and, apparently, it works.  As of early June 2014, 103 employers had enrolled, identifying 274 eligible employees.  The first eleven employers registered were law firms.

Some parts of, the individual exchange operated by HHS, also work now. As of early June 2014, about 65,000 Mississippians had enrolled and selected a plan. About 80% of them had made at least one premium payment.  Federal subsidies were awarded to about 94% of the applicants.  The average monthly premium for selected plans was $438 and the monthly subsidy $415, making the average monthly premium just $23.

Most applicants selected a “Silver” level – i.e., 70% value – plan.  The average Silver plan monthly premium was $434 and the average subsidy was $419, making the average monthly premium just $15.  About 96% of those who selected a Silver plan were awarded a subsidy.

The Mississippi Insurance Department is in the rate review process for policies to be sold through beginning in November 2014.  Network adequacy standards have been adopted and published at 19 Miss. Admn. Code, Part 3, Chapter 14.


Hobby Lobby in a Nutshell

Posted in Affordable Care Act, Coverage Mandates, Private Employers, Providers - For Profit, Taxes

In the pre-digital age, if you used “Cliff Notes” in college, you used “nutshells” in law school.  Here’s our “nutshell” version of the U.S. Supreme Court’s June 30, 2014 opinion in Burwell v. Hobby Lobby Stores, Inc., expanding the class of employers that may refuse to provide group health plan contraceptive coverages based on religious objections.

Two family-owned corporate employers objected, on religious grounds, to HHS rules that required them to provide group health insurance covering two contraceptive methods – “morning after” pills and IUD’s.  The HHS rules, they said, even if Constitutional, failed a tough test under two statutes that augment religious liberties.  Those statutes invalidate even a neutral, generally applicable rule that burdens religious freedom unless the government interest is compelling and there is no less burdensome way to serve that interest.

The government bet the farm on its argument that for-profit corporations lack the religious freedoms of individuals and non-profit entities.  No serious case was made that the government can only provide contraceptive benefits by making employer-sponsored group health plans cover them.  A similar all-or-nothing gambit worked, largely, in the NFIB v. Sebelius individual mandate decision.  It failed here.  The government’s main argument got just two votes.  Five Justices ruled that closely-held, for-profit business entities have the same religious rights as non-profits and individuals, for these purposes.  Further, they said, the exemption that HHS granted to religious non-profits proves that there are less burdensome ways to extend contraceptive coverages to employees.  Those rules shift the burden to insurers and third party plan administrators who administer the group health plans of objecting employers.

We suspect that, after some political ado, HHS will extend the non-profit exemption rules to closely-held, for-profit business entities that object on religious grounds to all or part of the HHS contraceptive mandate.  The challenge for such employers will be finding insurers and plan administrators willing to fill the gap.

Update:  on July 3, in a short opinion, the Supreme Court of the United States enjoined HHS from requiring Wheaton College to submit EBSA Form 700 in order to claim its religious non-profit exemption from the HHS contraception mandate.  Wheaton College objected because, under HHS rules, its submission of Form 700 to the insurer would trigger the insurer’s duty to provide contraception free of charge.  Since HHS already had notice of the facts supporting the exemption, and since no beneficiary rights would be lost under the contraception mandate, the Form 700 was deemed a religious exercise burden proscribed by RFRA.   Three dissenting Justices accused the majority or eroding HHS exemption rules that the majority apparently had approved in the Hobby Lobby case.

Further update:  The Administration reportedly plans to amend its exemption process for religious non-profits in light of the Wheaton College decision.

Thinking About Using a Cumulative Hours-of-Service Requirement?

Posted in Affordable Care Act, Business Organizations, Exchanges


One of the ACA’s group market reforms that went into effect at the beginning of 2014 was the prohibition on waiting periods that exceed 90 days.  Generally, a group health plan or a health insurance issuer cannot apply a waiting period that exceeds 90 days.  However, under the proposed regulations, a group health plan may require employees to complete a certain amount of service before becoming eligible for benefits. This type of service requirement is not considered a violation under Public Health Service Act §2708 (“§2708”) as long as the cumulative hours-of-service requirement does not exceed 1,200 hours. Many advisors are saying that this provision in the proposed regulations is intended to provide plan sponsors with some flexibility to utilize a probationary or trial period which has led many employers to, at the very least, consider implementing a cumulative hour requirement.

