Deadline for comments on essential health benefits is January 31

Tomorrow (January 31) is the deadline for submitting comments to the Department of Health and Human Services (HHS) on the essential health benefits bulletin, which HHS issued on December 16, 2011.

You can send your comments to: EssentialHealthBenefits@cms.hhs.gov

The bulletin outlined the approach HHS intends to pursue in rulemaking to define essential health benefits. As you may recall, the Patient Protection and Affordable Care Act (ACA) requires health insurance plans offered in the individual and small group markets, both inside and outside the Affordable Insurance Exchanges (Exchanges), to offer a comprehensive package of items and services, known as essential health benefits (EHB).

In the bulletin, HHS gave states the flexibility to decide what EHBs must be included in coverage sold to individuals or small businesses in the Exchanges. The law mandates coverage within ten benefit categories, but it is up to each state to decide the specifics, such as how many doctors’ visits or what drug services the plans will be required to offer. States can use several options to base those benefit requirements, including what some existing health plans in the state offer.

Choosing a benchmark. States are allowed to select an existing health plan as a "benchmark" for items and services in their EHB packages. If a benchmark does not cover one of the ten benefit categories, it must be supplemented, the HHS advises. Four health insurance plan options were given for choosing a benchmark, one of which was the choice of the largest plan (by enrollment) in any of the three largest small-group-insurance products in a particular state’s small group market.

Last week, HHS released a list of those three products for each state, but it cautions that it is for illustrative purposes only, and is not an official list of products that will be states’ benchmark options.

Indiana job loss is likely under ACA, say economic experts

Indiana can expect to lose a substantial number of jobs in the near future, according to a report issued by Timothy F. Slaper, Ph.D, Director of Economic Analysis, and Ryan A. Krause, Research Analyst, using research findings obtained by the Indiana Business Research Center, Kelley School of Business, Indiana University.


Indiana's Senate just passed a right-to-work bill, which some fear may lessen Indiana's attractiveness to outside businesses. Slaper and Krause somewhat bypass that argument, stating that it "may" put Indiana in a weaker competitive position compared to states without such right-to-work legislation, and, instead predict that it is the ACA that will, without question, put at least 12,700 jobs at risk, based on statistics they gathered with regard to small businesses job growth from 2003 to 2008. For that period, Indiana businesses that started with between zero and 49 employees, and ended with fewer than 100 employees created exactly 12,698 jobs.

At first glance, it would seem that a right-to-work bill would leave Indiana at more of a disadvantage than would the ACA, because not every state has passed right-to-work legislation, and prospective employers might bypass Indiana for a non-right-to-work state. By comparison, since the ACA is a federal law, employers in every state are held equally to its various restrictions. However, Slaper and Krause argue convincingly that the ACA's requirement that employers with 50 or more employees must soon provide their employees with health insurance or pay a $2,000 fine, might make employers think twice about expanding from a 49-employee business to a 50 or more employee business. It is this small-scale expansion, they contend, that will no longer happen because small employers will be reluctant to add an extra one or two employees.

Slaper and Krause explain that, starting in 2014, small employers will have to pay a $2,000 assessment if they don't provide health insurance, but the ACA exempts the first 30 employees from the fine. So, for an employer that employs 49 employees at an average salary of $35,500 and doesn't provide health insurance, a 50th employee will cost $35,500, plus $40,000 ($2,000 times (50 employees minus 30 exempt employees)), for a grand total of $75,500. Even employers looking to add a few more employees might hesitate to incur the extra cost involved.

Big businesses would be less likely to be affected, because they would most likely start out with an excess of 50 employees, and very fast growing businesses, termed “parachute” firms by Slaper and Krause, would see the ACA assessment spread out among large numbers of employees. On top of this, Slaper and Krause stated that they didn’t take into account in their calculations businesses with 50 or slightly more employees that would terminate jobs just to avoid the penalty. Slaper and Krause have only looked at data from Indiana, but it’s hard to believe that other states aren’t facing the same concerns.

