Viewing posts from: February 2013

Obama’s health insurance expansion eroding, CBO projects

Posted February 27, 2013 by Megan DiMartino

By Bloomberg News Service

The number of Americans projected to gain insurance from the U.S. health-care law is eroding, by at least 5 million people, as the Obama administration struggles to implement the $1.3 trillion overhaul amid Republican opposition.

About 27 million people are expected to gain coverage by 2017, according to a report today from the Congressional Budget Office. The CBO had projected when the law passed in 2010 that 32 million uninsured people would be on a health plan within a decade, and a year later raised its estimate to 34 million.

Expectations are being pulled back as the expansion relies on governors to build a network of insurance marketplaces and expand Medicaid, the joint federal-state insurance program for the poor. At least 22 Republican governors have said they’ll refuse to participate in the health exchanges and a Supreme Court decision lets them also opt out of the Medicaid expansion.

There is concern “about a combination of factors, including the readiness of exchanges to provide a broad array of new insurance options, the ability of state Medicaid programs to absorb new beneficiaries, and people’s responses to the availability of the new coverage,” the CBO says.

In addition, as many as 8 million people will lose health care plans now offered through their employers, the CBO estimates. After the health law was passed, the CBO projected that about 3 million people who would otherwise have employer- sponsored insurance would lose that coverage.

Health Exchanges

Some of the losses should be offset by enrollment in plans offered through exchanges, the CBO said. The CBO says that 26 million people will be in exchange plans by 2018, an increase from a maximum of 24 million in an earlier estimate.

The insurance estimates, which were part of a CBO report on the federal budget, are “a very gentle way of saying there’s a problem” with the implementation of the law, says Douglas Holtz-Eakin, a former CBO director who is now president of the American Action Forum, an advocacy group critical of President Barack Obama’s economic and health policies.

“They know that everything they do is subject to a lot of uncertainty,” Holtz-Eakin says. “If you see a systematic drift — more uninsured, less employer- sponsored insurance — what they’re saying is, ‘wow, the bad news outweighs the good news.’”

The federal government has said it will run exchanges in states that aren’t building their own, and all marketplaces will be ready to begin enrolling people by Oct. 1. The law requires most Americans to carry insurance beginning Jan. 1, 2014.

Court’s Effect

The CBO in July reduced its estimate of the insurance expansion to a maximum of 30 million after the Supreme Court’s ruling. Today’s revision shows the budget agency still thinks the law will work though the implementation may be bumpy, says Joe Antos, a health economist at the American Enterprise Institute who also advises the CBO.

“I think the states have proven that the slowness of getting these things going is not some political reaction that went away when the November election was over,” Antos says. “It’s complicated, and like most big reforms – – not just in health care, but anything the federal government says is a big reform — the amount of time that was allowed in the law probably wasn’t enough.”

A spokesman for the White House, Bradley Carroll, declined to comment on the CBO estimate.

DOL Offers PPACA FAQs Number 12

Posted February 21, 2013 by PHaynes

Set out below are additional Frequently Asked Questions (FAQs) regarding implementation of various provisions of the Affordable Care Act. These FAQs have been prepared jointly by the Departments of Labor, Health and Human Services (HHS), and the Treasury (collectively, the Departments). Like previously issued FAQs (available here),  these FAQs answers questions from stakeholders (carriers, employers, plan sponsors, brokers/consultants, healthcare providers, etc.) to help people understand the new law and benefit from it, as intended.  Essentially, these are distilled from their combined guidance and comments (available here).

Limitations on Cost-Sharing under the Affordable Care Act

Public Health Service (PHS) Act section 2707(b), as added by the Affordable Care Act, provides that a group health plan shall ensure that any annual cost-sharing imposed under the plan does not exceed the limitations provided for under section 1302(c)(1) and (c)(2) of the Affordable Care Act. Section 1302(c)(1) limits out-of-pocket maximums and section 1302(c)(2) limits deductibles for employer-sponsored plans.

Q1: Who must comply with the deductible limitations under PHS Act section 2707(b)?

The HHS final regulation on standards related to essential health benefits implements the deductible provisions described in section 1302(c)(2) for non-grandfathered[1] health insurance coverage and qualified health plans offered in the small group market, including a provision implementing section 1302(c)(2)(C) so that such small group market health insurance coverage may exceed the annual deductible limit if it cannot reasonably reach a given level of coverage (metal tier) without exceeding the deductible limit.[2]

With respect to self-insured and large group health plans, as explained in the preamble to the HHS final regulations, the Departments intend to engage in future rulemaking to implement PHS Act section 2707(b). The Departments continue to believe that only plans and issuers in the small group market are required to comply with the deductible limit described in section 1302(c)(2). Public input is welcome in advance of a future rulemaking, which will implement that only plans and issuers in the small group market will be subject to the deductible limit. Please send comments by April 22, 2013 to

Until that rulemaking is promulgated and effective, the Departments have determined that a self-insured or large group health plan can rely on the Departments’ stated intention to apply the deductible limits imposed by section 1302(c)(2) of the Affordable Care Act only on plans and issuers in the small group market. [As it stands, today, this would mean that a large group, a self-funded group and/or a grandfathered health plan could have deductibles as high as the out-of-pocket maximums for the applicable plan/tax year].

