HCR Update: Wellness Ruling, Full-Time Threshold; Value-Based Purchasing

Here is the latest Health Care Reform Update, brought to you with the help of our partners at UBA:

Important Legal Ruling for Employer-Sponsored Wellness Plans

In a decision filed April 11, the Southern District of Florida granted an employer health plan's motion for summary judgment in a case where the health plan's wellness program was charged with violating the Americans with Disabilities Act (ADA). The case, Seff v. Broward County, is important because it has never been clear whether wellness programs and health risk assessments that otherwise comply with the HIPAA wellness rules (particularly those that are mandatory or involve penalties) are also compliant with ADA.

The Equal Employment Opportunity Commission (EEOC), which administers the ADA, has questioned whether mandatory wellness programs or those that include penalties for noncompliance (as opposed to a reward for participation) would be permitted under this provision. However, the EEOC has not issued formal guidance. In this case, the court found that the ADA prohibition does not apply to a wellness program offered by an employer health plan where the program meets the ADA's safe harbor for bona fide benefit plans.

Importantly, the court did not address whether the county wellness program was "voluntary" under EEOC standards. Applicable regulations define a voluntary wellness program as one that neither requires employees to participate nor penalizes employees for non-participation. The EEOC has informally suggested that a wellness program may not be voluntary if the program includes a mandatory health risk assessment or a punitive trigger, but since the court did not address this, it remains an undecided issue.

Treasury Plan Would Help Determine Full-Time Workers for Health Cover
The U.S. Treasury Department unveiled potential approaches Tuesday to what constitutes a full-time employee as it pertains to the health care reform law requirement that employers offer full-time employees coverage or pay a penalty if they do not.

Under one approach suggested by Treasury in Notice 2011-36:

• An employer would calculate each employee's full-time status by looking back "at a defined period of not less than three but not more than 12 consecutive calendar months" to determine if the employee worked an average of 30 hours per work during this "measurement" period
• If the employee met the 30-hour standard by that measurement, the individual would be considered a full-time employee during a subsequent "stability" period, regardless of the number of hours the employee worked during that subsequent period.
• For an employee determined to be a full-time employee during the measurement period, the stability period would be at least six consecutive months after the measurement period
• If an employee were determined not to be full-time during the measurement period, the employer would be allowed to exclude the individual in calculating its full-time employees during a stability period

The Treasury Department said it is asking for public comment on determining whether an employee meets the 30-hour threshold. Comments are due June 17 and can be emailed to Notice.comments@irscounsel.treas.gov.. Notice 2011-36 should be included in the subject line.

CMS Implements Medicare Value-Based Purchasing for Hospitals
A new initiative launched by the Department of Health and Human Services (HHS) will reward hospitals for the quality of care they provide to people with Medicare and help reduce health care costs. Authorized by the Patient Protection and Affordable Care Act (PPACA), the Hospital Value-Based Purchasing program for the first time changes how Medicare pays health care providers and facilities--3,500 hospitals across the country will be paid for inpatient acute care services based on care quality, not just the quantity of the services they provide. The final rule establishing the Hospital Value-Based Purchasing Program will be published in the May 6 Federal Register; the proposed rule was published on Jan. 13.

In fiscal year 2013 (beginning on Oct. 1, 2012), an estimated $850 million will be allocated to hospitals based on their overall performance on a set of quality measures that have been proven to improve clinical processes of care and patient satisfaction. This funding will be taken from what Medicare otherwise would have spent, and the size of the fund will gradually increase over time, resulting in a shift from payments based on volume to payments based on performance.

The better a hospital does on its quality measures, the greater the reward it will receive from Medicare.

PPACA FAQs; Senate Votes to Repeal 1099 Reporting

From TrueNorth and our partners at UBA, we are happy to provide you with the latest Health Care Reform Update:

PPACA FAQs released on the Grandfathered Plan Rules:
The Employee Benefits Security Administration (EBSA) has released a sixth set of frequently asked questions (FAQs) about the Patient Protection and Affordable Care Act (PPACA). Specifically, they address:


• the anti-abuse rule;

• changing cost sharing for newly-generic drugs

• no cost sharing for preventive services under a value-based health care initiative,

retiree health care, and

• the timing of the relinquishment of grandfather status.