It seems as though Slaper and Krause are assuming that most Indiana small businesses don’t provide their employees with health insurance, which may very well be the case. Also, employees who don't obtain health insurance from their employer have to get it from somewhere, or face the possibility of financial ruin in the event of a severe illness or medical emergency. Ideally, small businesses should take that into account when determining what their employees salaries should be. The $600 and $1,700 more per year that Slaper and Krause report that Indiana small businesses and parachute firms pay their employees, respectively, compared to other Indiana employers, would hardly be enough to cover those costs. Presumably, small businesses will have to re-think employee salaries, and perhaps offer less to offset the cost of employee health coverage.


There is help on the horizon from the ACA that might make it easier for small businesses to avoid the $2,000 assessment by offering their employees relatively inexpensive helath insurance. It looks like Slaper and Krause are either unaware of, or decided not to factor in, Act Sec. 1311 of the ACA. The ACA requires states to establish Small Business Health Options Program (SHOP) Exchanges. Under these Exchanges, individuals and small businesses with 100 or fewer employees can purchase affordable qualified coverage, though, eventually, states may allow businesses with more than 100 employees to purchase coverage in the SHOP Exchange. Indiana could even form a regional exchange with other states. SHOP Exchanges will be designed to assist qualified small employers (i.e., with 100 or fewer employees) in the state in enrolling their employees in qualified health plans in the state's small group market.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, as well as provisions for small businesses, just click here.

White House paints picture of life without ACA

We recently blogged on this site about what healthcare reform would look like without the individual mandate of the Patient Protection and Affordable Care Act (ACA). Now, the White House wants us all to think about what might happen if healthcare reform had been completely repealed, which is what the House tried and failed to do last January, and what the U.S. Supreme Court may do this year.

The list of scenarios is fairly extensive. According to a report issued by the White House last week, the following would have happened:

• 2.5 million currently-insured young adults would be without health insurance;
• 2.65 million seniors would pay a total of $1.5 billion more for their prescription drugs, since the ACA provided a 50% discount on covered brand name prescription drugs for seniors and people with disabilities who hit the "donut hole";
• 24.2 million seniors (as of November 2011) would be paying more for preventive care, such as mammograms and colonoscopies;
• 45,000 Americans with pre-existing conditions would, as of November 2011, be uninsured. The White House bases this estimate on insurance provided through the ACA's Pre-Existing Condition Insurance Plan;
• 102 million would have not seen their coverage expanded beyond the caps on their lifetime care;
• 15 million people would be vulnerable to rescission of their insurance policies due to unintentional mistakes on their paperwork. This retroactive cancellation would be likely, even if they’re sick. Such rescission could mean that past medical expenses suddenly and unexpectedly become due;
• 41 million more Americans would have to pay more for preventive care;
• Coverage of early retirees would cost more than 6,000 businesses almost $5 billion more dollars. The $5 billion came from the ACA via a reinsurance program to help cover costs of retirees who are too young to qualify for Medicare;
• Insurance companies in every state would not have to publicly justify certain raises (10% or more) in premium increases;
• Insurance companies would not be required to spend at least 80% of every premium dollar on medical care or give rebates to their insureds;
• 29 states would not have received over $700 million in grants to establish Affordable Insurance Exchanges;
• States, communities, and health care providers would not have received $750 million from the ACA’s Prevention and Public Health Fund;
• $350 million from the ACA for the purpose of fighting  healthcare fraud would not be available. The White House points out that 931 individuals have been charged with health care fraud in fiscal year 2010, and that new tools to detect and prevent fraud have been created by the ACA; and
• A deficit reduction attributable to the ACA that is expected to be approximately $100 billion over the next ten years would not materialize. The White House adds that reforms such as Partnership for Patients is also expected to save up to $50 billion over the next 10 years.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

Vermont wants to be a single payer state

The State of Vermont is fast on its way to not only achieving compliance with health care reform requirements, but to becoming a single-payer state, and other states should perhaps take note of, or at least admire, its pro-active approach. On January 17, 2012, the 5-member Green Mountain Care Board issued its report to the Vermont General Assembly, detailing how it is laying a foundation for fulfilling the purposes of Act 48, a bill signed last May by Vermont governor Peter Shumlin.