Small and Large Employers are defined in PPACA Section 1304(b)(1) and (2).  A Large Employer is one that averages 101 employees on business days during the preceding calendar year and Small Employer is one that covers at least 1 but not more than 100 employees on business days during the preceding calendar year.

Q2: Who must comply with the annual limitation on out-of-pocket maximums under PHS Act section 2707(b)?

As stated in the preamble to the HHS final regulation on standards related to essential health benefits, the Departments read PHS Act section 2707(b) as requiring all non-grandfathered group health plans to comply with the annual limitation on out-of-pocket maximums described in section 1302(c)(1) of the Affordable Care Act.[3]

The Departments recognize that plans may utilize multiple service providers to help administer benefits (such as one third-party administrator for major medical coverage, a separate pharmacy benefit manager, and a separate managed behavioral health organization). Separate plan service providers may impose different levels of out-of-pocket limitations and may utilize different methods for crediting participants’ expenses against any out-of-pocket maximums. These processes will need to be coordinated under section 1302(c)(1), which may require new regular communications between service providers.

The Departments have determined that, only for the first plan year beginning on or after January 1, 2014, where a group health plan or group health insurance issuer utilizes more than one service provider to administer benefits that are subject to the annual limitation on out-of-pocket maximums under section 2707(a) or 2707(b), the Departments will consider the annual limitation on out-of-pocket maximums to be satisfied if both of the following conditions are satisfied:

  1. The plan complies with the requirements with respect to its major medical coverage (excluding, for example, prescription drug coverage and pediatric dental coverage); and
  2. To the extent the plan or any health insurance coverage includes an out-of-pocket maximum on coverage that does not consist solely of major medical coverage (for example, if a separate out-of-pocket maximum applies with respect to prescription drug coverage), such out-of-pocket maximum does not exceed the dollar amounts set forth in section 1302(c)(1).

The Departments note, however, that existing regulations implementing Mental Health Parity and Addiction Equity Act of 2008 (MHPAEA)[4] prohibit a group health plan (or health insurance coverage offered in connection with a group health plan) from applying a cumulative financial requirement or treatment limitation, such as an out-of-pocket maximum, to mental health or substance use disorder benefits that accumulates separately from any such cumulative financial requirement or treatment limitation established for medical/surgical benefits. Accordingly, under MHPAEA, plans and issuers are prohibited from imposing an annual out-of-pocket maximum on all medical/surgical benefits and a separate annual out-of-pocket maximum on all mental health and substance use disorder benefits.

Coverage of Preventive Services

PHS Act section 2713 and the interim final regulations[5] require non-grandfathered group health plans and health insurance coverage offered in the individual or group market to provide benefits for and prohibit the imposition of cost-sharing requirements with respect to, the following:

  • Evidenced-based items or services that have in effect a rating of “A” or “B” in the current recommendations of the United States Preventive Services Task Force (USPSTF) with respect to the individual involved;
  • Immunizations for routine use in children, adolescents, and adults that have in effect a recommendation from the Advisory Committee on Immunization Practices (ACIP) of the Centers for Disease Control and Prevention (CDC) with respect to the individual involved;
  • With respect to infants, children, and adolescents, evidence-informed preventive care and screenings provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA); and
  • With respect to women, evidence-informed preventive care and screening provided for in comprehensive guidelines supported by HRSA, to the extent not already included in certain recommendations of the USPSTF.[6]

If a recommendation or guideline does not specify the frequency, method, treatment, or setting for the provision of that service, the plan or issuer can use reasonable medical management techniques to determine any coverage limitations.[7]

These requirements do not apply to grandfathered health plans.[8]

Out-of-Network Services Generally

Q3: My plan does not have any in-network providers to provide a particular preventive service required under PHS Act section 2713. If I obtain this service out-of-network, can the plan impose cost-sharing?

No. While nothing in the interim final regulations generally requires a plan or issuer that has a network of providers to provide benefits for preventive services provided out-of-network, this provision is premised on enrollees being able to access the required preventive services from in-network providers. Thus, if a plan or issuer does not have in its network a provider who can provide the particular service, then the plan or issuer must cover the item or service when performed by an out-of-network provider and not impose cost-sharing with respect to the item or service.

United States Preventive Services Task Force (USPSTF)

Q4: The USPSTF recommends the use of aspirin for certain men and women when the potential benefit due to a reduction in myocardial infarctions outweighs the potential harm. Aspirin is generally available over-the-counter (OTC) to patients. Are group health plans and health insurance issuers now required to pay for OTC methods such as aspirin?

Aspirin and other OTC recommended items and services must be covered without cost-sharing only when prescribed by a health care provider.

Q5: If a colonoscopy is scheduled and performed as a screening procedure pursuant to the USPSTF recommendation, is it permissible for a plan or issuer to impose cost-sharing for the cost of a polyp removal during the colonoscopy?