The full FAQ can be found here: http://www.dol.gov/ebsa/faqs/faq-aca6.html  

U.S. Senate Votes to Repeal 1099 Reporting Requirement
Bowing to pressure from business groups worried about an avalanche of paperwork, the U.S. Senate voted 87-12 Tuesday to pass legislation that repeals a requirement for businesses and landlords to file a Form 1099 document with the IRS for purchases of goods and services exceeding $600 a year. The legislation earlier was passed by the House of Representatives and now goes to President Barack Obama, who is expected to sign it into law.

The bill adjusts the health insurance tax subsidies to be given to middle-income people under the health care law. It would require anyone who receives excessive tax subsidies for health insurance to pay back a greater share than currently required under the law. Some Democrats argued that the payback provision for excessive subsidies would discourage individuals and small businesses from complying with the law's requirement that they obtain health insurance.

HCR-Update: IRS Delays W-2 Reporting; Self Funding Report

Highlights of recent regulations released by the IRS:

1. The regulations emphasize that the reported amounts are for employee information only and does not cause excludable employer-provided health care to become taxable. Separate legislation would need to be enacted for this to occur.
2.  Reporting is optional for the 2011 calendar year, but mandatory for many employers beginning with the 2012 calendar year (i.e., for W-2s produced in January 2013).
3. Employers who issue fewer than 250 W-2s for the 2011 calendar year (i.e., produced in January 2012), are exempt from the reporting requirement for at least the 2012 calendar year. Such employers will be required to report for future years if/when additional regulations are issued.
4. The cost of an employer-sponsored health plan is the amount to be reported. This includes any amounts contributed by the employer and the employee.
5. Amounts attributable to an HSA are not reported. The amount for the underlying QHDHP are reported.
6. The amount of any salary reduction election to a medical reimbursement FSA is not included. Any employer contribution to the medical FSA is included.
7. Plans that provide benefits generally limited to dental, vision, specified illness/disease or fixed indemnity reimbursements (typically hospital indemnity plans) are not included. This is the case even if the dental and vision are packaged with the medical if they are provided under a separate plan (i.e., not an integral part of the medical plan).
8. Fully insured plans can rely on the premium charged by the carrier in determining the amount to be reported.
9. Self-funded plans can rely on the COBRA costs they calculate at the beginning of each plan year, including any amounts the employer may contribute to the COBRA coverage.
10. For employees that are not enrolled in a health plan for the entire tax year an employer may use any reasonable, consistent method for calculating the pro-rata amount to be reported.

This is obviously not an exhaustive list of the regulations, nor does it constitute tax advice. Employers and employees should consult their own tax consultants for details regarding their specific situation.

HCR-Update: State Strategies; Claims Appeals Rules

Thanks to our partners at UBA, we have more information surrounding Health Care Reform.  Read below to learn the latest.

HHS and Treasury Propose Rules for States to Adopt Innovative Strategies to Meet the Goals of PPACA; Comments Accepted

The Departments of Health and Human Services (HHS) and Treasury have proposed new rules outlining the steps states may pursue in order to receive a state innovation waiver under the Patient Protection and Affordable Care Act (PPACA). The Act gives states the flexibility to receive a state innovation waiver (beginning in 2017 -- some elected officials would like to see this date changed to 2014) so they may pursue their own innovative strategies to ensure their residents have access to high-quality, affordable health insurance. The proposed regulation describes the content of the waiver application and how such proposals may be disclosed to the public, monitored and evaluated.