The stated purpose of Act 48 is to provide Vermont residents with high quality, publicly-financed health care by maximizing the receipt of federal funds, including those available via the Patient Protection and Affordable Care Act (ACA). The Act states that "Vermont must begin to plan now for health care reform, including simplified administration processes, payment reforms, and delivery reform." Furthermore, with Act 48, Vermont is establishing a universal health care program, called "Green Mountain Care," that is to provide health benefits via a single payment system.

As a result, Vermont's director of health reform, Robin Lunge, will oversee the integration of multiple payers into the Vermont health benefit exchange.

A bill is now under consideration (H.559) by the Vermont legislature that, among other things, merges the individual and small group insurance markets, gives the Green Mountain Care Board authority over health insurer rate review, hospital budget review, and certificate of need processes, bans discretionary clauses in health insurance contracts, and restricts the amount of insureds' out-of-pocket expenditures for prescription drugs.

According to Lunge, the Green Mountain Care Board is tasked with controlling costs, establishing a health benefit exchange in 2014, and establishing a single-payer system when federal waivers are available under the ACA, which is currently 2017, although Lunge said that a Congressional delegation has introduced a bill to move that date to 2014. Lunge has stated that Vermont's goal is one of "an exchange on steroids," one that pushes for health reform and moves toward a single payer system and reduces system complexity.

Cost now appears to be foremost on the Board's agenda. Lunge said that Vermont wants to pay "for value, not volume," and that its goal is not to spend more once it is in the new single-payer system. It is the goal of the Green Mountain Board to figure out how to do that, she added.

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

IRS Preparing For Health Reform Tax Appeals

The Internal Revenue Service Office of Appeals is preparing for the new cases that it anticipates will result from the new tax law provisions included in the Patient Protection and Affordable Care Act (ACA), according to a report released by the Treasury Inspector General for Tax Administration (TIGTA). The ACA contains $438 billion in revenue provisions that are in the form of new taxes and fees and about 42 of its provisions add to or amend the Internal Revenue Code.

“Because of the potential for the ACA to affect most taxpayers, effective planning is critical to ensuring Appeals’ readiness to prepare for this legislation and resolve taxpayer requests in a timely and effective manner,” said Treasury Inspector General for Tax Administration J. Russell George.

As Appeals moves forward with its planning efforts, TIGTA believes management should develop a more formal approach to its ACA planning activities to ensure they are ready to resolve taxpayer requests regarding ACA-related issues in a timely and effective manner. This should include outlining the key objectives and tasks that need to be addressed to prepare for the ACA-related impact on Appeals, establishing who should be responsible for conducting these activities, and developing time-lines for completing these actions over the next several years.

Without Individual Mandate, Up To 42 Million Would Remain Uninsured

The health reform law with the individual mandate would reduce the number of uninsured by half, from 50 million non-elderly individuals to approximately 26 million, according to new research from the Robert Wood Johnson Foundation and the Urban Institute. Removing the mandate would leave between 40 and 42 million people uninsured. Eliminating the individual mandate also has implications on health care spending and health insurance premiums, the report noted.

Insurance Coverage. Without the mandate, but with robust health insurance exchange participation, the Urban Institute found that 39.8 million people would remain uninsured. Finally, without the mandate and with implementation difficulties, low preference for using the exchange would not have a big effect on insurance coverage, with 40 million Americans remaining uninsured. If this lower exchange preference were combined with a scenario of low subsidy take-up, the number of uninsured would increase to 42.4 million, the Urban Institute found.

Health care spending. With the mandate, government spending would rise from $253 billion to $340 billion. Aggregate employer and individual spending would increase by $11 billion each, and uncompensated care would decrease by 50 percent from $78 billion to $39 billion. Without the mandate, government, employer, and individual spending for coverage would drop due to lower coverage. However, the government would spend only about 3 percent less for less than half the increase in coverage. Additionally, removing the mandate would mean $20 billion more in uncompensated care.

Health insurance premiums. With the mandate, average premiums would be $5,100 annually. On average, premiums would be slightly higher in the exchange than outside it. Without a mandate, but with robust exchange participation, overall non-group premiums would rise about 10 percent due to adverse selection. Adverse selection would continue to increase as exchange participation falls, and premiums would rise. With lower subsidy take-up, average non-group premiums would rise 20 percent, with non-group exchange premiums increasing by 25 percent.

