U.S. SUPREME COURT HEALTHCARE RULING

Thomas M. MurphyOne South Church Avenue, Suite 1900

Tucson, Arizona 85701(520) 205-4759

(520) 624-3849 (fax)tmurphy@gustlaw.com

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OVERALL LOOK

U.S. Supreme Court upheld the Patient Protection and Affordable Care Act (“PTACA”), popularly known as ObamaCare.

Lifts a cloud of uncertainty over the law, but for practical purposes means that employers must now focus squarely on their future obligations in need for clarifications on the employer responsibility provisions and other provisions of the law that are coming to be implemented.

  There are a number of points in the law that are in effect today

and a lot of others will come into effect in 2014 or later.

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Changes• One of the Act's most sweeping changes is to require most individuals to obtain

health insurance. Individuals required to have insurance (generally all adults) will have to pay a tax penalty if they do not obtain coverage for themselves and their dependents by 2014.

 • Individuals can obtain coverage through their employer (if available), an Exchange,

the private insurance market outside of the Exchange or government programs such as Medicare, Medicaid or TriCare (if eligible).

 • Individuals may purchase insurance through newly-created “Exchanges” beginning

in 2014. Exchanges are private insurance marketplaces that are established on a state-level and provide individuals (and small employers) with health insurance options at varying levels that meet certain cost-sharing and benefit standards.

• One purpose of the Exchange is to provide individuals who cannot obtain health coverage through an employer (or who cannot afford health coverage offered by their employer) health insurance coverage options that meet uniform minimum standards in order to meet their individual coverage responsibilities.

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• The Act provides subsidies to low-income individuals and their families in the form of tax credits and reduced costs for coverage purchased through the Exchange to assist individuals for whom the cost of obtaining health coverage is too high.

 • A small employer (less than 100 Employees) may also purchase health

coverage for its employees through an Exchange beginning in 2014. • In the future, the Act contemplates opening up the Exchanges in 2017,

at the election of individual states, to large group markets so that larger employers can also use an Exchange to provide employee health coverage.

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Employer Responsibilities

• The Act does not affirmatively require an employer to provide health coverage to its employees or their dependents.

• Employers are able to keep their plans they had in 2010 and be “grandfathered” subject to certain restrictions.

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Grandfathered PlansPlans will lose their “grandfather” status if they choose to significantly cut benefits or increase out-of-pocket spending for consumers  • Cannot Significantly Cut or Reduce Benefits.

• Cannot Raise Co-Insurance Charges.

• Cannot Significantly Raise Co-Payment Charges.

• Cannot Significantly Raise Deductibles.

• Cannot Significantly Lower Employer Contributions. Grandfathered plans cannot decrease the percent of premiums the employer pays by more than 5 percentage points (for example, decrease their own share and increase the workers’ share of premium from 15% to 25%).

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• Cannot Add or Tighten an Annual Limit on What the Insurer Pays. If they want to retain their status as grandfathered plans, plans cannot tighten any annual dollar limit in place as of March 23, 2010.

• Cannot Change Insurance Companies.

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Employer Penalties

Beginning in 2014, employers with more than 50 full-time equivalent employees will be subject to penalties if they have employees who both obtain coverage through an Exchange and qualify for subsidy assistance. The amount of the assessment will depend on whether the employer offers health coverage to its full-time employees. • If the employer does not provide coverage and at least one employee

obtains coverage through an Exchange and qualifies for subsidy assistance to pay for such coverage, the employer will be required to pay an annual assessment equal to $2,000 for each full-time employee of the employer.

• If the employer does provide coverage, an employee can still opt-out of such coverage and go into the Exchange.

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• If the employer's coverage is not affordable to the individual employee (meaning the employee's contribution exceeds 9.5 percent of his or her household income), or the employer's plan covers less than 60 percent of the total allowed costs of benefits provided under the plan, then the employee may qualify for subsidy assistance.

 • In such case, the employer will be required to pay an annual assessment

equal to $3,000 for each opting-out employee of the employer (capped at an annual assessment equal to $2,000 times the total number of full-time employees).

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Plans and Benefits that are Exempt from Compliance with ACA

The following plans and benefits are exempt from compliance with all provisions of ACA (whether applicable to all plans or only to non-grandfathered plans): 

• Dental-only and vision-only plans

• Most health flexible spending arrangements

• Separate insurance coverage for critical illness or accidents

• Separate retiree-only plans

• Medigap policies

• Accidental death and dismemberment coverage

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Cadillac Tax

Cadillac Tax does not take effect until 2018.  • A 40 percent tax on the value of coverage that exceeds $10,200 for single coverage

and $27,500 for family coverage will be imposed (these amounts may be adjusted before they are effective, and certain adjustments are made for qualified retirees and high-risk professions, as well as for age and gender) effective January 1, 2018.