State innovation waivers are designed to allow states to implement policies that differ from those in PPACA so long as they:

• Provide coverage that is at least as comprehensive as the coverage offered through health insurance exchanges -- new competitive, private health insurance marketplaces
• Make coverage at least as affordable as it would have been through the exchanges
•  Provide coverage to at least as many residents as otherwise would have been covered under PPACA
• Do not increase the federal deficit

States could use a variety of strategies to innovate through a waiver, provided they meet the above requirements. For example, they could develop a new system for providing tax credits, which links small business tax credits to the tax credits for moderate-income families. Or they could change the benefit levels or add new benefit levels for health plans offered in the exchanges, providing consumers and employers even more choices.

• The proposed rule says that an application must include the following:
• The provisions of the law that the state seeks to waive
• An explanation of how the proposed waiver will meet the goals related to coverage expansion affordability, comprehensiveness of coverage and costs
• A budget plan that does not increase the federal deficit, with supporting information
• Actuarial certifications and economic analysis to support the state's estimates that the proposed waiver will comply with the comprehensive coverage requirement, the affordability requirement and the scope of coverage requirement; and
• Analyses of the waiver's potential impact on provisions that are not waived, access to health care services when residents leave the state, and deterring waste, fraud and abuse
• Under the proposed rule, states with waivers submit quarterly and annual reports. They track measures in the four key areas: affordability, comprehensiveness of coverage, the number of people covered and impact on the federal deficit.

A summary of the proposed rules is available at http://www.healthcare.gov/news/factsheets/stateinnovation03102011a.html.

EBSA Provides Additional Grace Period for Health Care Reform's Claims Appeals Regulations
The Department of Labor's Employee Benefit Security Administration has extended and modified an enforcement grace period for some of the new standards required under the Patient Protection and Affordable Act (ACA) for health care internal claims and appeals and external reviews until plan years beginning on or after Jan. 1, 2012. Technical Release 2011-1 is intended to give group health plans more time to change plan or policy procedures and to modify computer systems in order to comply with the new interim final claims regulations issued on July 23, 2010, and Aug. 23, 2010, to implement Public Health Service Act (PHSA) Sec. 2719. The Department of Health and Human Services, the Internal Revenue Service, and EBSA jointly issued these 2010 regulations, and they intend to issue amendments to these rules soon.

Specifically, this Technical Release 2011-01 extends the enforcement grace period until plan years beginning on or after Jan. 1, 2012 with respect to the following:

• A plan or issuer must notify a claimant of a benefit determination (whether adverse or not) with respect to a claim involving urgent care as soon as possible, taking into account the medical exigencies, but not later than 24 hours after the receipt of the claim by the plan or issuer
• Notices must be provided in a culturally and linguistically appropriate manner, as required by the statute, and as set forth in the 2010 interim final regulations)
• If a plan or issuer fails to strictly adhere to all the requirements of the 2010 interim final regulations, the claimant is deemed to have exhausted the plan's or issuer's internal claims and appeals process, regardless of whether the plan or issuer asserts that it has substantially complied, and the claimant may initiate any available external review process or remedies available under ERISA or under state law

During the grace period, the Department of Labor and the IRS will not take any enforcement action against a group health plan, and HHS will not take any enforcement action against a self-funded non-federal governmental health plan, with respect to these provisions. Similarly, HHS is encouraging states to provide similar grace periods with respect to insurers, and HHS will not cite a state for failing to substantially enforce PHS Act section 2719(a) in these situations.

Will Congress Repeal Health Care Reform?

Attempts to Repeal the Health Care Reform Law
In January, the House passed repeal legislation by a vote of 245 to 189, with three Democrats crossing the aisle to vote with their Republican colleagues. The Senate also voted on repeal in February. However, that attempt was defeated, with Senators voting along party lines. Sixty votes were required for repeal; the measure failed 47 to 51.

It is possible that further attempts to repeal the health care reform law will be introduced in Congress.

Potential Health Care Reform Changes
Because full repeal of the health care reform law will be difficult, Republicans have indicated that they will use other strategies to prevent the law from being fully implemented in its current form. These strategies include replacing, rather than repealing, parts of the law, or repealing the law “piece by piece,” using approaches like blocking funding or regulations.