No. Based on clinical practice and comments received from the American College of Gastroenterology, American Gastroenterological Association, American Society of Gastrointestinal Endoscopy, and the Society for Gastroenterology Nurses and Associates, polyp removal is an integral part of a colonoscopy. Accordingly, the plan or issuer may not impose cost-sharing with respect to a polyp removal during a colonoscopy performed as a screening procedure. On the other hand, a plan or issuer may impose cost-sharing for a treatment that is not a recommended preventive service, even if the treatment results from a recommended preventive service.

Q6: Does the recommendation for genetic counseling and evaluation for routine breast cancer susceptibility gene (BRCA) testing include the BRCA test itself?

Yes. HHS believes that the scope of the recommendation includes both genetic counseling and BRCA testing, if appropriate, for a woman as determined by her health care provider.

PHS Act section 2713 addresses coverage for evidence-based items or services with a rating of “A” or “B” in the current recommendations of the USPSTF, as well as coverage for preventive care and screenings as provided for in comprehensive guidelines released by HRSA. The USPSTF recommends with a “B” rating that “women whose family history is associated with an increased risk for deleterious mutations in the BRCA1 or BRCA2 genes be referred for genetic counseling and evaluation for BRCA testing.”

The HRSA Guidelines, released by HHS in August 2011, incorporate by reference relevant portions of an Institute of Medicine (IOM) Report, released on July 19, 2011. In some instances, the IOM Committee Report provides additional interpretation of USPSTF recommendations. For the USPSTF BRCA recommendation, the IOM Committee interpreted the recommendation to include “referral for genetic counseling and BRCA testing, if appropriate.” Thus, genetic counseling and BRCA testing, if appropriate, must be made available as a preventive service without cost-sharing.

Q7: Some USPSTF recommendations apply to certain populations identified as high-risk. Some individuals, for example, are at increased risk for certain diseases because they have a family or personal history of the disease. It is not clear, however, how a plan or issuer would identify individuals who belong to a high-risk population. How can a plan or issuer determine when a service should or should not be covered without cost-sharing?

Identification of “high-risk” individuals is determined by clinical expertise. Decisions regarding whether an individual is part of a high-risk population, and should therefore receive a specific preventive item or service identified for those at high-risk, should be made by the attending provider. Therefore, if the attending provider determines that a patient belongs to a high-risk population and a USPSTF recommendation applies to that high-risk population, that service is required to be covered in accordance with the requirements of the interim final regulations (that is, without cost-sharing, subject to reasonable medical management).

Advisory Committee on Immunization Practices (ACIP)

Q8: Which ACIP recommendations are required to be covered without cost-sharing by non-grandfathered group health plans and health insurance coverage?

PHS Act section 2713 and the interim final regulations require coverage for immunizations for routine use in children, adolescents, and adults that have in effect a recommendation by the ACIP for routine use. The vaccines must be covered without cost-sharing requirements when the service is delivered by an in-network provider. The ACIP makes routine immunization recommendations for children, adolescents, and adults that are population-based (e.g., age-based), risk-based (e.g., underlying medical conditions, work-related, or other special circumstances that increase risk of illness), or are catch-up recommendations.

In some circumstances, the ACIP makes a recommendation that applies for certain individuals rather than an entire population. In these circumstances, health care providers should determine whether the vaccine should be administered, and if the vaccine is prescribed by a health care provider consistent with the ACIP recommendations, a plan or issuer is required to provide coverage for the vaccine without cost-sharing.

New ACIP recommendations will be required to be covered without cost-sharing starting with the plan year (in the individual market, policy year) that begins on or after the date that is one year after the date the recommendation is issued. An ACIP recommendation is considered to be issued on the date on which it is adopted by the Director of the Centers for Disease Control and Prevention (CDC), which is the earlier of: the date the recommendation is published in the Mortality and Morbidity Weekly Report, or the date the recommendation is reflected in the Immunization Schedules of the CDC. Therefore plans or issuers with respect to a plan can determine annually what vaccines recommended by ACIP must be covered by checking prior to the beginning of each plan year.

Women’s Preventive Services

Q9: Do the recommendations for women’s preventive services in the HRSA Guidelines promote multiple visits for separate services?

No. Section 2713 of the PHS Act and its implementing regulations allow plans and issuers to use reasonable medical management techniques to determine the frequency, method, treatment, or setting for a recommended preventive item or service, to the extent this information is not specified in a recommendation or guideline. Although the HRSA Guidelines list services individually, nothing in PHS Act section 2713 or the regulations requires that each service be provided in a separate visit. Efficient care delivery and the delivery of multiple prevention and screening services at a single visit is a reasonable medical management technique, permissible under the regulations. For example, HIV screening and counseling and Sexually Transmitted Infections counseling could occur as part of a single well-woman visit.

Q10: What is included in a “well-woman” visit?

