During the week reviewed, no new bill was introduced which, if passed, would repeal or replace the Affordable Care Act, and little else happened at the three main ACA enforcement agencies – DOL, HHS and IRS.

Department of Labor

The Department of Labor still has no Secretary and the nominee, Andrew Puzder, has not yet been given a hearing.  A DOL.gov site redesign was apparent, but it says nothing regarding the agency’s implementation, or not, of Executive Order 13765, which commands ACA enforcement agencies to –

exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications,

“to the maximum extent permitted by law.”

Health and Human Services

Former Congressman Tom Price (R-GA) was confirmed as the new HHS Secretary February 9, 2017.  On that date, most HHS web pages related to the ACA remained substantially as they were the day before President Trump’s inauguration. There was no mention of E.O. 13765.  Nevertheless, the Price confirmation may be the most significant development of the week.  If majority leaders in the House and Senate cannot produce soon a repeal/replace bill supported by a majority of each majority, the new HHS Secretary figures to become the project manager by default.

Internal Revenue Service

The Internal Revenue Bulletins for February 6 and February 13 include no reference to the employer mandate tax assessment procedures forecast to be rolled-out in “early 2017.”  We doubt that this prolonged silence was provoked by the regulatory freeze executive order, since a February 2 White House Memorandum seems to confine that freeze to “significant” regulations, and the employer mandate regulations were not deemed “significant” by the IRS.  See 79 Fed. Reg. 8,577 (Feb. 12, 2014, left column).  And no, the IRS website doesn’t mention E. O. 13765 either.

We doubt that Gershwin tune, “I Got Plenty O’ Nottin’,” was intended as political prophecy.  It just turned out that way.

Nothing resembling a repeal/replace consensus bill emerged from any committee in either chamber during the survey period.  Instead, in a Fox News interview broadcast just before the Super Bowl, the President confessed that ACA repeal may require more than a year.  A concise summary by Peter Sullivan in The Hill is online here.

Consistent with that impression, ACA bills introduced last week just nibble around the edges.

H.R. 710 assumes that the ACA is not repealed and so amends it to better align ACA non-payment grace periods with those established in state laws.

H.R. 708 would relax the present ACA age banding rules and H.R. 706 would tighten special enrollment eligibility verification requirements.

Like H.R. 849,  S. 260 (Sen. Cornyn, R-TX) and S. 251 (Sen. Wyden, D–OR) would repeal only the ACA’s Independent Payment Advisory Board.  The same Senators filed similar Independent Medicare Advisory Board disapproval resolutions – S.J. Res. 17 (Cornyn) and S.J. Res. 16 (Wyden).

The video of the February 1, 2017 ACA hearing held by the Senate H.E.L.P. Committee is online here.  On February 2, the House Ways and Means Committee posted some early information about its “concept of a health care backpack” in lieu of the present ACA structure.

The IRS has posted two editions of the Internal Revenue Bulletin since our last update, neither detailing ACA tax and penalty assessment procedures.

The ACA was not repealed or replaced on Day 1; neither is likely to happen by Day 100.  What Winston Churchill said.

As previously reported, § 2001 of the 2017 budget bill required all ACA repeal/replace bills to be filed and reported from assigned committees by Friday, January 27, 2017.  That didn’t happen.  Since our last posting, the bills listed below have been filed and assigned to committees, but no ACA bill has emerged from committee in either chamber.

H.R. 661 and H.R. 633 would grandfather as “minimum essential coverage” small group market health insurance plans that filed to meet the MEC criteria established by HHS under the ACA.

H.R. 640 would require states with failed ACA Exchanges to return unused federal funds.

H.R. 628 would preserve from ACA repeal the prohibition of pre-existing condition exclusions.

S.222 is Senator Rand Paul’s repeal and replace bill.

S. 194 (Sen. Whitehouse, D-RI) and H.R. 635 (Rep. Schankowsky, D-IL) revive debate over the “public option” that Congressional Democrats rejected when they passed the ACA in 2010.

S. 191 would permit states to opt-out of certain ACA health insurance market reforms and to substitute their own plans and programs.