Provisions of the law that may be revised or repealed include:

• The requirement for businesses to report payments in excess of $600 on a Form 1099;
• The employer responsibility provisions, which provide that employers can face penalties for not providing a certain level of health coverage to employees.
• The individual responsibility requirement, which imposes penalties on individuals who do not obtain coverage;
• The Cadillac Plan tax on high-cost, employer-sponsored health plans;
• The tax on manufacturers of medical devices; and
• Cuts to Medicare.

Republicans have also suggested changes to the planned health insurance exchanges, which will take effect in 2014, to give states more power in designing the exchanges. However, members of the GOP have also said that they may want to keep some of the law’s provisions that are popular with consumers. Some experts have warned that keeping some parts of the law while repealing others may not be practical.

Democrats are standing behind the health care package and some exit polls show that the public is split on whether health care reform should be repealed. However, party leaders, such as President Obama and Senate Majority Leader Harry Reid (D-Nevada) have indicated a willingness to revise some portions of the law, especially if changes will bring faster and more effective reform to the health care system.

What’s Next?

Despite the various attempts to repeal the law, and potential future changes, the health care reform law as we know it is the law. Employers and health plan sponsors should make sure they are implementing the requirements as they become effective. If any changes are made to parts of the law that have already taken effect, there will likely be time for employers and plan sponsors to put changes into place.

Healthcare Reform: Major Updates and Look Ahead at 2011!

As we approach the one-year anniversary of the enactment of the Patient Protection and Affordable Care Act (“ACA”), we thought it would be a good idea to review the changes that have occurred as well as look forward to what can be expected in 2011. While there are many aspects of ACA, we’ll limit this discussion to those elements that could have significant impact on municipal employers.

Published Regulations

• Grandfathered Status. Interim Final Regulations (IFRs) were released last June and Final Regulations are scheduled to be released by the end of 2011. An employer that makes very little or no changes to their medical plan that was in effect on March 23, 2010 (the date ACA was signed into law), can postpone some of the mandated benefits required by ACA, fulfilling the promise that “if you like your health insurance plan you can keep it”. When the IFR was released, Federal regulators predicted that, on average, 82% of large employers (100+ employees) would retain their grandfathered status in 2011, while 70% of small employers would. Results since September would seem to indicate that many more employers than anticipated are making plan changes that result in their loss of grandfathered status.
• Preventive Care Benefits Provided Without Cost-Sharing . IFRs were released last July and Final Regulations are scheduled to be released in April of this year. This is the most significant mandate required when a plan loses its grandfathered status. Applicable benefits are based on the recommendations of the U.S. Preventive Services Task Force, but since many of those recommendations are vague, insurance carriers and self-funded plans are challenged to develop specific plan provisions. Hopefully the Final Regulations will provide some clarity.
• Removal of Lifetime Dollar Limits. One of the few clearly-defined mandates in ACA, making this change seems to have had little financial or administrative impact to employer plans.
• Dependent Children Eligible Until Age 26 . While Final Regulations are scheduled for release in April, this mandate also seems to have presented minimal administrative challenges for employers and insurance carriers. Not enough data is available yet to gauge this mandate’s effect on enrollment or plan costs.
• Non-Discrimination Testing Applicable to Insured Plans. This mandate applies to insured plans that lose their grandfathered status, and was designed to be very similar to the testing applied to self-funded programs since the 1980s. Plans are tested to ensure they don’t disproportionately favor highly-compensated employees, both in terms of availability and participation. If the plan is found to be discriminatory, the employer is subject to substantial excise taxes. Originally set to apply to plan years beginning after September 23, 2010, federal regulators were besieged with questions that weren’t addressed in the existing rules. Recognizing the need for more concise guidance, they have postponed enforcement of the testing and penalties until after they publish more clearly defined regulations, which are expected in September 2011.
• Consumer Operated and Oriented Plans (“CO-OP Plans”).  HHS has just published a request for input concerning these non-profit alternatives to traditional insurance programs for the individual and small group markets.  Loans and grants are scheduled to be dispersed starting in July 2013 for these programs and HHS is looking for feedback as to the structure, sponsorship and operational requirements that would help ensure sustainable success.  It’s expected that there be at least one CO-OP plan in each state and a plan could be regional (I.e., cross state lines).

