by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
- This is an issue that I have only briefly touched on in the past. But, recent news articles continue to shine a light on the growing problem of employees who are otherwise seeking medical care from an in-network provider, only to receive a HUGE bill from the hospital for an out-of-network expense (often times from the anesthesiologist or a specialist that provided care during a hospital stay or emergency room visit). The problem arises when the out-of-network expense exceeds the amount that the insurance carrier or the self-insured plan paid the provider (based on negotiated rates).
- Analysis: Attention around this problem has grown exponentially over the past few years. While this heightened concern has not motivated Congress to enact Federal protections against surprise medical bills – or “balance billing” – a number of States have actually put into their State laws protections from balance billing. A study has shown that up to 21 States include some form of consumer protections from balance billing. However, these analysts argue that there are only 6 States (out the 21) that have a comprehensive solution for adequately protecting consumers from these often times huge, surprise medical bills. Specifically, 15 States (including CO, DE, IA, IN, MA, MS, NH, NJ, NM, NC, PA, RI, TX, VT, WV) have what these analysts refer to as partial consumer protections from balance billing. For example, 8 States have balance billing protections for emergency room visits only. 5 States limit balance billing protections to HMOs, but not PPOs. In 12 States, consumers are “held harmless,” where the State requires insurance carriers to pay providers their billed charges or some lower amount that is acceptable to the provider. Other States have some sort of dispute resolution process available to consumers who complain to their insurance carrier or to the State’s Insurance Department (where the carrier and the provider settle on a fair rate of payment for the balance bill). In the 6 States that have what these analysts refer to as comprehensive protections (CA, CT, FL, IL, MD, NY), these States extend the protections from balance billing to in-network hospitals in addition to emergency room visits, and they extend the protections to both HMOs and PPOs. These States also hold consumers “harmless” from the extra payment amounts or prohibit balance billing outright. They also limit out-of-network payments to a percentage of Medicare’s rate (e.g., 125% of Medicare) or have a dispute resolution process. The most recent attention around surprise medical bills involves self-insured plans. While many argue that more States should follow the 6 States that have comprehensive balance billing protections in place, they are also dismayed that State-enacted consumer protections from balance billing do NOT apply to self-insured plans. Why would State surprise medical bill laws NOT apply to self-insured plans? Answer: ERISA preemption. You have heard me talk about ERISA preemption in the context of “association health plans” (AHPs). In short, ERISA will preempt any State law that impacts “the plan.” The Supreme Court defines what “the plan” means in the context of ERISA preemption (i.e., the “plan” is the set of rules that define the rights of a beneficiary and rules that govern the collection of premiums, the definition of benefits, the submission of claims, and the resolution of disagreements over entitlement to services). ERISA, however, will NOT preempt a State law that regulates “the insurance contract” that “the plan” obtains from an insurance carrier. An example of a State law that regulates “the insurance contract” is a “benefit mandate” law, which requires the insurance contract to cover specific benefits and services. Also, if a State requires the insurance carrier underwriting the insurance contract to adhere to specific premium rating rules, this law would also be considered one that regulates “the insurance contract.” BUT, in the case of a self-insured plan, there by definition is NO “insurance contract.” So, in the case of a self-insured plan, any State law that might otherwise be found to be regulating “the insurance contract” would be found to be regulating “the plan.” This is a NO-NO under ERISA. ERISA also prohibits a State from “deeming” a self-insured plan an “insurance contract” for purposes of trying to regulate the self-insured plan. This also prevents State surprise medical bill laws from applying to self-insured plans. Soooo, when it comes to any law protecting consumers from surprise medical bills, States CANNOT reach self-insured plans with their State laws. Which means, the only way to reach self-insured plans is through an act of Congress, where Congress amends ERISA to require all “group health plans” – including self-insured plans – to comply with many or all of the protections from balance billing discussed above. I believe that once we get past the mid-term elections – regardless of which political party holds the majority in the House and/or the Senate – members of Congress will start turning up the volume on the problems associated with surprise medical bills. As a result, I believe calls to amend ERISA will grow louder. I will note, amending ERISA is NOT an easy thing to do (I can personally attest to this based on my days on the Finance Committee). BUT, the “politics” around protecting employees from surprise medical bills may be so great that we see some tangible changes. Stay tuned.
- The House was scheduled to vote on legislation that would have made changes to the employer mandate penalty tax, delayed the Cadillac Tax, and essentially repealed the requirement to furnish individuals with a From 1095-B. The vote, however, was postponed so members impacted by Hurricane Florence could get home to deal with the impending storm. A vote will likely happen by the end of the month.