The HRSA Guidelines recommend at least one annual well-woman preventive care visit for adult women to obtain the recommended preventive services that are age- and developmentally-appropriate, including preconception and prenatal care. The HRSA Guidelines recommend that well-woman visits include preventive services listed in the HRSA Guidelines, as well as others referenced in section 2713 of the PHS Act. HHS understands that additional well-woman visits, provided without cost-sharing, may be needed to obtain all necessary recommended preventive services, depending on a woman’s health status, health needs, and other risk factors. If the clinician determines that a patient requires additional well-woman visits for this purpose, then the additional visits must be provided in accordance with the requirements of the interim final regulations (that is, without cost-sharing and subject to reasonable medical management).

Q11: What do health care providers need to know to conduct a screening and counseling for interpersonal and domestic violence, as recommended in the HRSA Guidelines?

Screening may consist of a few, brief, open-ended questions. Screening can be facilitated by the use of brochures, forms, or other assessment tools including chart prompts. One option is the five-question Abuse Assessment Screening tool available here: (, page 22). Counseling provides basic information, including how a patient’s health concerns may relate to violence and referrals to local domestic violence support agencies when patients disclose abuse. Easy-to-use tools such as patient brochures, safety plans, and provider educational tools, as well as training materials, are available through the HHS-funded Domestic Violence Resource Network, including the National Resource Center on Domestic Violence (

Q12: In the discussion of “Identified Gaps” within the Cervical Cancer section of the IOM report, the IOM recognized “co-testing with cytology and high-risk Human Papillomavirus (HPV) DNA testing among women 30 years of age and older as a strategy to increase screening intervals to every three years.” When should the HPV DNA test be administered?

The HRSA Guidelines recommend high-risk HPV DNA testing for women with normal cytology results who are 30 years of age or older to occur no more frequently than every 3 years.

Q13: The HRSA Guidelines include a recommendation for annual HIV counseling and screening for all sexually active women. Is the term “screening” in this context defined as actual testing for HIV?

Yes. In this context, “screening” means testing.

Q14: The HRSA Guidelines include a recommendation for all Food and Drug Administration (FDA) approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity, as prescribed by a health care provider. May a plan or issuer cover only oral contraceptives?

No. The HRSA Guidelines ensure women’s access to the full range of FDA-approved contraceptive methods including, but not limited to, barrier methods, hormonal methods, and implanted devices, as well as patient education and counseling, as prescribed by a health care provider. Consistent with PHS Act section 2713 and its implementing regulations, plans and issuers may use reasonable medical management techniques to control costs and promote efficient delivery of care. For example, plans may cover a generic drug without cost-sharing and impose cost-sharing for equivalent branded drugs. However, in these instances, a plan or issuer must accommodate any individual for whom the generic drug (or a brand name drug) would be medically inappropriate, as determined by the individual’s health care provider, by having a mechanism for waiving the otherwise applicable cost-sharing for the branded or non-preferred brand version. This generic substitution approach is permissible for other pharmacy products, as long as the accommodation described above exists.[9] If, however, a generic version is not available, or would not be medically appropriate for the patient as a prescribed brand name contraceptive method (as determined by the attending provider, in consultation with the patient), then a plan or issuer must provide coverage for the brand name drug in accordance with the requirements of the interim final regulations (that is, without cost-sharing, subject to reasonable medical management).

Q15: Do the HRSA Guidelines include contraceptive methods that are generally available over-the-counter (OTC), such as contraceptive sponges and spermicides?

Contraceptive methods that are generally available OTC are only included if the method is both FDA-approved and prescribed for a woman by her health care provider. The HRSA Guidelines do not include contraception for men.[10]

Q16: Do the HRSA Guidelines include services related to follow-up and management of side effects, counseling for continued adherence, and for device removal?

Yes. Services related to follow-up and management of side effects, counseling for continued adherence, and device removal are included under the HRSA Guidelines and required to be covered in accordance with the requirements of the interim final regulations (that is, without cost-sharing, subject to reasonable medical management).

Q17: Are intrauterine devices and implants contraceptive methods under the HRSA Guidelines and therefore required to be covered without cost-sharing?

Yes, if approved by the FDA and prescribed for a woman by her health care provider, subject to reasonable medical management.

Q18: The USPSTF already recommends breastfeeding counseling. Why is this part of the HRSA Guidelines?

Under the topic of “Breastfeeding Counseling” the USPSTF recommends interventions during pregnancy and after birth to promote and support breastfeeding. The HRSA Guidelines specifically incorporate comprehensive prenatal and postnatal lactation support, counseling, and equipment rental. Accordingly, the items and services described in the HRSA Guidelines are required to be covered in accordance with the requirements of the interim final regulations (that is, without cost-sharing, subject to reasonable medical management, which may include purchase instead of rental of equipment).

Q19: How are certified lactation consultants reimbursed for their services under the HRSA Guidelines?

Reimbursement policy is outside of the scope of the HRSA Guidelines and the Departments’ regulations.

Q20: Under the HRSA Guidelines, how long after childbirth is a woman eligible for lactation counseling? Are breastfeeding equipment and supplies unlimited?