On January 26, the House Budget Committee held a hearing titled, “The Failures of Obamacare: Harmful Effects and Broken Promises.”  The House Committee on Education and the Workforce scheduled a February 1 hearing titled, “”Rescuing Americans from the Failed Health Care Law and Advancing Patient-Centered Solutions.”

The Senate Budget Committee also set a February 1 hearing on CBO’s Budget and Economic Outlook, to be held at the same time as the Senate H.E.L.P Committee hearing titled, “Obamacare Emergency: Stabilizing the Individual Health Insurance Market.”

A Congressional Budget Office report (p.35) forecasts that repeal of the ACA medical device tax, health insurance provider fee and Cadillac plan tax would boost the deficit by $311 billion over ten years.  A separate CBO report, requested by Senate Democrats, estimates the insurance market consequences of repealing certain ACA taxes, fees and subsidies without repealing other ACA insurance market reforms.

Meanwhile, back at the IRS, a few new details were added January 18 to the FAQ guidance page for Applicable Large Employers.  Here’s what caught our eyes, reading from Q55 to Q 58.

From Q55:

The IRS will contact ALEs that filed Forms 1094-C and 1095-C by letter to inform them of their potential liability, if any. These letters will provide ALEs an opportunity to respond to the IRS before any liability is assessed or notice and demand for payment is made.  (These letters are separate from the letters that the IRS may send to employers that appear to be ALEs but have not satisfied the requirement to file Forms 1094-C and 1095-C.).

From Q56 (emphasis ours):

The IRS expects that the letters informing ALEs that filed Forms 1094-C and 1095-C of their potential liability for an employer shared responsibility payment for the 2015 calendar year (with reporting in 2016) will be issued beginning in early 2017.

For future years, the IRS expects it will begin issuing letters informing ALEs that filed Forms 1094-C and 1095-C of their potential liability for an employer shared responsibility payment, if any, in the latter part of each calendar year in which reporting was due (for example, in late 2018 for reporting in 2018 for coverage in 2017).

From Q 57 (emphasis ours):

The IRS expects to publish guidance of general applicability describing the employer shared responsibility payment procedures in the Internal Revenue Bulletin before sending any letters to ALEs for the 2015 calendar year.  In addition, the IRS expects to supplement that guidance in several different ways, widely distributing the information to ensure that ALEs are properly informed of when and how the IRS will be contacting them.

So, we’re watching the IRB daily.  However, that guidance was posted before the President issued Executive Order 13765 (January 20, 2017), directing each ACA enforcement agency to –

exercise all authority and discretion available to them to waive, defer, grant exemptions from, or delay the implementation of any provision or requirement of the Act that would impose a fiscal burden on any State or a cost, fee, tax, penalty, or regulatory burden on individuals, families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.

We have found no IRS or Treasury Department statement of how the Order may change the January 18 FAQ guidance, but the guidance has not been removed from the IRS web page.

On January 13, the House passed the 2017 budget resolution (S. Con. Res. 3), which should be found on President Trump’s desk Monday morning.  As previously explained, this sets the stage for a filibuster-proof, budget reconciliation bill that can repeal and replace spending and tax provisions of the ACA.

S. 106,  introduced January 12 by Senator Cruz, would repeal the ACA entirely, but appears to include provisions susceptible to Senate filibuster.

While we await a consensus reconciliation bill, ACA-nibbling measures continue to be filed, including these:

H.R. 563 would eliminate the ACA individual mandate;

H.R. 562 would zero the individual mandate tax;

H.R. 561 would re-define “Applicable Large Employer”;

H.R. 551 would upgrade the ACA status of catastrophic coverage insurance;

H.R. 537 and H.R. 521 would exempt from the individual mandate those living in counties with less than 2 Exchange insurers;

S. 147  would forbid what it calls “a taxpayer bailout of health insurance issuers;”

S. 108  would repeal the medical device tax.

We expect to hear next week about President Trump’s initial ACA “executive actions.”  We doubt that we will see a consensus reconciliation bill in either chamber before Groundhog Day.