Other Regulations Expected to Be Released in 2011

• Uniform Explanation of Benefits, Coverage Facts and Standardized Definitions (March). Establishes national definitions and standard formats for communicating plan details to participants. This must be provided to all participants by March 2012. Coincident with providing this information, beginning in April 2012 plans/carriers must provide a summary of material modifications a minimum of 60 days prior to the effective date of any such plan changes.
• Requirements to Implement American Health Benefits Exchanges (March). Will lay out the requirements, processes and timetables to establish the State Exchanges for the individual and small group markets. If a state is unable or unwilling to follow these rules, HHS will set up and run an exchange for that state. Iowa has already been working for several years on creating this type of program and it is hoped the new Federal regulations will have minimal impact on that effort.
• Transparency Reporting Rule (March). Plans/carriers must provide information on claims payment policies, number of claims denied and rating practices. Upon request from a covered individual, must provide the amount of cost-sharing for a specific item or service by a plan participating provider.
• Community Living Assistance Services and Supports (CLASS) Act (September). Enrollment and eligibility regulations are expected to be spelled out for the Federally-administered long-term care program. Many industry and policy experts have raised concerns regarding the sustainability of the program as set up in the ACA legislation. In fact, the bipartisan National Commission on Fiscal Responsibility and Reform established last fall by President Obama proposed eliminating the CLASS Act and legislation to do so was introduced in both the last and the current Congress. Given this environment, it’s quite possible this specific portion of ACA will not be implemented.

Court Challenges to the ACA

Sixteen filings have been entered in U.S. District Courts since the ACA was signed into law last March. So far, the score is:

• 2 judges have ruled the ACA constitutional
• 2 judges have ruled it to be unconstitutional ( either in whole or in part)
• 12 judges have dismissed challenges

In each of the four rulings, the losing parties have indicated their intent to file petitions with the appropriate Appellate Court. Many legal and legislative experts expect the issue will ultimately be decided by the Supreme Court. In the meantime, most carriers and employers are making the plan revisions mandated by the ACA, while recognizing they may eventually need to make even more changes based on future court decisions.

Over the Counter Drugs Q&A

Health care reform changes the rules for reimbursement of over-the-counter drugs through HSAs, HRAs, MSAs and FSAs. These questions and answers from the IRS clarify the new rules.

Q. How are the rules changing for reimbursing the cost of over-the-counter medicines and drugs from health flexible spending arrangements (health FSAs) and health reimbursement arrangements (HRAs)?
A. Section 9003 of the Affordable Care Act established a new uniform standard for medical expenses. Effective Jan. 1, 2011, distributions from health FSAs and HRAs will be allowed to reimburse the cost of over-the-counter medicines or drugs only if they are purchased with a prescription. This new rule does not apply to reimbursements for the cost of insulin, which will continue to be permitted without a prescription.

Q. How are the rules changing for distributions from health savings accounts (HSAs) and Archer Medical Savings Accounts (Archer MSAs) that are used to reimburse the cost of over-the-counter medicines and drugs?

A. In accordance with Section 9003 of the Affordable Care Act, only prescribed medicines or drugs (including over-the-counter medicines and drugs that are prescribed) and insulin (even if purchased without a prescription) will be considered qualifying medical expenses and subject to preferred tax treatment.

Q. When will the changes become effective?
A. The changes are effective for purchases of over-the-counter medicines and drugs without a prescription after Dec. 31, 2010. The changes do not affect purchases of over-the-counter medicines and drugs in 2010, even if they are reimbursed after Dec. 31, 2010.