- Analysis: What exactly is in this employer health care-related legislation? As stated, 2 changes to the employer mandate penalty tax will be included. In particular, changing the definition of a “full-time employee” from one who works 30-hours a week to one who works 40-hours a week. This change has a lot of history, as Congressional Republicans have tried to make this change for the past 5 years now. Interestingly, there has been bipartisan support for the 40-hour work week change, but it could never get past the previous President. Now that we are in the hyper-partisan political environment, the bipartisan support for this change has eroded. As a result, even though Republicans hold the White House, and have the majorities in the House and Senate, this change is unlikely to be enacted because there are NOT 60 votes in the Senate for the 40-hour work week definition. The other proposed change to the employer mandate penalty tax is providing retroactive relief from the penalty tax itself. You have heard me talk about the recent penalty tax assessment letters (see the attached update, last post under “Employer Update”). And, you have heard me talk about the “due process” foul that occurred in 2015, 2017, and 2018 when it comes to the ACA Exchanges failing to notify an employer that at least one of its “full-time employees” accessed a premium subsidy PRIOR to the employer receiving an assessment letter from the IRS (see the attached letter that was sent to Treasury and HHS that walks through this “due process” foul). I will note, this “due process” foul is generally not the primary reason why Congressional Republicans want to provide retroactive relief from the employer mandate penalty tax, but it certainly is a key driver for retroactive relief. The main reason is this: Republicans have long-argued that the employer mandate penalty tax should never have been foisted on employers in the first place, and it should be fully repealed. But short of repeal, Republicans argue that they can at least provide employers some relief from the penalty tax, especially after employers received “surprise bills” of their own in the form of an IRS assessment letter. Despite Republican support for this change, Congressional Democrats are NOT supportive. So, unless there is an opportunity for Republicans to get this done in the lame-duck session through some sort of horse-trading with the Democrats, it won’t get 60 votes in the Senate. The bill also repeals the “tanning tax,” AND importantly, the Cadillac Tax would be delayed for another year, starting up in 2023.
The Employer Health Care-Related Legislation Eliminates the Form 1095-B, But Not Part III of the Form 1095-C
- Of particular note, this legislation would essentially repeal the Form 1095-B. What?
- Analysis: As I have explained in the past, often times when Congress adds a new tax to the law, Congress needs to add a corresponding reporting requirement to help the IRS enforce and administer the tax. In the case of the “individual mandate” penalty tax, Congress added a reporting requirement in Section 6055 of the Internal Revenue Code. As the IRS implemented Code section 6055, the agency created the Form 1095-B. Over the past 4 years, insurance carriers and government health programs have been sending 1095-Bs (1) to individuals and also (2) to the IRS. Individuals are supposed to hold onto their 1095-B in their tax records as evidence that they satisfied the “individual mandate.” And, the IRS is supposed to match up the 1095-B with an individual’s tax return, especially in cases where the individual failed to check-the-box on their tax return indicating that they had health coverage for the year. BUT, if the “individual mandate” penalty tax is going to go away come January 1, 2019 (when the penalty tax is “zeroed” out), then it does NOT make sense to keep this reporting requirement in the law any longer (because the IRS will no longer be required to enforce and administer the tax). Soooo, that is what Congressional Republicans are proposing: Let’s get rid of the 1095-B reporting requirement because it is NO longer necessary. The legislation, however, does allow individuals to obtain a 1095-B upon request. Importantly, for employers with 50 or more “full-time equivalent employees” sponsoring a self-insured plan, Treasury and the IRS did NOT require these employers to send out 1095-B Forms. Instead, the IRS allowed these self-insured employers to provide the 1095-B information in Part III of the Form 1095-C. As you know, the 1095-C is the reporting Form for enforcing and administering the employer mandate penalty tax. In essence, for self-insured employers subject to the employer mandate, Treasury and the IRS allowed these employers to enjoy “combined” reporting for both the employer mandate AND the “individual mandate” penalty tax. Now, if it makes sense to get rid of the Form 1095-B (because the “individual mandate” penalty tax will be “zeroed” out), it equally makes sense for Congress to get rid of Part III of the 1095-C. HOWEVER, the proposed legislation does NOT eliminate Part III of the 1095-C. Irrespective of the reasons why the proposed legislation does NOT get rid of Part III of the 1095-C, Treasury and the IRS – under their own authority – could get rid of Part III on the 1095-C if Treasury and the IRS wanted to. After all, it was Treasury and the IRS that came up with the idea of “combined” reporting on the 1095-C in the first place. Which means that Treasury and the IRS can just as easily get rid of this “combined” reporting once the “individual mandate” penalty tax is “zeroed” out. We will have to wait and see what Treasury and the IRS do on this. Stay tuned.