As of Thursday morning, January 5, the general direction and pace of ACA repeal / replace legislation is discernible (details below), but the details are not.  News reports suggest that, despite persisting, material differences of opinion among members of the majority, leaders have committed to deliver an ACA bill to the new President by Monday, February 20.  Some speaking on behalf of the incoming Administration are forecasting related “executive actions,” without saying what they may be.  The choice of those words may be mere political gigging, or may signal a plan to resolve by executive order or administrative “guidance” points on which the Congressional majority fails to agree.

Budget reconciliation bills, immune to Senate filibuster, must be reported out of committees in each chamber by Friday, January 27.  We doubt that there will be time to reconcile all competing concerns, and therefore expect that each committee assigned multiple bills will report one, at most, and that assumes that something resembling “regular order” is observed. Conceivably, one bill could be referred to the “Committee of the Whole” for, in effect, immediate floor action in each chamber.  Unless the House and Senate-passed Bills are identical, there could be further proceedings to reconcile their differences before final Senate action, under budget reconciliation rules.

Here are the relevant bills and resolutions enacted as of 10:00 am EST, Thursday, January 5.

House Actions:

The Midnight Rules Relief Act (H.R. 21) permits Congress to reject multiple 2016 administrative rules in a single bill.

The Rules for the One Hundred Fifteenth Congress (H. Res. 5) ease the way for quick floor action on ACA repeal and/or replace legislation, requiring sponsors to file their bills by January 27.  A pre-passage version is online here.  Section 3(c) states that, “Section 1899A of the Social Security Act shall not apply in the One Hundred Fifteenth Congress.”  That section of the ACA purports to limit the options of Congress regarding the Independent Payment Advisory Board.  See 42 U.S.C. § 1395kkk.

Senate Actions:

The budget bill (S. Con. Res. 3), tees-up budget reconciliation by requiring such bills to be reported out of Committee in each chamber by January 27, 2017.  See §§  2001(c) and 2002(c). Sections 3001 and 3002 change deficit impact rules to facilitate prompt action on ACA-related legislation.

Repeal bills already filed include H. R. 175 (total repeal, referred to six House committees), and H.R. 173 (Cadillac Plan Tax repeal, referred to Ways and Means).

 

We didn’t take ten weeks off because there was nothing to talk about.  Rather, we concluded around Labor Day that anything useful to be said about ACA compliance, pre-election, would be interpreted as political advocacy, so we decided to watch and wait.  The anti-ACA candidate won, and his party carried Congress, too.  That settles that, right?  Probably not, at least for 2017.  Here’s why.

Have you ever heard of federal legislation that repealed and waived payment of tax debts already accrued?  Neither have we.  Employer mandate taxes have accrued monthly since January 2015.  Now that the election is over, we expect IRS to begin mailing proposed assessments, followed by assessment notices, based on data collected from Exchange subsidy certifications and insurer and employer information reports.  To our knowledge, neither the President elect, nor anyone on his team promised otherwise.  And if they had, that promise would be exceedingly hard to keep.

The ACA actually is two laws, once of which (Pub. L. 111-152) was passed by a bare Senate majority in a process called “budget reconciliation” that is filibuster-proof.   Go ahead, click the link.  What’s in there can be repealed by budget reconciliation.  Here’s a hit list of headings:

Sec. 1001. Tax credits.

Sec. 1002. Individual responsibility.

Sec. 1003. Employer responsibility.

Sec. 1004. Income definitions.

Sec. 1005. Implementation funding.

Subtitle B—Medicare

Sec. 1101. Closing the medicare prescription drug ‘‘donut hole’’.

Sec. 1102. Medicare Advantage payments.

Sec. 1103. Savings from limits on MA plan administrative costs.

Sec. 1104. Disproportionate share hospital (DSH) payments.

Sec. 1105. Market basket updates.

Sec. 1106. Physician ownership-referral.

Sec. 1107. Payment for imaging services.

Sec. 1108. PE GPCI adjustment for 2010.

Sec. 1109. Payment for qualifying hospitals.

Subtitle C—Medicaid

Sec. 1201. Federal funding for States.

Sec. 1202. Payments to primary care physicians.

Sec. 1203. Disproportionate share hospital payments.

Sec. 1204. Funding for the territories.

Sec. 1205. Delay in Community First Choice option.