Coverage of comprehensive lactation support and counseling and costs of renting or purchasing breastfeeding equipment extends for the duration of breastfeeding. Nonetheless, consistent with PHS Act section 2713 and its implementing regulations, plans and issuers may use reasonable medical management techniques to determine the frequency, method, treatment, or setting for a recommended preventive item or service, to the extent not specified in the recommendation or guideline.


  1. See The Departments interim final regulations relating to grandfather health plans (June 17, 2010) at 75 FR 34538 (June 17, 2010) and amended interim final regulations at 75 FR 70114 (November 17, 2010).
  2. Issued February 20, 2013 and available at
  3. See section 1251 of the Affordable Care Act, which limits the application of PHS Act section 2707 to non-grandfathered group health plans and health insurance coverage.
  4. See 26 CFR 54.9812-1(c)(3)(v), 29 CFR 2590.712(c)(3)(v), and 45 C.F.R. 146.136(c)(3)(v).
  5. 75 FR 41726 (July 19, 2010).
  6. “Women’s Preventive Services: Required Health Plan Coverage Guidelines” (HRSA Guidelines) were adopted and released on August 1, 2012, based on recommendations developed by the Institute of Medicine (IOM) at the request of HHS. These recommended women’s preventive services are required to be covered without cost-sharing, for plan years (or, in the individual market, policy years) beginning on or after August 1, 2012.
  7. See 26 CFR 54.9815-2713T(a)(4), 29 CFR 2590.715-2713(a)(4), 45 CFR 147.130(a)(4).
  8. Certain non-grandfathered, non-profit religious organizations are not required to cover the contraceptive services recommendation that is part of the HRSA guidelines. For information on these entities, see 77 FR 8725 and See also proposed rules published on February 6, 2013, at 78 FR 8456.
  9. See
  10. See 78 FR 8456, 8458, footnote 3, which provides that the HRSA guidelines “exclude services relating to a man’s reproductive capacity, such as vasectomies and condoms.”

PPACA Tips and Best Practices: Penalties for Variable Employees

Posted February 13, 2013 by PHaynes

The Affordable Care Act (PPACA, aka Obamacare) has obligations and penalties that begin to take effect as early as January 1, 2014.  While the individual mandate and the employer mandate requirements will mean different fines/fees/taxes to different people, one thing is certain, and that is that we’ll all be affected.

Let’s consider some of your “contingent workers” – those independent contractors, leased employees and part-time employees that traditionally do not participate in your health and welfare benefit plans.  Some employers have even considered expanding their use of employees in these areas as a way or means of reducing their health care exposure.  This approach bears much scrutiny—there are risks, including potential monetary penalties that may dissuade many employers.

Under the Affordable Care Act (PPACA), individuals will be required to have healthcare coverage as of January 1, 2014 (the “individual mandate”). Individuals without employer-sponsored coverage will be able to satisfy the individual mandate by purchasing coverage through new health insurance exchanges (both a state exchange and a federal exchange purchased policy will satisfy this requirement). Individuals with incomes between 100 percent and 400 percent of the Federal Poverty Level (FPL) will be entitled to a “premium assistance” subsidy if they purchase coverage on an exchange.  Expectations are high in this regard and there are potentially millions of new customers.

Employers are not directly obligated to provide coverage to their employees. But if a “large” employer (one with 50 or more Full-Time Equivalent Employees (FTEs)) does not offer healthcare coverage to at least 95 percent of its Full-Time Employees, the employer faces a penalty under Internal Revenue Code Section 4980H(a). An employer that doesn’t cover at least 95 percent of employees would be hit with a penalty if any of its full-time employees without employer-provided coverage purchases coverage from an exchange and receives premium assistance.

The annual penalty under Section 4980H(a) can be severe: $2,000, multiplied by every full-time employee, minus the first 30 full-time employees. Note that all full-time employees count toward calculating the penalty, even the employees with employer-provided coverage.

Tip Number 1:  Part-Time Employees

The 4980H(a) penalty applies only with respect to full-time employees. An employer seeking to reduce its exposure could limit the hours of certain workers or create more part-time positions. A part-time employee generally means an employee averaging fewer than 30 hours per week (130 hours per month).

Although the failure to provide coverage to part-time employees will not subject an employer to PPACA penalties, part-time employees still count toward determining whether the employer meets the 50-employee threshold for a “large” employer.

Where can a Part-Time Strategy Go Wrong?

The Internal Revenue Service has issued detailed rules (Notices 2012-59 and 2012-17) for determining who is a part-time employee.  (See our prior article on this topic and our handy 2-page infographic).  An employer seeking to implement a part-time strategy will have to carefully consider these rules and closely monitor employees’ hours. A successful part-time strategy may require the employer to impose rigid restrictions on work schedules—which may, in turn, limit the employer’s ability to respond to changing business conditions and customer demands.

If an employer isn’t careful about monitoring employees’ hours, it might become subject to the Section 4980H(a) penalty. To use an extreme example, let’s say that an employer believes that it has:

  • 200 full-time employees, all with employer-provided coverage, and
  • 40 part-time employees, none with employer-provided coverage.