With many employers asking about this approach, we thought it important to highlight the following items that employers need to be aware of.

  • The proposed regulations do not permit a plan sponsor or issuer to reapply the hours-of-service requirement to the same individual each year.
  • A plan using a cumulative service requirement could impose up to a 90-day waiting period that begins upon the new employee completing the 1,200 hour requirement.
  • Employers utilizing or planning to utilize the 1,200 hour rule need to ensure that the plan documents reflect the cumulative hour requirement and that the plan’s operation matches the plan document language.
  • Additionally, and possibly the most important, just because you are in compliance with §2708 does not mean you are exempt from other ACA requirements.  The proposed regulations warn that substantive eligibility conditions that are permitted under the 90-day waiting period rule may result in a failure by a large employer to offer coverage to a full-time employee and, thus, could result in a penalty under the employer shared responsibility rules in §4980H.    For example, an employer who elects to use the cumulative hour requirement could be penalized if the employer has a new full-time employee that is not offered coverage within the first three months of employment and obtains a subsidy through the Exchange.


Look Before You Reimburse Employee Premiums!

Posted in Affordable Care Act, Business Organizations, Taxes

Over the last several years many employers were advised that a possible way to save money on their rising health care costs was to reimburse their employees for health insurance premiums, instead of offering their own plan.  Basically, employees obtained their own coverage and the employer would reimburse them for all or a part of the premium with pre-tax dollars.    This method was thought to be a viable method to significantly reduce health care costs and, until recently, seemed to be gaining some traction among employers.  But, recently, the Internal Revenue Service issued Questions and Answers (“Q&A”) clarifying what was originally provided in IRS Notice 2013-54 regarding this strategy.

The Q&A provides that under IRS Notice 2013-54, “employer payment plans are considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.”  This means that such a design would be subject to the penalties for failure to comply with the mandates for group health plan, which could be up to $36,500 per year per employee ($100 a day).  The Q&A did provide the rule only applies to applicable large employers who wish to offer tax-free contributions to their employees for the purposes of reimbursing an individual for premiums for coverage, either through an individual policy outside of the Marketplace or through the Marketplace.  This Q&A clarifies that an employer is not prohibited from helping employees purchase individual insurance, as they may do so by simply increasing the employee’s taxable wage. It is important to note, however, that an applicable large employer who wishes to help its employees with after-tax dollars would still be subject to the 4980H(a) tax ($2000 per year times the total number of full-time employees, not counting the first 30) for not offering health coverage.

Louisiana Mandates Insurer Acceptance of Certain Third Party Premium Payments

Posted in Affordable Care Act, Insurers and Brokers

Several months ago, we covered the case of East v. Blue Cross and Blue Shield of Louisiana, M.D. La. 3:14-cv-00115, which attacks a health insurance policy provision prohibiting premium payments by a third party.  Both sides cited CMS guidance, provoking CMS to thread the regulatory needle with further guidance, the upshot of which is that CMS wants insurers to accept Ryan White AIDS funds, as well as Indian tribal funds and certain state and local government funds in payment of insurance premiums and cost-sharing for certain insureds, but that CMS worries about the risk pool consequences of healthcare provider payments on behalf of patients.

The Louisiana Legislature then passed, and Governor Jindal signed, Louisiana Revised Statute 22:1080 (June 5, 2014), reading, in relevant part: 

A. No health insurance issuer or health maintenance organization shall refuse the receipt of a premium payment when such payment is made by a third party to the insurance contract, provided that the payment is made from or pursuant to a fund or grant established by any one of the following:

(1) The Ryan White HIV/AIDS Program pursuant to Title XXVI of the Public Health Service Act.