Sec. 1206. Drug rebates for new formulations of existing drugs.

Subtitle D—Reducing Fraud, Waste, and Abuse

Sec. 1301. Community mental health centers.

Sec. 1302. Medicare prepayment medical review limitations.

Sec. 1303. Funding to fight fraud, waste, and abuse.

Sec. 1304. 90-day period of enhanced oversight for initial claims of DME suppliers.

Subtitle E—Provisions Relating to Revenue

Sec. 1401. High-cost plan excise tax.

Sec. 1402. Unearned income Medicare contribution.

Sec. 1403. Delay of limitation on health flexible spending arrangements under cafeteria

plans.

Sec. 1404. Brand name pharmaceuticals.

Sec. 1405. Excise tax on medical device manufacturers.

Sec. 1406. Health insurance providers.

Sec. 1407. Delay of elimination of deduction for expenses allocable to medicare part

D subsidy.

Sec. 1408. Elimination of unintended application of cellulosic biofuel producer credit.

Sec. 1409. Codification of economic substance doctrine and penalties.

Sec. 1410. Time for payment of corporate estimated taxes.

If it was not passed by budget reconciliation, it probably can’t be repealed by budget reconciliation.  But in any event, there must first be a budget to which taxes and spending may be reconciled.  That normally takes months, and in recent years, budget passage has been the exception, rather than the rule.  It would be highly ironic, it seems to us, if the new President were to take Obama-like “executive action” simply to decline to enforce the employer mandate.   So, we expect employer mandate tax assessment and collection in 2017, regardless of the success or failure of ACA repeal or reform legislation.

Similarly, once employers learn the identities of employees who bought Exchange coverage with subsidies, those employees will be protected from employer retaliation under ACA § 1558 (29 U.S.C. § 218C).  In June, HHS began mailing 2016 subsidy certification notices, naming those employees.  Open enrollment for 2017, now underway, will produce many more notices, protecting many more employees.  This anti-retaliation law (see Pub. L. 111-148) cannot be repealed by budget reconciliation; 60 Senate votes will be needed.  We can’t count that high, and we don’t expect OSHA to simply ignore retaliation charges filed under the statute.

The same goes for the ACA’s big coverage cost drivers passed as amendments to ERISA, the PHS Act and the tax Code as part of Pub. L. 111-148 – e.g., limited age banding, prohibition of annual and lifetime limits, health status discrimination prohibitions, preventive health services mandates, guaranteed issue and renewal, etc.  If a reform or repeal bill can’t carry those loads, they may be thrown overboard.

There may be a Senate majority for repeal of the Cadillac Plan Tax (delayed until 2020 already), and perhaps the individual and employer mandate taxes – we can’t imagine one going down to defeat without the other. But the Medicare surtax?  Does the party in power want to be blamed for penury of the Medicare hospital insurance trust fund?

Congress may agree to repeal the Independent Payment Advisory Board – what some have called a “Death Panel.”  It’s in § 3403 of Pub. L. 111-148 (42 U.S.C. § 1395kkk).  It is widely unpopular, even though the Medicare growth rate has not yet triggered IPAB action and the agency has not been staffed.

How about reneging on the feds’ promise to pay almost all of the cost of Medicaid expansion?  Or the premium and cost sharing subsidies that have driven almost all of the business being done on the Exchanges?  It’s far easier to pass a new entitlement program than to repeal it.  As President Reagan famously said, the closest thing to eternal life on this Earth is a federal program, and the ACA is a huge federal program.

Probably, the path to 60 Senate repeal votes leads through an array of replacement compromises that will be worked out over more than one session.  The next real inflection point is the mid-term election of 2018.

We are not discounting efforts to change the content of the ACA or the course of ACA enforcement.  We are predicting that our readers won’t know what will be done for many months.  In the interim, you may have to confront ACA compliance issues from which the new Administration cannot provide relief, despite its best intentions and efforts on your behalf.  We’re keeping a sharp watch out.

