- Employer Compliance Obligations and Decision Points Following U.S. Supreme Court Health Care Ruling
- August 14, 2012 | Author: Mark A. Smith
- Law Firm: Barley Snyder - Lancaster Office
A little more than two years after the enactment of the Patient Protection and Affordable Care Act (“ACA”), the United States Supreme Court on June 28, 2012 upheld nearly all of the massive and controversial health care reform legislation that was signed into law on March 23, 2010. Most surprising to many observers was the Court’s approval of the individual mandate requiring that certain individuals pay a penalty for failing to obtain health insurance. Under the majority opinion penned by Chief Justice John Roberts, the individual mandate was held to be a permissible exercise of the congressional taxing authority under the constitution. The Court, however, found unconstitutional the ACA’s Medicaid expansion provisions to the extent that they would penalize states by taking away their existing Medicaid funding for failing to expand Medicaid eligibility as promoted under the ACA.
The Supreme Court decision removes the cloud of uncertainty over the immediate fate of the ACA, and employers must now ensure that they are compliant with the law’s existing requirements and that they are adequately prepared for the changes to come. While future political developments may result in significant modifications to the ACA, including a partial or even complete repeal, these possibilities are entirely speculative and are unlikely to occur anytime soon. Meanwhile, the federal agencies charged with implementing the ACA are proceeding to issue guidance that will have both short- and long-term impacts on employers sponsoring group health care plans.
As most employers realize, many of the ACA’s requirements for group health plans are already in force, including the prohibition against lifetime dollar limits and restrictions on annual dollar limits on benefits; provision of dependent coverage up to age 26; and impermissibility of pre-existing condition exclusions for otherwise eligible participants under age 19. Additional requirements apply to non-grandfathered health plans (i.e., plans not in place as of the ACA’s enactment date or that have undergone specified changes since). These include a requirement for first-dollar coverage of preventive services; both internal and external claims review processes meeting specified criteria; prohibitions against requiring prior authorization or increased cost sharing for out-of-network emergency services; and allowing participants to select an in-network primary care provider and pediatrician of their choice.
Going forward, certain of these rules are scheduled to be expanded upon. For example, dollar limits on annual benefits will be completely banned as of 2014, as will pre-existing condition exclusions for those age 19 and over. Numerous new requirements are scheduled to take effect, while others await further agency guidance concerning their effective dates. Effective January 1, 2013, employers must withhold from any employee earning more than $200,000 annually from the employer an employee-only additional Medicare tax of 0.9% on the employee’s wages. Beginning in 2014, waiting periods of longer than 90 days for health plan eligibility will be prohibited. As of a date to be determined, employers having more than 200 full-time employees will be required to automatically enroll employees in their health plans. Centerpiece provisions of the ACA, including the state health insurance exchanges and the “pay or play” rules applicable to employers having at least 50 full-time equivalent employees, become effective in 2014.
A significant issue for many employers concerns the ACA’s nondiscrimination provisions, intended to effectively extend to insured group health plans rules currently applicable only to self-insured plans. Under the ACA, discrimination in the provision of health coverage or benefits in favor of highly compensated employees will subject the employer to significant excise taxes. The nondiscrimination rule will become effective at a date to be announced once regulations concerning its implementation are issued. It is likely that the regulations will end, or at least severely restrict, many common arrangements under which highly compensated individuals receive preferential treatment, from more generous employer premium contributions to the provision of post-separation executive health care coverage. Significantly, grandfathered health plans are not subject to the ACA’s nondiscrimination requirements.
A number of pending requirements under the ACA should be noted. A summary of benefits and coverage must be provided to all group health plan participants, as well as to potential enrollees, beginning generally by the time of the first open enrollment period after September 23, 2012 and at specified times thereafter. Effective for 2012 (for provision to employees by January 31, 2013), employers filing at least 250 Forms W-2 must report on each employee’s Form W-2 the aggregate cost of employer-sponsored health coverage provided to the employee. The regulatory agencies have issued detailed guidance on these requirements, including the contents and permitted delivery methods for the summary of benefits and coverage, and how to calculate the aggregate cost of coverage for completing the Forms W-2.
Also imminent is a reduction, to $2,500, as the maximum amount employees may contribute to a flexible spending account. The limit is effective for plan years beginning after December 31, 2012, though employers have until the end of calendar year 2014 to amend their plan documents to reflect the new limit. Operational compliance for most plans, however, will typically entail modifying informational materials and administrative documents in time for the next open enrollment period.
Related to these and to other provisions under the ACA, employers face a number of important decisions concerning the provision of health care coverage to their employees. For sponsors of grandfathered plans, the benefits of maintaining grandfathered status may become more significant, as nondiscrimination rules and certain health care quality reporting requirements from which these plans are exempt, come into effect. Certain ACA provisions impacting the health care insurance market may induce some smaller employers with insured plans to transition into self-insured arrangements. Employers will also evaluate whether to offer, or to continue to offer, group health insurance coverage in light of the pay or play rules.
Notwithstanding the possibility that the ACA or certain of its principal components may not survive long-term, employer sponsors of group health plans must actively manage their current compliance obligations and prepare for those requirements that will soon become effective. Certain of these requirements will involve communication and coordination with insurance carriers, stop loss providers and third party administrators, such that an appropriate amount of lead time should be permitted. In many cases, group health plan sponsors will benefit from consulting a professional advisor concerning their compliance obligations and their decision-making processes relative to the ACA’s many requirements and the law’s effects given the employer’s particular circumstances.