Tag Archive: advance tax credit subsidies

Exchange plan subsidies face second major legal threat

Subsidies for qualified health plans (QHPs) sold on state health benefit exchanges are facing another significant legal threat, less than one year after the U.S. Supreme Court ruled in King v. Burwell that advance tax credit premium subsidies are available for all state health benefit exchanges, including those states that opted to allow the federal government to operate the exchange. The plaintiffs in that case unsuccessfully argued the language of Section 1311(d)(1) of the Affordable Care Act narrowly defined an exchange as a governmental agency or nonprofit entity that is “established by a State.” In King, the Obama administration argued and the high court agreed that read in the broader context of the law, the tax credit subsidies are intended to apply in all exchanges.

Citing King, the administration similarly contends in United States House of Representatives v. Burwell that context is key relative to Section 1402 of the Affordable Care Act. That section provides for supplemental subsidies in addition to advance premium tax credits for households earning between 100 and 250 percent of federal poverty levels. The additional subsidies limit out of pocket costs for households at that income level enrolling in a silver level QHPs — the most commonly selected metallic plan design. In House of Representatives, plaintiffs argue their funding is not a continuing appropriation and thus requires an annual appropriation as part of the federal budget.

The administration claims taken in the larger context of the Affordable Care Act, Section 1402 is ambiguous and must be read in context with Section 1401 that funds the advance tax credit premium subsidies via Section 36B of the Internal Revenue Code. The two funding mechanisms are intended to work tandem to make individual coverage more affordable to low income households, the administration posits. Disallowing funding for the supplemental cost sharing subsidies as the House seeks while leaving it intact for premium tax credits would produce an absurd outcome, it maintains.

In a ruling issued May 12, U.S. District Court judge Rosemary M. Collyer agreed with the House, finding the supplemental cost sharing subsidies must be annually appropriated. “Far from absurd, that is a perfectly valid means of appropriation” Collyer wrote, finding paying them for qualified silver QHP enrollees violates the Constitution’s allocation of spending power to Congress without a proper appropriation approved by Congress and the president.

The administration is expected to appeal Collyer’s ruling to the First U.S. District Court of Appeal. Because the unusual case involves a dispute between the legislative and executive branches over the power of Congress to appropriate funding under the Constitution, it’s possible it could go directly to the Supreme Court. In any case, Collyer’s ruling won’t likely have an impact on QHPs offered on the exchanges in 2017 given Collyer stayed the House’s requested injunction against further administration spending for the cost sharing subsidies pending appeals. The change in administrations in 2017 will also blunt the impact of the ruling given the next administration and Congress could opt amend or repeal the Affordable Care Act such as to moot the case.

According to this Urban Institute analysis, if Collyer’s ruling ultimately becomes the law of the land and the Affordable Care Act remains intact, it would force health plans to substantially increase premiums for silver plans in order to recover the lost federal funding for cost sharing subsidies since they would remain under the ACA’s requirement to offer silver QHPs with reduced cost sharing to eligible households. That premium increase would in turn boost advance premium tax credit subsidies that are pegged to the premium rate for the second lowest cost silver QHP offered on exchanges, according to the analysis.

States could also reassess their options under the ACA if the cost sharing subsidies remain unfunded given that a significant percentage of exchange enrollees rely upon them. They could opt to cover most of this population under “basic health plans” per ACA Section 1331 for low income households earning up to 200 percent of federal poverty and not eligible for Medicaid. They also have the option to waive the cost sharing subsidies under Section 1332 of the law affording states wide latitude to fashion their own state health plans provided they meet certain conditions of coverage and don’t entail additional federal funding.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Why high deductible individual plans rated a poor value

A Kaiser Family Foundation survey published Thursday of people who buy insurance in the non-group market found that while many people may choose higher-deductible plans so they can pay a lower premium, they aren’t all that happy about it. It may just be the only way they can get a premium they feel they can afford.As the chart above shows, 37% of people with high-deductible plans described their plan as an “excellent” or “good” value for what they pay, compared with 68% of people with lower-deductible plans saying the same. A high deductible was defined as $1,500 or more for an individual and $3,000 or more for a family. Sixty percent of those with higher-deductible plans rated the value of their plan as “fair” or “poor.”