In Central United Life Ins. Co. v. Burwell, D.C. Cir. No. 15-5310 (July 1, 2016), a D.C. Circuit panel affirmed, 3-0, a trial court injunction barring enforcement of the 2014 HHS regulation permitting individual fixed-indemnity policies to be sold only as supplements to ACA minimum essential coverage. You’ve heard this theme before. The Public Health Service Act, 42 U.S.C. §§  300-21(c)(2), 300gg-63(b), 300gg-91(c)(3), defines “excepted benefits” as policies offered separately from and not coordinated with health plans. When passing the ACA, Congress adopted and piggy-backed on those PHS Act provisions. Many consumers decided to buy fixed indemnity plans in lieu of ACA Marketplace plans, despite the ACA individual mandate penalties for not buying minimum essential coverage. Displeased, HHS issued a regulation “to amend the criteria for fixed indemnity insurance to be treated as an excepted benefit,” outlawing such plans unless sold as a supplement minimum essential coverage. See 79 Fed. Reg. 30240, 30253 (May 27, 2014). But only Congress may amend a statute, the Court held, and Congress did nothing of the sort in the ACA. Rather, the ACA reaffirmed the existing definition of “excepted benefits” and how that definition applied to individuals’ purchase of fixed indemnity plans.

As of this writing, HHS has not requested rehearing and has not filed an appeal notice. We expect the government to take a mulligan, asking the full D.C. Circuit to over-rule the panel opinion. We think that likely because 4-4 Supreme Court opinions are treated as affirming the decision appealed. While we wait, we’ll be interested to see whether and how quickly insurers resume marketing fixed indemnity plans to individuals as alternatives to ACA minimum essential coverage.

 

A U.S. District Judge has ruled that HHS unlawfully has spent billions of dollars to reimburse insurers for cost-sharing reductions granted to individuals who bought health insurance through an ACA Exchange such as Healthcare.gov. U.S. House of Representatives v. Burwell, D.D.C. No. 1:14-cv-01967 (May 12, 2016). The Court stayed its ruling pending review by the D.C. Court of Appeals.

As usual, the winning argument was simple – i.e., ACA § 1401 makes a permanent appropriation for premium subsidies but § 1402 cost-sharing subsidies are left to the annual appropriations process, and Congress has appropriated nothing. The government rehashed its King v. Burwell ambiguity arguments, but with far more difficulty. Among other things, the Administration previously had conceded that cost-sharing subsidies depend on annual Congressional appropriations.

If this decision stands, it’s very bad news for insurers participating in the ACA Exchanges, even if, as the Court suggested, they may be able to sue, under the Tucker Act, 28 U.S.C. § 1491(a)(1), to recover the promised payments from the government. The opinion does not address whether the subsidies already paid are subject to HHS claw-back.

But if this decision stands, and if Congress does not appropriate the missing funds, then Healthcare.gov may be doomed. Premium increases sufficient to overcome lost cost-sharing subsidies might accelerate an insurance death spiral that some believe already has begun.

In prior years, the forthcoming D.C. Court of Appeals decision would have been seen as a rest stop on the road to ultimate Supreme Court resolution. But with SCOTUS now split 4-4 on so many contentious issues, the D.C. Circuit may have the final word, perhaps late this year.

 

Lawyers, politicians, economists, climate scientists, fad diet peddlers . . . we all know that it’s child’s play to persuade people of what they want to believe. Perhaps that explains the persistence of so many questionable beliefs about ACA compliance. Here are three examples.

The Look –[way] back Measurement Method

The ACA commands or allows employers to identify their “full-time” employees in two ways, for different purposes. The “monthly measurement method” simply asks whether an employee averaged at least 30 weekly “hours of service” in a given month. It is used to count the monthly number of full-time employees to which the employer must add the monthly number of full-time equivalent employees to determine the employer’s status, or not, as an “Applicable Large Employer” (ALE) for the following year. Monthly measurement also is the default rule for identifying full-time employees who are due an offer of coverage. Coverage offers (and non-offers) to full-time employees must be reported the following year on Form 1095-C.