And this research does not take into consideration the cost of lost productivity for uninsured individuals.

IRS Issues Form To Claim Small Business Health Care Tax Credit

The Internal Revenue Service has released the final 2011 version of Form 8941, which eligible small employers may use to calculate the small employer health care tax credit, as provided under the Patient Protection and Affordable Care Act (ACA).

The ACA provides a tax credit for small business employers who pay at least one-half the cost of health insurance coverage for their employees. The credit was designed to encourage small business employers to offer health insurance benefits. Furthermore, IRS guidance has provided clarification on how certain arrangements under which an employer pays less than 50 percent for some employees may nonetheless satisfy the uniformity requirement for years prior to 2014.

A September 2011 report issued by the Treasury Inspector General for Tax Administration indicated that far fewer small businesses than anticipated had claimed the credit in 2010. Since then, the IRS and the Department of Health Human Services have expanded outreach efforts to encourage more small businesses to apply for the credit and to consider the credit when planning benefits for future years.

The Form 8941 instructions are here.

U.S. files brief with Supreme Court on PPACA’s minimum coverage provision

The minimum coverage provision of the Patient Protection and Affordable Care Act (PPACA) is a valid exercise of Congress' commerce power, according to the Solicitor General's brief in HHS v. Florida (No. 11-398), which was filed with the Supreme Court on January 6, 2012. In HHS v. Florida, the Eleventh Circuit ruled that the minimum coverage provision is unconstitutional. The respondents' briefs are due on February 6, and the Supreme Court will hear oral arguments on the issue on March 27.

The U.S. brief argues that:

• Congress has broad power under the Commerce and Necessary and Proper Clauses to enact economic regulation;
• the minimum coverage provision is an integral part of a comprehensive scheme of economic regulation; and
• the minimum coverage provision itself regulates economic conduct with a substantial effect on interstate commerce.

The brief also argues that Congress' taxing power provides an independent ground to uphold the minimum coverage provision. The practical operation of the minimum coverage provision is a tax law, and the only consequences of a failure to maintain minimum coverage are tax consequences, according to the brief.

"The fact that the minimum coverage provision --like longstanding tax provisions such as the exclusion of employer-paid health insurance premiums from employees' taxable income --is intended to encourage health insurance coverage has no bearing on the taxing power inquiry," the brief states.

IRS appeals office making initial preparations for Affordable Care Act cases

The IRS’s Office of Appeals has started preparing for the new cases that it anticipates will result from the new tax law provisions included in the Patient Protection and Affordable Care Act (ACA), according to a report released by the Treasury Inspector General for Tax Administration (TIGTA). The ACA contains $438 billion in revenue provisions that are in the form of new taxes and fees and about 42 of its provisions add to or amend the Internal Revenue Code.

"Because of the potential for the ACA to affect most taxpayers, effective planning is critical to ensuring Appeals' readiness to prepare for this legislation and resolve taxpayer requests in a timely and effective manner," said Treasury Inspector General for Tax Administration J. Russell George.

As Appeals moves forward with its planning efforts, TIGTA believes management should develop a more formal approach to its ACA planning activities to ensure they are ready to resolve taxpayer requests regarding ACA-related issues in a timely and effective manner. This should include outlining the key objectives and tasks that need to be addressed to prepare for the ACA-related impact on Appeals, establishing who should be responsible for conducting these activities, and developing time-lines for completing these actions over the next several years.

SOURCE: Treasury Inspector General for Tax Administration Press Release January 5, 2012.

IRS issues additional interim guidance on informational reporting of health coverage

The IRS has issued a notice that restates and amends prior interim guidance on information reporting to employees of the cost of their employer-sponsored group health plan coverage. The prior notice, Notice 2011-28, issued on April 18, 2011, solicited comments on various aspects of the reporting requirement. The latest notice, Notice 2012-9, makes changes to the prior guidance and provides additional guidance through new Q&As.

The Patient Protection and Affordable Care Act (PPACA) requires employers to report the cost of employer-provided health care coverage on each employee's annual Form W-2. The IRS reiterates that this reporting to employees is for their information only, to inform them of the cost of their health coverage, and does not cause excludable employer-provided health coverage to become taxable; employer-provided health coverage continues to be excludable from an employee's income, and is not taxable.