Because its entire full-time workforce appears to have employer-provided coverage, the employer believes that it has satisfied the 95 percent requirement and thus is not subject to the 4980H(a) penalty. But assume that twelve of the supposed part-time employees have amassed enough hours to be deemed full-time employees. The employer could then be subject to the penalty, because it actually has 212 full-time employees, and only 200 of them—94.3% have employer-provided coverage.

The annual penalty under Section 4980H(a) would be $364,000 (212 full-time employees, minus the first 30, multiplied by $2,000).

Tip Number 2: Independent Contractors

Under the Affordable Care Act, an “employee” means a common-law employee. Employers may be tempted to substitute independent contractors for common-law employees for a couple of reasons:

  • To stay under the 50-employee threshold.
  • To avoid offering healthcare coverage to a portion of its full-time workforce.

Some employers might view a successful independent contractor strategy as a double win: the business avoids both the cost of healthcare coverage for the independent contractors and the penalty that would apply for failing to offer coverage to full-time employees.

Where can an Independent Contractor Strategy Could Go Wrong?

Adopting a policy of using independent contractors in this way is a flawed strategy that has an immediate impediment, namely “worker misclassifications”. Determining whether a worker should be treated as an independent contractor, rather than an employee, can be complicated, if not impossible.

There hasn’t been a more public decision in this regard than 1999’s decision in the Vizcaino vs. Microsoft Corporation case.  Microsoft Corp discovered that classification without significant differences in treatment can result in severe penalties.  The IRS reclassified 483,000 workers, allowing the workers to sue for benefits.  A $751 million fine was also assessed.  Therefore, employers need to avoid making contingent workers into common law employees when attempting to avoid legal responsibilities of employers.

Many businesses moved to head-off similar claims by altering their benefit plans to make it clearer that misclassified workers were not entitled to benefits (they call this the “Microsoft fix”).  However, even with this fix, the employer could face PPACA penalties if the workers they exclude from health coverage are later deemed common-law employees.  (See the example above where the punitive penalty of $2,000 times all full-time employees (minus the first 30) is applied).    [Practical tip:  To read about Vice President Biden’s Middle Class Task Force and the Department of Labor’s Misclassification Initiative see details here].

Tip Number 3: Leased Employees

A leased or temporary employee is someone employed by a third-party, like a temp-agency, but they actually perform services/work on your behalf as a client of their employer.  Under the Affordable Care Act, if a leased employee/temp is actually a common-law employee of the leasing company/temp agency, and not a common-law employee of the client, then the temporary employee does not count toward determining whether the client is a “large” employer—and would not be considered a full-time employee of the client for purposes of the PPACA penalty.  [Practical tip:  The temp would still need to comply with PPACA’s individual mandate and the temp agency/leasing company may need to comply with PPACA’s employer mandate if they employ 50 or more employees].

Where can a “Use Temps” Strategy Could Go Wrong?

While the use of a third party (the temp agency/leasing company) is a great insulator and places the onus to comply on the individual and the temp agency (and not with the client-Employer), employee misclassification here should not be overlooked.  The goal is to ensure that you are not later deemed to be a joint-employer with the temp agency and that you could not be subject to PPACA’s penalties for denying them coverage.

Employers that use a “temp” label but do not engage/contract with a third party to provide these employees will find their efforts scrutinized by their state wage and hour/labor enforcement divisions as well as the US Department of Labor.

Tip Number 4: Separate Entities

A business/employer/plan sponsor can exclude up to 5% or its full-time employees from healthcare coverage without being subject to the 4980H(a) penalty. However, they’d probably run into IRC Section 125 problems and possibly IRC Section 105(h) discrimination problems for the disparate treatment, eligibility rules and payroll contributions.  But, could an employer create a separate entity to be the “employer” for the uncovered group?

For PPACA purposes only, the separate entity strategy could reduce, but not eliminate, the penalty. For example, assume that a business has 100 full-time employees. Seventy are employed by a subsidiary that has employer-provided coverage; the other 30 are employed by a subsidiary that does not have coverage. Both subsidiaries are at least 80 percent owned by a common parent (the control group analysis/test).  So, due to the common ownership/control, both subsidiaries are treated as a large employer. Since the first subsidiary has employer-provided coverage for its employees, it is not subject to the 4980H(a) penalty. The second subsidiary, however, is subject to a penalty of $42,000. The 30-employee exemption from the penalty is pro-rated between the two subsidiaries. Since the second subsidiary has 30% of the employees of the business, it has 9 exemptions. Thus, the penalty is $2,000 multiplied by 21 employees (30 minus 9).   By contrast, if all 100 employees were employed by the same entity, the penalty for failing to cover at least 95 percent of them would be $140,000.

Where can a “Create Separate Entities” Strategy Could Go Wrong?

