Health Care Reform Update: Tax Credits; NAIC Broker Vote; Supreme Court's Plans

Small Business Tax Credit Finds Few Claimants
On Nov. 7, the Treasury's Inspector General for Tax Administration released a report regarding the small business tax credit.  The preliminary evidence is now in, and the results show that despite IRS efforts to inform 4.4 million taxpayers who could potentially qualify for the credit, the volume of claims for the credit has been extraordinarily low. As of mid-May 2011, the IRS reported that slightly more than 228,000 taxpayers had claimed the credit for a total amount of more than $278 million.  While some additional returns can be expected to continue to come in until the extension deadlines later this year, the Congressional Budget Office estimate that taxpayers would claim up to $2 billion in FY 2010 will be off by more than 500 percent.
The report cites the following reasons for the low take-up rate:

• The legislation concerning which taxpayers qualify for the credit and how to calculate the credit amount is complex.
• There are multiple steps to calculate the credit, and seven worksheets (http://www.irs.gov/pub/irs-pdf/i8941.pdf) must be completed in association with claiming the credit.
• The rules themselves are complex, making it difficult for taxpayers to follow.
• The credit is new so there's risk of errors or irregularities occurring when the credit is claimed or processed, as both taxpayers and IRS employees will need to acquaint themselves with the rules.
• The credit is refundable to tax-exempt taxpayers, which is a high-risk factor for erroneous refunds. 
• The IRS had to complete new programming to accommodate the new Form 8941 and identify potential compliance risks.
• Taxpayers have been slow to claim the credit, and both taxpayers and tax practitioners are making mistakes on Form 8941.
• Some claims contained errors or were incomplete.

The full report is available at http://www.treasury.gov/tigta/auditreports/2011reports/201140103fr.pdf.

NAIC to Vote on Agent and Broker Resolution on Nov. 22
The National Association of Insurance Commissioners (NAIC) announced its Plenary Committee will meet on Nov. 22 at 4 p.m. EST to vote on a proposed resolution, titled "Resolution Urging the U.S. Department of Health and Human Services to Take Action to Ensure Continued Consumer Access to Professional Health Insurance Producers." 
The measure calls on Congress to "expeditiously consider legislation amending the MLR provisions of the PPACA in order to preserve consumer access to agents and brokers."  It also asks HHS to "take whatever immediate actions are available to the Department to mitigate the adverse effects the MLR rule is having on the ability of insurance producers to serve the demands and needs of consumers and to more appropriately classify independent producer compensation in the final PPACA MLR rule."
The resolution has been sponsored by the insurance commissioners of 22 states: Alabama, Arkansas, Delaware, Florida, Georgia, Idaho, Indiana, Kentucky, Louisiana, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, South Carolina, Tennessee, Utah and Wisconsin.  NAHU has asked all members to encourage insurance commissioners in the other 28 states to support this measure. 

Supreme Court Will Hear PPACA Challenge This Spring
The U.S Supreme Court granted a writ of certiorari in the challenge that 26 states and the National Federation of Independent Businesses (NFIB) have raised against the Obama administration regarding the constitutionality of the Patient Protection and Affordable Care Act (PPACA).  Monday's announcement sets the stage for oral arguments by March and the potential for a decision in late June.  When setting the scope of its hearing on the case, the Supreme Court allowed for five and a half hours of oral arguments.  For the Supreme Court, this is a unprecedented amount of time. 
The information released by the court regarding their consideration is significant because it gives a number of key clues as to how the case will progress in the months going forward. 

• Even though the justices discussed five appeal challenges to PPACA (and are slated to consider a sixth challenge by the Commonwealth of Virginia next week), they decided to only grant certiorari to the 26-state/NFIB challenge.  This case was previously heard by the United States Court of Appeals for the 11th Circuit, in Atlanta, which has thus far been the only appeals court to declare the individual mandate provisions of PPACA unconstitutional.  However, the 11th Circuit declined to strike down the rest of PPACA as the plaintiffs requested, even though the law does not contain a "severability clause."  The 11th Circuit also upheld the law's expansion of the Medicaid program, rejecting the state's contention that that it also exceeded congressional authority.
• The court has agreed to hear arguments about not only the mandate, but also the law's Medicaid expansion, and whether or not certain provisions of the law, like the individual mandate, may be "severed" from the rest of it.  It's the contention of the NFIB and the states that if one provision is struck down, the entire law must be as well because the measure does not contain a "severability clause," and even the Obama administration has said publicly that it is "absolutely intertwined" with at least the insurance market reform provisions of the measure that make all policies guarantee issue and bar the consideration of preexisting conditions from 2014 on forward. 

The justices will also hear at least an hour of arguments as to whether a federal tax law, the Anti-Injunction Act, should apply in this case.  The Anti-Injunction Act prevents court action on a tax until it actually takes effect. The individual mandate penalties do not take effect until 2014, so if the court finds that the law applies, it would prevent review of the mandate until at least 2014.  However, in defending the constitutionality of the individual mandate up until this point, the Obama administration has repeatedly argued that the penalties are just that--penalties--and not a tax, so the commerce clause of the Constitution should not apply.  It would be hard for them to change their argument now and support a delay on a mandate ruling until 2014.