Source: The ‘Value’ Trade-Off in High-Deductible Health Plans – Washington Wire – WSJ

A couple of observations re this item by Drew Altman, president and CEO of the Kaiser Family Foundation:

1. The U.S. is moving back to the future and toward the “major medical” model of the 1950s and 1960s. Those plans were high deductible plans by design because they covered large and unexpected medical expenses. Routine care was paid out of pocket. Since the advent of all inclusive, HMO-style plans in the 1970s and 1980s, people have become accustomed to not paying for this level of care directly out of pocket. Hence, today’s high deductible plans are likely to be seen as providing poor value for the premium dollar spent.

2. For generally healthy people age 50 and older who ensure their health by maintaining healthy lifestyle habits, the amount of the premium they are asked to pay for high deductible plans seems like a poor value. Since they are effectively self insuring for the first several thousand dollars of medical care they might use in a calendar year, the relatively high premium charged for a high deductible plan doesn’t seem like a fair tradeoff that takes into account their efforts to reduce their likelihood of utilizing medical care. This is particularly likely to be the case for healthy over 50s who earn too much to qualify for advance tax credit premium subsidies for high deductible plans sold on state health benefit exchanges.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

2015 crucial year for future of state health benefit exchanges

This year will prove a crucial one for the future of state health benefit exchanges. Under the Patient Protection and Affordable Care Act, the exchanges are mandated in all states for three years: 2014 through 2016. After that, the states can petition the U.S. Department of Health and Human Services for waivers to set up their own state plans provided the plans conform to the law’s requirements for scope of benefits and access and affordability for individuals and small employers.

How two issues will play out in 2015 will determine how the health benefit exchange marketplace will shape up later this year and during its final mandatory year of operation next year.

The first issue is the widely covered case (King v. Burwell) awaiting a ruling from the U.S. Supreme Court on whether the Obama administration’s regulations on advance tax credit premium subsidies comply with the Affordable Care Act and specifically whether the subsidies are available in states that did not establish an exchange via state action. There’s an outside chance the high court could rule the subsidies cannot be offered in those state exchanges, which many observers conclude could be so disruptive that it could call into question the future viability of the exchanges in those three dozen states.

Secondly, half of the states that did establish an exchange through state action – known as state-based exchanges or SBEs– face significant questions as to the sustainability of their SBEs relative to their financial and/or information technology implementation capacity. These include SBEs in Colorado, Washington, Hawaii, Minnesota, New Hampshire, Rhode Island and Vermont.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Employees offered group plans without hospitalization coverage eligible to use advance tax credit subsidies for exchange plans

Employees offered employer-sponsored health plans without coverage for hospitalization are eligible for advance tax credit subsidies for individual coverage in the state health benefit exchange marketplace, according to Internal Revenue Service guidance issued this week.

Notice 2014-69 clarifies that such plans do not provide minimum actuarial value (MV) covering 60 percent of expected health care utilization costs, which entitles employees to use tax credits toward the purchase of qualified health plans (QHPs) sold on the exchanges. It also notes regulations will be promulgated by the IRS and the U.S. Department of Health and Human Services formalizing the guidance.

The Departments believe that plans that fail to provide substantial coverage for in-patient hospitalization services or for physician services (or for both) (referred to in this notice as Non-Hospital/Non-Physician Services Plans) do not provide the minimum value intended by the minimum value requirement and will shortly propose regulations to this effect with a view to being in a position to finalize such regulations during 2015 and make them applicable upon finalization. Accordingly, employers should consider the consequences of the inability to rely solely on the MV Calculator (or any actuarial certification or valuation) to demonstrate that a Non-Hospital/Non-Physician Services Plan provides minimum value for any portion of any taxable year ending on or after January 1, 2015, that follows finalization of such regulations.

While large employers are subject to a penalty for each employee who uses advance tax credits to purchase an exchange QHP, the guidance waives the penalty if a large employer began enrolling employees in a group plan that does not offer hospitalization coverage prior to the November 4, 2014 date of the guidance and who relied on the MV calculator to determine if their plans provided minimum actuarial value. The guidance adds that the regulations, when issued, will not apply to plans that were effective prior to March 1, 2015.

Under the guidance, employers offering plans without hospitalization coverage must correct notifications issued to employees that such plans preclude employees from obtaining premium tax credits for the purchase of exchange QHPs.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

Potentially problematic issues in ACA 2014 rollout for exchanges, employers

There are a couple of potentially problematic issues as major components of the Patient Protection and Affordable Care Act roll out now and into 2014 for state health benefit exchanges and large employers.