Q. How do I prove that I have purchased an over-the-counter medicine or drug with a prescription so that I can get reimbursed from my employer's health FSA or an HRA?
A. If your employer’s health FSA or HRA reimburses these expenses, you would provide the prescription (or a copy of the prescription or another item showing that a prescription for the item has been issued) and the customer receipt (or similar third-party documentation showing the date of the sale and the amount of the charge). For example, documentation could consist of a customer receipt issued by a pharmacy that reflects the date of sale and the amount of the charge, along with a copy of the prescription; or it could consist of a customer receipt that identifies the name of the purchaser (or the person for whom the prescription applies), the date and amount of the purchase, and an Rx number.

Q. How does this change affect over-the-counter medical devices and supplies?
A. The new rule does not apply to items for medical care that are not medicines or drugs. Thus, equipment such as crutches, supplies such as bandages, and diagnostic devices such as blood sugar test kits will still qualify for reimbursement by a health FSA or HRA if purchased after Dec. 31, 2010, and a distribution from an HSA or Archer MSA for the cost of such items will still be tax-free, even without a prescription.

Q. Will I need a prescription to use my health FSA, HRA, HSA or Archer MSA funds for insulin purchases after Dec. 31, 2010?
A. No. You can continue to use your health FSA, HRA, HSA or Archer MSA funds to purchase insulin without a prescription after Dec. 31, 2010.

Q. I use health FSA funds for my copays and deductibles. Will I still be able to reimburse those expenses with health FSA funds after Dec. 31, 2010?A. Yes. Copays and deductibles continue to be reimbursable from a health FSA after Dec. 31, 2010. Similarly, funds from an HRA can continue to be used for these expenses and a distribution from an HSA or Archer MSA for these purposes will be tax-free.

Q. My company gives me two extra months beyond the end of the year to submit claims for health FSA expenses incurred during the year. What happens if I purchase over-the-counter medicines or drugs without a prescription in 2010 but do not submit the claim for those expenses until January 2011? Will they qualify for reimbursement?
A. Yes. The new restriction on plan reimbursements for the cost of over-the-counter drugs without a prescription applies only to purchases that are made after 2010.

Q. My company’s health FSA includes a provision for a grace period, so that if I don’t spend all of the money in my health FSA by Dec. 31, I can still use the amount left at the end of the year to reimburse expenses I incur during the first 2 ½ months of the following year. If I buy over-the-counter medicines or drugs without a prescription during the 2 ½ month grace period of 2011, can I still use the amount left in my health FSA from 2010 to reimburse those expenses?
A. No. The change applies to any purchases made on or after Jan. 1, 2011. Thus, even if your employer’s plan includes the 2 ½ month grace period provision, the cost of over-the-counter medicines and drugs purchased without a prescription during that grace period in 2011 will not be eligible to be reimbursed by a health FSA.

Q. If my health FSA or HRA issues a debit card that I use to pay for over-the-counter medicines or drugs, will I still be able to use the card to purchase over-the-counter medicines or drugs after Dec. 31, 2010?
A. Generally, yes, if you have a prescription for the medicine or drug. For expenses incurred in 2010, you may continue to use an FSA or HRA debit card to purchase over-the-counter medicines or drugs (whether or not you have a prescription) at pharmacies and from mail order and web-based vendors that sell prescription drugs. Starting after Jan. 15, 2011, you may continue to use an FSA or HRA debit card to purchase over-the-counter medicines or drugs at these vendors, so long as you obtain a prescription for the medicine or drug, the prescription is presented to the pharmacist, and the medication is dispensed by the pharmacist and given an Rx number.

For further information, including guidance on purchases of over-the-counter medicines and drugs from health care providers other than pharmacies and mail order and web-based vendors (such as physicians or hospitals), see IRS Notice 2011-5. For guidance on debit card purchases at “90 percent pharmacies,” see IRS Notice 2010-59.

Q. If I use HSA or Archer MSA funds to reimburse the cost of over-the-counter medicines or drugs purchased after Dec. 31, 2010, without a prescription, what taxes will I incur?
A. If you have an HSA or Archer MSA, the amount of the distribution for expenses that are not qualifying medical expenses will be includable in your gross income and subject to an additional tax of 20 percent.