(2) Indian tribes, tribal organizations, or urban Indian organizations.

(3) State or federal government programs.

(4) The American Kidney Fund.

B. This Section shall not be construed to require a health insurance issuer or health maintenance organization to accept a third party premium payment from a health care provider.

This seems to us to parallel the CMS rule, except for the addition of the American Kidney Fund to the list of approved third party payors. We are conducting a 50-state survey of similar regulatory activity.  We expect it to be too long to publish here.  If you would like a copy, please e-mail your request and your contact information to

Back to Basics

Posted in Affordable Care Act, Coverage Mandates, Employee Leasing, Government Employers, Private Employers, Taxes

On the road a lot recently, speaking to large and small rooms of employers, we have seen what we expected to see about now.  As much as their questions, it’s been the look in the eyes of the audience, their body language, indicating that Affordable Care Act compliance worries are back on the front burner.  Maybe busy executives were wise to focus elsewhere since July 2013; certainly, the rules then are not the rules now.  But too many employers know too very little about their ACA obligations, and they have precious little time left to learn.  So, we’re going back to basics for a few weeks, before we resume our hunt for dangers lurking in the weeds.  To our many sophisticated readers, we apologize for the do-over.  If something new and urgent arises, we’ll interrupt this series to cover it. 

Here are several high-altitude, headline concepts that deserve prompt attention.

You’re Being Measured Now

Your status, or not, as an “Applicable Large Employer” under 26 U.S.C. § 4980H, subject to taxation for failing to offer affordable, qualifying coverage to substantially all your full-time employees and their dependents, is being measured in 2014.  If your plan has been to get small by January 2015, so as to avoid coverage, you need a new plan.  Prior, related articles are here, here and here.

The Common Law Employer Pays

Employee leasing can be an effective management tool, and the IRS wrote its employer mandate final rules to help preserve that option.  But do not expect the government to excuse you from ACA obligations to leased employees except as precisely promised in the written rules.  Otherwise, the IRS is likely to look to the “common law employer” of the leased employees.  Related, prior articles are here, here, and here.

Similarly, your common law employee is likely to be your ACA responsibility, even if you call him or her an independent contractor, even if you have a written contract that calls him or her an independent contractor, even if he or she is pleased with the relationship.  The ACA gives the IRS new, effective tools for discovering such misclassifications.

Some Assembly Required

You probably can’t avoid being an Applicable Large Employer by cutting-up your business into nominally separate legal entities, each of which has fewer than 50 full-time employees (including the full-time equivalent hours of part-time employees).  That’s because the ACA uses the broad IRS “controlled group” test.  Relatively few professionals are qualified to analyze controlled group status.  Too many are giving that advice.

“Hours of Service,” Not “Hours Worked”

Full-time employee tracking depends on which measurement method you are using, but all lawful methods require all employers to count hours in addition to FLSA “hours worked.”  If you are looking only at hours worked, you may undercount your “full-time” employee workforce.

Known Unknowns Are Few

Some advisors still are telling employers that reliable advice cannot be given because so few rules actually have been written.  That advice was excusable as recently as early 2013; not any more.  We’re awaiting major rules on plan discrimination in favor of highly-compensated employees and on automatic enrollment by certain large employers.  We need to see the actual process for Exchange notices to employers of subsidy certifications of people claiming to be their employees, and we need to see the employer appeal process.  We’re hoping for better sub-regulatory guidance on a number of subjects, especially fears about inadvertent MEWA’s due to employee leasing.  We will not be surprised if  some existing “transitional relief” is amended or extended.  Nevertheless, if you can’t get most specific questions answered specifically (not the same as “simply”), you need a different advisor.  Our ACA Advisor Pop Quiz is here.

Note:  When you read a prior article, please keep in mind that it was written based on the rules published at the time, to offer a simple, educational introduction to an important subject.  Do not substitute anything you read on this site for the current, competent, fact-specific ACA advice that you need.