- Speaking of the “individual mandate” penalty tax, HHS issued guidance effectively saying that individuals seeking a “hardship exemption” from the penalty tax need not present documentation proving that they were eligible for the “exemption.” More importantly though, HHS said individuals claiming a “hardship exemption” are no longer required to apply for said “exemption” through an ACA Exchange. Instead, individuals can claim a “hardship exemption” on their year-end tax return.
- Analysis: Up until now, if an individual wanted to claim a “hardship exemption,” they were required to fill out the Application for Exemption from the Shared Responsibility Payment for Individuals who Experience Hardships that is available on Healthcare.gov. The application typically asks for some sort of documentation proving that the individual was indeed eligible for the “hardship exemption.” Up until now, the only individuals who could claim an “exemption” on their tax return included: (1) A person who is below the tax filing threshold, (2) Two or more members of a family whose combined cost of employer-sponsored coverage is considered “unaffordable,” (3) A person eligible for services through an Indian health care provider, or (4) A person ineligible for Medicaid based on a State’s decision not to expand coverage. According to HHS’s recent guidance – at least for the 2018 tax year – individuals can now claim a “hardship exemption” on their tax return without presenting the documentary evidence or written explanation generally required for qualifying for the “exemption.” Individuals, however, are encouraged to keep any documentation that demonstrates qualification for the “hardship exemption” in their tax records. Note, individuals can still claim a “hardship exemption” through Healthcare.gov. But, this new ability to claim a “hardship exemption” on a tax return (without documentation) is clearly a much more streamlined way to avoid the “individual mandate” penalty tax. Also note, the ability to claim a “hardship exemption” on a tax return is ONLY available for 2018. Individuals cannot retroactively claim a “hardship exemption” on their tax return. Why did HHS and the IRS decide to change how individuals may claim a “hardship exemption”? It’s no secret that the White House has always wanted to get rid of the “individual mandate” penalty tax for 2018. BUT, much to the White House’s chagrin, the legislative process did not allow for the “zeroing” out of the penalty tax for 2018. In truth, “zeroing” out the penalty tax for 2018 would have cost too much money, and Congressional Republicans were already having difficulty balancing out the spending under the Tax Reform legislation. So, Congressional Republicans landed on “zeroing” out the penalty tax starting in 2019. The White House was obviously disappointed with this result, so the White House decided to take matters into their own hands and make it easier for individuals to avoid the penalty tax for 2018: By cutting down on the documentation requirement, and also not requiring an individual to spend time filling out an Application on Healthcare.gov. Last comment: Unless I am missing something, there was NOT a lot of blow-back on HHS’s recent announcement (i.e., no claims of “sabotage” or that the current Administration is trying to kill the ACA). BTW, I chalk it up to everyone realizing that the “individual mandate” penalty tax – as currently structured – has been INEFFECTIVE when it comes to encouraging individuals to enter the ACA insurance markets. Something I have been saying for a long time now.
Short-Term Health Plan Update
- A number of health groups filed a lawsuit arguing that short-term health plans will hurt the ACA and make health coverage more expensive for people, and therefore, the regulations should be invalidated.
- Analysis: BTW, that is not much of a legal argument, but this legal action is consistent with the “new normal” when it comes to final regulations relating to the ACA. What I mean is this: Back when the previous Administration was issuing regulations implementing the ACA, Republicans filed a number of lawsuits arguing that the regulations should be invalidated. This started a nasty precedent where final regulations are no longer final regulations when they are issued. Instead, regulations are only “final” AFTER a court has ruled whether the regulations can stand. Well, karma is…well you know. What I mean is: With the change in Administration, Democrats have been chomping at the bit to file legal challenges against any and all Trump-era regulations, especially those regulations that impact the ACA. For example, we saw a legal challenge to the decision to cancel the “cost-sharing” subsidies, we see it now in the pending challenge to the “association health plan” (AHP) regulations, and most recently, a legal challenge to the short-term health plans. Interestingly, in all these cases, I have argued that the legal challenge will likely fail, starting with the “cost-sharing” subsidy litigation. Well, the “cost-sharing” subsidy litigation failed. As I have suggested in prior updates, I expect that – at some point in the legal process – the legal challenge to the AHP regulations will fail. And while admittedly, I have not read in full the recent legal challenge to the short-term health plan regulations, I cannot see a colorable legal argument that would lead a court to invalidating the regs. Maybe the “guaranteed renewability” part of the final short-term health plan regs, but certainly not the regulations itself. After all, other than the “guaranteed renewability” piece, the short-term regulations simply bring these plans back to where they were pre-ACA (lasting for up to 364 days). I see no legal reason why this Administration cannot do that, just like I saw no legal reason why the previous Administration could not reduce the duration of a short-term health plan to 3 months. In my opinion, the previous Administration had the authority to do what they wanted to do, just like the current Administration has the authority to do what they are doing.