There’s no clear path to fine avoidance here.  It isn’t clear, not in the least, that there’s any significant freedom to allocate employees to separate entities.  The IRS could require some significantly different business purpose to be in place (not merely for fine avoidance) or they may just treat all the entities as one common-joint-employer.

Finally, this doesn’t account for the discrimination requirement that would exist with a single control group for offering benefits under different eligibility and/or pricing terms (the Section 105(h) and 125 discrimination rules, a violation of each makes benefits taxable to owners, officers, the highly-compensated and in the case of Section 105(h) violations, to anyone in the top 25% of payroll too).

Carefully consider your worker classification programs and efforts with your in-house counsel, labor attorneys and your management team.  Also, consider testing your variable hour employee population to determine how many might meet the 30 hour/week (130 hours/month) threshold and thus expand your “healthcare eligible” population.



Feds Map PPACA Coverage Rule Limits

Posted February 13, 2013 by Megan DiMartino

by Allison Bell,

“Obamacare will require everyone to have health insurance in 2014,” but, actually, not really.

The U.S. Department of Health and Human Services (HHS) and the Internal Revenue Service (IRS) talk about the gaps in the “universal coverage” requirements in the Patient Protection and Affordable Care Act of 2010 (PPACA) in three batches of proposed PPACA regulations.

HHS discusses PPACA “minimum essential coverage” exemption in a proposed rule, “Patient Protection and Affordable Care Act; Exchange Functions: Eligibility for Exemptions; Miscellaneous Minimum Essential Coverage Provisions” (CMS-9958-P) (RIN 00938-AR68).

HHS officials describe the kinds of coverage mandate exemptions that individuals can get, types of niche coverage that can qualify as minimum essential coverage, and exemption administration procedures.

The HHS proposed regulations are set to appear in the Federal Register Friday. Comments will be due 45 days after the official publication date.

The IRS addresses the nuts and bolts of minimum essential coverage exemptions in a notice of proposed rulemaking for “Shared Responsibility Payment for Not Maintaining Minimum Essential Coverage” (RIN 1545-BL36) and also in health insurance tax credit final regulations (RIN 1545-BL49).

In the rulemaking notice, IRS officials give their take on types of coverage that can qualify as minimum essential coverage and how the IRS will handle short coverage gaps and individuals with such low income that they need not file income tax forms.

The shared responsibility rulemaking notice is set to appear in the Federal Register Friday, and comments will be due 90 days after the publication date. The IRS regulations would start to take effect in months after Dec. 31, 2013.

HHS draft regs Opponents of PPACA are still fighting to kill, repeal or block implementation of part or all of the law.

If PPACA takes effect on schedule and works as drafters expect, PPACA “shared responsibility” provisions will require many individuals to have “minimum essential coverage” starting in 2014 or else pay a tax.

PPACA also calls for HHS to work with state officials to develop exchanges, or health insurance supermarkets, that are supposed to start selling high-quality, standardized coverage to individuals and small employers starting Oct. 1. States plan to start and oversee exchanges in some states, and HHS will run the exchanges in others.

HHS officials developed their individual mandate exemption draft to implement PPACA Section 1411, which lists types of people who are not affected by the coverage ownership mandate, and PPACA 1311(d)(4)(H), which requires exchanges to issue exemption certificates to people who are exempt from the PPACA requirements.

Granting certificates of exemption will be a “minimum function” of a state’s exchange, HHS officials said in the preamble to the proposed regulations.

The HHS shared responsibility exemption rules will apply both to categories of people who need not buy coverage because, under PPACA, they are not “applicable individuals,” and to categories of people who need not buy coverage because of PPACA shared responsibility exemption provisions, officials said.

Individuals may be able to qualify for PPACA mandate exemptions due to:

  • Religion.
  • Hardship.
  • Incarceration.
  • Demonstrated inability to afford coverage.
  • Income falling below the IRS tax return filing threshold.
  • Status as an illegal alien.
  • Membership in a health care sharing ministry.
  • Membership in an Indian tribe.
  • A short-term gap in coverage.

The HHS is proposing that a state’s exchange would be responsible for handling religion and hardship exemption applications.

Taxpayers could get religion-based and hardship exemptions from the exchanges. The IRS would manage or share the application processes for the other exemptions.

The length of a hardship exemption would last for the duration of the hardship. Most other exemptions would last for a year, but a religious exemption or an exemption based on membership in an Indian tribe could last for a lifetime.

Children could qualify for a childhood-long religious exemption while they were under 18. Once they turned 18, they would have to apply for their own adult lifetime exemption based on their own attestation of having an objection to the PPACA coverage requirement based on religious principles.

The standards for applicants seeking hardship exemptions would be comparable to the standards now in place in Massachusetts, which already has a coverage ownership requirement, officials said.

HHS officials also stated that they would treat Medicare Advantage plan coverage, foreign health coverage, refugee medical assistance, AmeriCorps coverage, and self-funded student health insurance plans as minimum essential coverage.

HHS may allow state high risk pool coverage for people with health problems to qualify as minimum essential coverage on a temporary basis, officials said.