The “look-back measurement method” has nothing to do with ALE status determination. It’s an alternative method that employers may use for coverage offer and reporting purposes. New full-time employees must be offered coverage within the maximum “90-day” waiting period (or shorter period stated in the group health plan). But the full-time status, or not, of new variable-hour employees may be determined as much as a year after hiring, under the look-back measurement method, and coverage offers extended thereafter. Ongoing employees – i.e., those employed for at least one standard measurement period – may also have their full-time status determined under the look-back measurement method. With some exceptions, those “measured” as full-time during the measurement period must be treated as full-time for the associated stability period, and those not measuring up need not be treated as full-time during the associated stability period. Again, this applies to coverage offers and to coverage offer reporting.
Many employers have been advised that their Code § 4980H(a) tax exposure may be minimized by retroactive application of the look-back measurement method. We have yet to hear the legal basis for that advice. An ALE that did not offer 2015 minimum essential coverage to at least 70% of its full-time employees and their dependents has § 4980H(a) exposure if at least one full-time employee bought subsidized 2015 insurance through an ACA Exchange. We are aware of no IRS guidance stating or suggesting that an employer in 2016 may retroactively adopt the look-back measurement method in order to minimize the number of full-time employees used in the 2015 monthly assessment calculations. Maybe the IRS will cut you that slack, but don’t count on it.

A Rose by Any Other EIN

For many regulatory purposes for many years, federal agencies have treated nominally separate employers, with separate Employer Identification Numbers, as a single “controlled group” employer, based on common ownership and other indicia of control. Apparently, the IRS command to report 2015 coverage offers EIN-by-EIN (one Form 1094-C “Authoritative Transmittal” for each EIN) has encouraged employers to believe that each EIN will be viewed separately as an ALE, or not. Well, no.

An EIN within a controlled group is called an “Applicable Large Employer Member.” Under penalty of perjury, it must identify the group’s other members on Form 1094-C, Part IV (page 3).   If, in the aggregate, the group averaged at least 50 monthly full-time employees (including FTE equivalents) in 2015, then it’s a 2016 ALE. The IRS will total the employees reported by all group EINs to make that determination.

Plop, Plop, Fizz, Fizz: Under-100 Relief

“Smaller large employers” – i.e., ALEs with less than 100 full-time employees (including equivalents) – may avoid § 4980H assessments that otherwise would be imposed in 2016 by filing their 2015 Form 1095-Cs with a 2015 Form 1094-C, checking Form 1094-C, Line 22, Box C to claim that relief. Many employers have been advised about the relief, but not that it is conditioned on the filing. Thus, many have not planned to file.   We are unaware of any IRS guidance stating or suggesting that this relief will be extended to smaller large employers that fail to file as required. And, by the way, before checking Box C, read pages 15-16 of the Instructions to assure that you understand what you are certifying, under penalty of perjury, by doing so.

Devils, Details

We glossed-over many conditions, qualifications and exceptions to keep this simple, because our least sophisticated readers are most in need.  If you’re among them, get help yesterday.

Nearly three years ago, having spent hundreds of hours immersed in ACA minutiae, we anticipated that clients would not react well to fees for services that consisted principally of telling them that they had asked the wrong question. So we decided, against tradition and much conventional wisdom, to sink lots of unpaid partner time into this education project. A casual reader of this blog should learn basic ACA terms and concepts, so that he or she can converse effectively with advisors. A regular reader should be able to identify, during such a conversation, a purported ACA expert who’s a poseur. Sadly, they abound. A colleague should find this a thought-provoking reference to ACA rules and guidance documents. Those are our goals.

Substitute nothing you read here for legal or other professional advice about any specific situation. ACA rules and sub-regulatory guidance change frequently and whimsically. Occasionally, the three main enforcement agencies (DOL, HHS, IRS) disagree. Sometimes, they publish a new rule unaware of a related, existing rule. Part of our service to you is to alert you to what we see coming. We usually have guessed right, but we often are guessing. And of course, apparently insignificant factual details can turn out to be determinative. If you regard this blog as cheap – i.e., free – legal advice, you’re rolling the dice at your own risk and the risk might be far bigger than you realize.

Finally, we invite constructive comments, including reasoned criticism, but not rants. We delete hissy-fits and block commenters who seem to be unable to comment otherwise. That goes triple for political hyperbole. Sometimes, we must explain political realities in order to explain a regulatory reality, but we try to be objective. You should, too.