Reporting is not mandatory for 2011 Forms W-2 (generally furnished to employees by the end of January 2012). In addition, this notice provides transition relief for certain employers and with respect to certain types of employer-sponsored coverage. This transition relief will be available at least for 2012 Forms W-2 (generally furnished to employees by the end of January 2013). Thus, reporting by employers and with respect to the types of coverage covered by the exceptions provided in this notice will not be required for 2012 Forms W-2.

Employers subject to the reporting requirement. All employers that provide applicable employer-sponsored coverage during a calendar year are subject to the reporting requirement, according to the notice. Employers that are federally recognized Indian tribal governments are not subject to the reporting requirements. The notice clarifies that until further guidance is issued, employers that are tribally chartered corporations wholly-owned by a federally recognized Indian tribal government also are not subject to the reporting requirements.

Also, in the case of the 2012 Forms W-2 (and Forms W-2 for later years unless and until further guidance is issued), an employer is not subject to the reporting requirement for any calendar year if the employer was required to file fewer than 250 Forms W-2 for the preceding calendar year. The notice clarifies that for this purpose, whether an employer is required to file fewer than 250 Forms W-2 for a calendar year is determined based on the Forms W-2 that employer would be required to file if it filed Forms W-2 to report all wages paid by that employer and without regard to the use of an agent under Code Sec. 3504.

Aggregate reportable cost. The notice clarifies that an employer is not required to include the cost of coverage under a dental or vision plan if the plan satisfies the requirements for being excepted benefits for purposes of HIPAA under IRS Reg. §54.9831-1(b)(3).

The notice also clarifies that the cost of applicable employer-sponsored coverage does not include excess reimbursements of highly compensated individuals that are included in gross income under Code Sec. 105(h). An excess reimbursement that is included in income is subtracted from the cost of coverage in determining the aggregate reportable cost. Similarly, the cost of applicable employer-sponsored coverage does not include the cost of coverage include in gross income as the result of an employee being a 2% shareholder-employee of an employer that is an S corporation.

Calculating the cost. If an employer is using a composite rate for active employees, but is not using a composite rate for determining applicable COBRA premiums for qualifying beneficiaries, the employer may use either the composite rate or the applicable COBRA premium for determining the aggregate cost of coverage, provided that the same method is used consistently for all active employees and is used consistently for all qualifying beneficiaries receiving COBRA coverage.

Additional guidance. The notice also provides the following additional guidance through new Q&As:

• Employers are not required to include the cost of coverage under an employee assistance program (EAP), wellness program, or on-site medical clinic in the reportable amount if the employer does not charge a premium with respect to that type of coverage provided under COBRA to a qualifying beneficiary (Q&A-32).
• Employers may include the cost of coverage under programs not required to be included under applicable interim relief, such as the cost of coverage under a Health Reimbursement Arrangement (HRA) (Q&A-33).
• How to calculate the reportable amount for coverage only a portion of which constitutes coverage under a group health plan (Q&A-34).
• How to calculate the reportable amount if an employer is provided notice after December 31 of a calendar year of events that occurred on or before December 31 of a calendar year that affect the prior year's coverage, such as an employee providing an employer notice of a divorce or other change in family status that occurred during a prior calendar year (Q&A-35).
• How to calculate the reportable amount where coverage extends over the payroll period including December 31 (Q&A-36).
• The application of the exception for certain hospital indemnity or other fixed indemnity insurance offered by an employer on an after-tax basis (Q&A-37 and Q&A-38).
• The reportable amount is not required to be included on a Form W-2 provided by a third-party sick pay provider (Q&A-39).

For more information. For a comprehensive analysis of the Patient Protection and Affordable Care Act, and additional information on health reform and other developments in employee benefits, just click here.

HHS Issues Rules Streamlining Electronic Fund Transfers

The Department of Health and Human Services (HHS) has released an interim final rule that requires the adoption of new standards for electronic funds transfers (EFT), as required under the Patient Protection and Affordable Care Act (ACA) and the Health Insurance Portability and Accountability Act (HIPAA). The HHS estimates that these new standards will decrease administrative costs up to $4.5 billion for doctors, hospitals, private health plans, states, and other government health plans. The interim final rule is scheduled to be published in the January 10 Federal Register.