 • Employers need to look to reduce the cost of their benefits or the value of their

benefits so they can stay under the threshold. • The key part of the law is that it is the total cost of benefits, not just what the

employer pays for the benefit, but also what the employee pays for the benefit. So then you have to reduce the total cost for your healthcare benefits regardless of what portion is paid the employers v. the employee.

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Employees

Most of the following provisions have already gone or partially gone into effect, or will come in by 2014:

•Overall lifetime limits and unreasonable annual limits must be eliminated. •Plans that provide dependent coverage of children are required to continue such coverage for adult children who are not eligible under another employer group health plan until they reach age 26 (all such children, regardless of other plan eligibility, must be eligible for coverage by 2014).

 •Pre-existing condition exclusions with regard to children under 19 have been eliminated. All pre-existing condition exclusions for any plan participant or dependent must be eliminated by 2014.

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•Non-grandfathered plans may not impose cost-sharing requirements (such as deductibles or co-pays) on preventive care services and immunizations that are recommended by governmental agencies under the Act.

 •Non-grandfathered plans must provide participants and dependents the ability to freely choose primary care providers, pediatricians and gynecologists as of the first plan year.

 • Insured non-grandfathered plans will have to apply rules that are currently applicable only to self-insured plans that prevent discrimination in favor of highly-compensated employees.

 •Non-prescribed over-the-counter drugs are no longer be eligible for reimbursement under flexible spending accounts, health reimbursement arrangements or health savings accounts.

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• Employers are required to provide an abbreviated summary of their health plans to participants in their plans.

 • Contributions to medical flexible spending accounts will be limited to $2,500

effective January 1, 2013.  • Employee FICA taxes will increase by .9 percent for wages paid above $200,000

($250,000 for joint returns) and a new 3.8 percent Medicare tax will be imposed on high income earners for certain investment and other unearned income, effective January 1, 2013.

 • Waiting periods in excess of 90 days are prohibited effective January 1, 2014.

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•Employers that pay a portion of employees’ premiums under the employer’s health plan may be required to provide “free-choice vouchers” to certain employees to assist them in purchasing coverage under an Exchange policy if the employees do not take the employer’s coverage effective January 1, 2014.

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Auto-Enrollment Provisions• Auto-Enrollment Provision applies to large employers subject to the Fair Labor

Standards Act, that have at least 200 full-time employees and offer health coverage.  • They will be required to enroll each new full-time employee automatically with one

of the plans the employer offers, unless the employee affirmatively opts out or elects a different option of enrollment provisions beginning in 2014.

• Need guidance from the federal government as to how this will take place. Automatic enrollment is common with retirement plans but not with healthcare plans.

• Unclear whether employee should be placed in a single or a family plan.

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Medical Loss Ratio Refund•  The Medical Loss Ratio, or the “80/20″ provision, in effect now. • Small-group and individual-plan insurance companies that annually spend less than

80 percent of premium dollars on medical care owe their customers a rebate. For insurers to large businesses, the percentage split is 85-15.

 • For people who buy insurance through their employers, those rebates do not come

directly in the mail. They first go to the employer, which decides how to distribute it. Employers who offer insurance can either send out individual checks to their employees, or put those rebates toward lowering future premium costs.

 • The employer could also use the rebates as a lump-sum reimbursement to the

accounts that pay premiums, or spend it in other ways that “benefits its employees,” according to the Department of Health and Human Services. This can include lowering copays or adjusting cost-sharing to cut group insurance costs

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Wellness IncentivesIncreased incentives can be provided to employees who comply with employer wellness programs effective January 1, 2014. This will result in employees being asked to become more engaged in their health and improve their health and lower cost of the plan for both of themselves and their employer.

• Increased incentives can be provided to employees who comply with employer wellness programs effective January 1, 2014. This will result in employees being asked to become more engaged in their health and improve their health and lower cost of the plan for both of themselves and their employer.

• The provision allows employees to participate in wellness programs to receive financial incentives up to 30% of health insurance premiums beginning in 2014, up from 20% presently.

• The employers look at this as attempting to control the cost of healthcare. • Good for the employees.

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