“State high risk pools across the country vary in their coverage and benefits,” officials said. “Some high risk pools may not substantially comply with the requirements of the Affordable Care Act.”

Organizations offering other types of coverage can apply to HHS for permission to have the coverage qualify as minimum essential coverage, officials said.

The IRS rulemaking notice

The IRS has proposed defining a PPACA individual coverage mandate “shared responsibility family” to “include all individuals for whom a taxpayer (including a spouse, if married filing jointly) is liable for the shared responsibility payment,” officials said.

Taxpayers will be responsible for paying the shared responsibility payments for their dependents.

Taxpayers affected by the shared responsibility payments will owe the penalty payments for months in which they lack minimum essential coverage.

Like HHS officials, IRS officials discuss the types of coverage that will qualify as minimum essential coverage.

COBRA benefits continuation coverage offered under the Consolidated Omnibus Budget Reconciliation Act of 1985 and retiree health coverage will count as “eligible employer-sponsored plan” coverage for purposes of getting out of having to pay shared responsibility penalties, officials said.

The IRS also talks about prisoners.

“An individual confined for at least one day in a jail, prison or similar penal institution or correctional facility after the disposition of charges is exempt for the month that includes that day,” officials said.

The IRS would make the short-term coverage gap available to individuals if the “continuous period without minimum essential coverage is less than three full calendar months and is the first short coverage gap in the individual’s taxable year.”

If an individual has minimum essential coverage for “one day in a calendar month, the month is not included in the continuous period when determining the application of the short coverage gap exemption,” officials said.

Your Smartphone Might Help You Lose Weight

Posted February 6, 2013 by Megan DiMartino

By Steven Reinberg, HealthDay Reporter

Using smartphones to coach people as they try to shed extra pounds may make a standard weight-loss program more effective, a new study suggests.

With the technology, patients can report their progress and receive coaching between visits to the clinic. This personalized attention appears to improve results, the researchers reported.

“Having patients record eating and activity on a mobile app that’s monitored by a coach is a scalable, cost-effective way to boost the effectiveness of clinician-directed weight-loss treatment,” said study author Bonnie Spring, a professor of preventive medicine and psychiatry at Northwestern University Feinberg School of Medicine in Chicago.

“An app can give people feedback about how many calories they’re eating, and help them make wise choices in the moment. Knowing that a coach is ‘hovering’ and watching the patient’s behavior is a way of supportively holding the person accountable,” she added.

Taking classes is an efficient way for patients to connect with peers while acquiring knowledge about nutrition, exercise and behavior change strategies, Spring added.

“Reconfiguring weight-loss treatment to systematically leverage clinician expertise, technology and peer support offers a practical and effective way to help the large number of people who need obesity treatment,” she said.

The report was published online Dec. 10 in the Archives of Internal Medicine.

For the study, Spring’s team randomly assigned 69 overweight and obese patients, average age about 58, to a standard weight-loss program or a weight-loss program with smartphone prompting, and followed the volunteers for a year. They were weighed at three, six, nine and 12 months.

At each weigh-in, patients who were coached using smartphones lost an average of 8.6 pounds more than those in the standard weight-loss program, the findings showed.

In addition, about one-third of those in the smartphone program lost at least 5 percent of their body weight when they were only three months into the program, while those in the other group lost nothing during that time period, the researchers found.

These benefits lasted for the entire year, the study authors added.

“Neither the app alone nor the group weight-loss classes was effective for the average patient. The combination of technology and health education was what worked best,” Spring explained.

“This reminds us that few, if any, commercially available weight-loss apps have been tested in rigorous clinical trials, and that technology may work best when it’s integrated into a care system that also provides accountability and support,” Spring added.

Dr. Goutham Rao, the vice chair of family medicine at NorthShore University HealthSystem in Evanston, Ill., and co-author of an accompanying journal editorial, agreed that the smartphone approach seems to work.

“Existing obesity treatments don’t meet certain criteria that are necessary,” he said. “Treatments have to be accessible and inexpensive, and have to be able to engage and re-engage patients over time. There are some promising developments on the horizon.”

Weight-loss drugs aren’t effective enough and aren’t available to large numbers of people, Rao said, and weight-loss surgery is also out of financial reach for most people.

“This technology is something people use on a regular basis; they don’t have to learn how to use it,” he noted.

“The studies we have so far show really promising results,” Rao said. “You can’t be a passive participant in weight loss. Smartphone programs personalize the program,” he pointed out.

“Within three to four years we will have inexpensive, accessible weight-loss technology that everybody can benefit from,” Rao added.

Dr. David Katz, director of the Prevention Research Center at the Yale University School of Medicine, noted that “not much weight loss happens at a clinical visit, of course, weight loss happens in between visits.”

It makes sense to extend coaching and guidance between visits, Katz said. “That, in fact, has been shown before. Using telephones or the Internet to stay connected to patients between counseling sessions enhances weight loss and health improvement,” he added.

“With cellphones all but ubiquitous, we have the technology to build continuous contact into weight-management programs,” Katz said. “This study demonstrates the early benefits of doing so.”

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