The standards in the interim final rule build upon regulations published in July 2011 that set industry-wide standards for how health providers use electronic systems to quickly and easily determine a patient’s eligibility for health coverage and check on the status of a health claim. This interim final rule and the regulations published in July 2011 implement the Administrative Simplification provisions of the ACA (Sec. 1104(b)(2)(A)) and the HIPAA (Sec. 1173(a)), and are projected to save the health care industry more than $16 billion over the next ten years. These savings come from the adoption of electronic standards that will help eliminate inefficient manual processes and reduce costs.


The interim final rule adopts streamlined standards for the format and data content of the transmission a health plan sends to its bank when it wants to pay a claim to a provider electronically (through an electronic funds transfer) and to issue a Remittance Advice notice. Remittance Advice is a notice of payment sent to providers that may or may not accompany the payment the provider receives. For example, currently when a provider submits a claim electronically for payment, a health plan often sends a Remittance Advice separately from the Electronic Funds Transfers payment. The disconnect between the two makes it difficult or sometimes impossible for the provider to match up the bill and the corresponding payment. The interim final rule addresses this by requiring the use of a trace number that automatically matches the two. The new tracking system will allow health care providers to eliminate costly manual reconciliation that must currently be done.

The health care EFT standards adopted in this interim final rule apply to transactions that originate with health plans. The interim final rule is effective Jan. 1, 2012. All health plans covered under HIPAA must comply by Jan. 1, 2014.

Comments must be received within 60 days of publication in the Federal Register. When commenting, refer to CMS-0024-IFC. Comments may be submitted electronically, via http://www.regulations.gov; or by mail to the Centers for Medicare and Medicaid Services, HHS, Attn: CMS-0024-IFC, P.O. Box 8013, Baltimore, MD, 21244-8013.

For more information, contact Matthew Albright at (401) 786-2546.

For a comprehensive analysis of the ACA, and additional information on health reform and other developments in employee benefits, just click here.

Most Employers Making Moderate Changes To Health Care Plans In 2012

Most employers (88 percent) are planning small or moderate changes to their health care plans for 2012, though roughly half (45 percent) will rethink their long-term health care strategy during the year, according to a recent survey from consultant Towers Watson. The survey, Health Care Changes Ahead Survey, was conducted to better understand how employers are handling both current cost concerns and the development of a future health care strategy following the passage of the Patient Protection and Affordable Care Act (ACA).


While plan changes are expected to be modest in 2012, the number of companies unsure of the magnitude of future plan changes increases from 2 percent in 2012 to 51 percent in 2014. More than two-thirds (71 percent) of employers expect to continue offering health coverage to their active employees through 2014. An even higher percentage (84 percent) believe health care benefits will continue to be a key component of their overall employee value proposition beyond 2014, noted Towers Watson.


Half of the companies said that it is not at all likely that they will offer a financial subsidy instead of health plans for active employees working 30 or more hours a week , while only 2 percent say it is very likely they will do so. When it comes to deciding whether to continue sponsorship of employee health care benefits, 78 percent said that they are planning to follow the lead of other large employers. In addition, survey respondents also are considering other changes, including reducing or eliminating coverage for part-time employees, retirees, and pre-retirees.

Towers Watson found that 54 percent of employers are confident that the ACA will be implemented within the anticipated timeline. The survey also found the following about specific ACA provisions:

• 70 percent are skeptical that Health Insurance Exchanges will provide a viable alternative to employer-sponsored coverage for active employees in 2014 or 2015.
• 88 percent plan to take steps to control their costs and avoid the impact of the ACA’s excise tax, due to take effect in 2018. More than half (56 percent) believe their current plans will trigger the excise tax.
• Seven out of ten employers expect to lose grandfathered status by 2012.

The survey contains responses from 368 midsize to large U.S. employers. For more information, visit http://www.towerswatson.com/assets/pdf/5622/TW-survey-report_HC-Changes-Ahead_101411.pdf.

For a comprehensive analysis of the ACA, and additional information on health reform and other developments in employee benefits, just click here.