For the exchanges, it’s verification of household income of applicants for individual coverage. Eligibility for both advance tax credits used to subsidize the purchase of qualified health plans (QHPs) and for Medicaid benefits are means tested based on family size and household income. The rub here is like that standard investment caveat: past performance does not necessary predict future performance. The same principle applies to household incomes, particularly in a sketchy economy still trying to regain solid footing five years after the 2008 economic downturn. What households earned in 2013 does not necessarily mean that’s what they will earn in 2014, the time frame that determines their eligibility for Medicaid and QHP premium subsidies. Timothy Jost describes the problem in this post at the HealthAffairs Blog:

[V]erification in advance of how much lower-income American families will earn over a year is a fantasy. Lower-income Americans often work in part-time, intermittent, or seasonal jobs and are paid hourly wages, making predicting income exactly a year in advance simply not possible.

The agreement to end last month’s federal government shutdown requires state health benefit exchanges pre-verify the eligibility of individuals applying for premium tax credits and cost sharing reductions. By January 1, 2014, the federal Department of Health and Human Services must describe to Congress the procedures used by the exchanges verify eligibility for premium tax credits and cost-sharing reductions. This summer, HHS issued guidance informing exchanges to attempt to verify income using Internal Revenue Service and Social Security income data provided state exchanges via the federal data services hub.

The income verification issue could end up further complicating an already difficult first year rollout of the exchange marketplace. It may also be overblown in terms of concern that those seeking premium and cost sharing assistance and Medicaid will get more than they are entitled. There are well established income tax planning practices enrollees can keep in mind when they sign up for coverage through the exchange marketplace. Employees know if they claim too many withholding exemptions, they could get stuck owing taxes when they file. Most err on the side of caution and declare too few in order to get a refund of what amounts to an interest free loan to the government. Self employeds pay quarterly estimated taxes and know if they pay too little, they face a big tax bill the following year and possible penalty for underpayment of quarterly amounts due. Enrollees can be counseled to keep these comparative examples in mind to avoid a big tax bill as well as potential penalties if they fraudulently misrepresented their incomes in order to qualify for subsidies or Medicaid.

Employers face potential legal hazard in 2014 as they prepare for the large employer mandate that takes effect in 2015. Those that reduce employees’ average weekly hours to less than 30 in order to avoid having them counted as full time employees for the purposes of the Affordable Care Act’s requirement that employers of 50 or more full time employees provide them health coverage could find themselves in court. Employment law firms warn these employers could face legal exposure under Section 510 of the Employee Retirement Income Security Act of 1974 (ERISA), which bars employers from firing, disciplining or discriminating against employees for the purpose of interfering with their access to employee benefit plans. Adam C. Solander and Elizabeth B. Bradley of the law firm Epstein Becker Green explain at Law360:

In the context of the employer mandate, plaintiffs are likely to argue that an employer’s workforce management efforts interfered with an employee’s right to health coverage. The most likely ERISA 510 claim would seem to involve an employee who averaged 30 hours a week previously. If such an employee’s hours were capped below 30 hours a week, arguments could be made that such a change was made with the intent to deny that individual a right to which he or she would have been entitled. While this scenario seems to be the most likely Section 510 claim, arguments could be made that an employer’s workforce management practices could violate Section 510, regardless of the number of hours the employee worked previously.

Provider networks. For health plan issuers, maintaining networks that offer access to a sufficient number of medical providers to people in their communities could prove challenging, particularly as plan issuers narrow their networks in order to hold down premium rates. Exchanges will also be put to the test to ensure revamped provider listings for Qualified Health Plans are accurately listed on the exchanges.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

The New Economics of Part-Time Employment – NYTimes.com

The New Economics of Part-Time Employment – NYTimes.com.

Economist Casey B. Mulligan runs the numbers and concludes that for many, part time employment may become a more attractive option when tax credit subsidies for health coverage purchased on state health insurance exchange marketplaces is factored in.

Part time employment has been on an uptick since the start of the economic downturn in 2008 as this NYT article notes.  However, many part timers would prefer full time positions and the health benefits that come with them.  The exchange subsidies could change the calculation and possibly not only make part time work more palatable but also reinforce its rise.


Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email fpilot@pilothealthstrategies.com or call 530-295-1473. 

%d bloggers like this: