DOJ Files Brief Asking Court to Throw Out ACA

The stakes for the future of the Affordable Care Act just got higher after the U.S. Department of Justice filed a brief with a federal appeals court to strike down every facet of the landmark legislation.

The DOJ’s filing in the case states that the law is unconstitutional in its entirety and should be struck down. The filing concerns a case that had been brought by Texas and other Republican-led states that challenged the constitutionality of the law.

The trial judge in the case had ruled the entire law had been nullified after Congress in December 2017 passed legislation that jettisoned the individual penalties for not securing health coverage.

A group of 21 Democratic-led states, headed by California, immediately appealed the judge’s ruling. The appeal will be heard by the Fifth Circuit Court of Appeals in New Orleans. The DOJ’s brief urges the Fifth Circuit to uphold the trial judge’s ruling.

U.S. District Judge Reed O’Connor of the Northern District of Texas ruled in December 2018 that a congressional tax law passed in 2017 which zeroed out the penalty imposed by the ACA’s individual mandate rendered the entire health care law unconstitutional. The ACA remains in effect pending the outcome of the appeal.

Most legal pundits expect that the lower court’s ruling will be overturned. The decision not to appeal the ruling by the Trump administration had been foreshadowed, but still had many legal observers surprised that the DOJ would choose not to defend the law of the land.

Others have pointed out that if Congress’s intent had been to nullify the ACA when it got rid of the penalties for individuals who don’t abide by the individual mandate, it would have written that into the legislation. But the only part of the ACA that was addressed in the tax bill was the individual mandate penalty, and not any other parts of the law.

So what’s likely to happen?

It’s too early to know how this will all shake out. But even if the Fifth Circuit upholds the lower court verdict, the ruling would be appealed to the Supreme Court. If the Fifth Circuit overturns the lower court’s ruling, the Supreme Court may not even take up the case since it has already ruled twice before in favor of the ACA.

There are also widespread concerns over any sudden overturning the law. The effects would be widespread, especially in the individual market, and uncertain for many employees who now get coverage from their jobs thanks to the employer mandate portion of the law.

Judge Shoots Down Association Plans

A federal judge has rejected the Trump administration’s rules for association plans, saying they are an attempt to allow employers to skirt their obligations under the Affordable Care Act.

The rules that the Department of Labor finalized last year allow employers to band together as “associations” for no other purpose than to purchase health insurance for their employees.

And under those rules, the plans do not have to comply with many of the ACA’s provisions, including providing plans that are “affordable” and offer a set of minimum essential benefits.

Judge John Bates of the U.S. District Court for the District of Columbia wrote in his decision that the DOL’s final rule goes beyond the department’s authority under the Employee Retirement Income Security Act (ERISA) of 1974.

The judge particularly homed in on the fact that the associations would become the de facto employer for members to allow them to band together for the sole purpose of having access to lower rates.

To date, about 30 association plans have been formed around the country in response to the regulations, which took effect last year. The association plans are reportedly not up and running, but have been gearing up to start Jan. 1, 2020.

Under the rule, employers in the same industry can form a plan across state lines, as can any businesses in a specific geographic area. Sole proprietors can also join, along with small businesses, and obtain coverage for themselves and their families.

By banding together to form a pool with more than 100 workers, the employers would be considered a “large” employer under the ACA. While employee health plans for companies with fewer than 100 workers must abide by all of the ACA’s provisions, including covering 10 essential benefits, large plans do not have the same constraints.

This means that sole proprietors who may be purchasing their health plans on a state exchange would suddenly have the purchasing power of a large employer in the health insurance market.

The judge homed in on the part of the regulation that adopted a new definition of “employer” under ERISA, for purposes of determining when employers can join together to form an association health plan that is treated as a group health plan under that law. The new definition of employer includes sole proprietors with no employees.

The judge did not issue a stay on the start of these plans, but the ruling could create difficulties for those that have already been formed and are ready to launch in 2020.

The Trump administration is likely to appeal the ruling, but the judge has made it difficult since he struck down the linchpin of the regulation, which had changed the definition of what constitutes an employer and employee (“the association has become the employer and sole proprietors the association’s employees for the purpose of purchasing coverage at large group rates.”)

Existing association plans

Interestingly, the fears that many observers had expressed about association health plans have not come to bear. Many had predicted that these plans would be stripped-down health plans devoid of many of the protections offered by the ACA, particularly being able to keep your children on your plan until they are 26 as well as coverage of 10 essential benefits.

A report by the trade publication Modern Healthcare found that association plans it had analyzed actually had not pared back benefits to enrollees. The analysis found that the plans it examined covered all of the 10 essential benefits as required by the ACA, and also at comparable costs, premiums, deductibles, and out-of-pocket requirements.

While the plans that have already been set up are slated to start on Jan. 1, 2020, for now, it’s likely they will continue planning for a 2020 start, but whether they actually get off the ground will depend on the courts going forward.

For the time being, employers that are interested in joining an association health plan may want to take a pause and consider other options if the appeals process drags on.

Regulators Take Steps to Help Grandfathered Plans

Regulators are in the early stages of creating rules that make it easier for health plans that were grandfathered in before the Affordable Care Act took effect to continue providing coverage.

The number of workers enrolled in plans that were in effect before the ACA was enacted in 2010 has been shrinking, and as of 2018, some 16% of American workers who were enrolled in group health plans were in grandfathered plans.

Under the ACA, those plans do not have to abide by the same regulations as plans that took effect after the law’s implementation.

In February 2019, the Internal Revenue Service, the Employee Benefits Security Administration and the Health and Human Services Department issued a request for information from grandfathered plans. The goal is to determine whether there are opportunities for the regulators to assist plans to preserve their grandfathered status in ways that would benefit employers, employees, and their families.

While the effort will only affect a small amount of employer-sponsored plans, the move is significant as it looks like the ultimate goal is to further loosen rules for grandfathered plans.

A plan is considered grandfathered under the ACA if it has continuously provided coverage for someone (not necessarily the same person, but at all times at least one person) since March 23, 2010 and if it has not ceased to be a grandfathered plan during that time.

Grandfathered plans have certain privileges that other group health plans that were created after that date do not have, as the latter are all required to comply with all of the rules under the ACA.

Under the ACA, grandfathered plans do not have to comply with certain provisions of the law.

These provisions include coverage of preventive health services and patient protections (for example, guaranteed access to OB-GYNs and pediatricians).

Other ACA provisions apply to grandfathered plans, such as the ACA’s waiting period limit.

Grandfathered status

Grandfathered health plans may make routine changes to their coverage and maintain their status.

However, plans lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs for participants.

Some of the questions that the three departments are asking plan administrators are:

  • What actions could the departments take to assist group health plan sponsors and group health insurance issuers to preserve the grandfathered status of a group health plan or coverage?
  • What challenges do health plans and sponsors face regarding retaining the grandfathered status of a plan or coverage?
  • What are your primary reasons for retaining grandfathered status?
  • What are the reasons for participants and beneficiaries remaining enrolled in grandfathered group health plans if alternatives are available?
  • What are the costs, benefits and other factors when considering whether to retain grandfathered status?
  • Is preserving grandfathered status important to group health plan participants and beneficiaries? If so, why?

Responses to the request for information are due by March 27.

Regulators Take Steps to Help Grandfathered Plans

Regulators are in the early stages of creating rules that make it easier for health plans that were grandfathered in before the Affordable Care Act took effect to continue providing coverage.

The number of workers enrolled in plans that were in effect before the ACA was enacted in 2010 has been shrinking, and as of 2018, some 16% of American workers who were enrolled in group health plans were in grandfathered plans.

Under the ACA, those plans do not have to abide by the same regulations as plans that took effect after the law’s implementation.

In February 2019, the Internal Revenue Service, the Employee Benefits Security Administration and the Health and Human Services Department issued a request for information from grandfathered plans. The goal is to determine whether there are opportunities for the regulators to assist plans to preserve their grandfathered status in ways that would benefit employers, employees, and their families.

While the effort will only affect a small amount of employer-sponsored plans, the move is significant as it looks like the ultimate goal is to further loosen rules for grandfathered plans.

A plan is considered grandfathered under the ACA if it has continuously provided coverage for someone (not necessarily the same person, but at all times at least one person) since March 23, 2010 and if it has not ceased to be a grandfathered plan during that time.

Grandfathered plans have certain privileges that other group health plans that were created after that date do not have, as the latter are all required to comply with all of the rules under the ACA.

Under the ACA, grandfathered plans do not have to comply with certain provisions of the law.

These provisions include coverage of preventive health services and patient protections (for example, guaranteed access to OB-GYNs and pediatricians).

Other ACA provisions apply to grandfathered plans, such as the ACA’s waiting period limit.

Grandfathered status

Grandfathered health plans may make routine changes to their coverage and maintain their status.

However, plans lose their grandfathered status if they choose to make significant changes that reduce benefits or increase costs for participants.

Some of the questions that the three departments are asking plan administrators are:

  • What actions could the departments take to assist group health plan sponsors and group health insurance issuers to preserve the grandfathered status of a group health plan or coverage?
  • What challenges do health plans and sponsors face regarding retaining the grandfathered status of a plan or coverage?
  • What are your primary reasons for retaining grandfathered status?
  • What are the reasons for participants and beneficiaries remaining enrolled in grandfathered group health plans if alternatives are available?
  • What are the costs, benefits and other factors when considering whether to retain grandfathered status?
  • Is preserving grandfathered status important to group health plan participants and beneficiaries? If so, why?

Responses to the request for information were due March 27.

Proposed Rules Include New Ways to Satisfy Employer Mandates

The IRS has proposed new regulations that could let employers avoid Affordable Care Act employer mandate-related penalties by allowing them to reimburse employees for insurance they purchase on health insurance exchanges or the open market.

The regulations are not yet finalized, but the IRS has issued a notice explaining how applicable large employers, instead of purchasing health coverage for their workers, would be able to fund health reimbursement accounts (HRAs) to employees who purchase their own plans.

Under current ACA regulations, employers can be penalized up to $36,500 a year per employee for reimbursing employees for health insurance they purchase on their own.

Employer mandate refresher

Applicable large employers (ALEs) – employers with 50 or more full-time employees or full-time equivalents – must offer health coverage to at least 95% of full-time employees that includes:

  • Minimum essential coverage: The plan must cover 10 essential benefits.
  • Minimum value: The plan must pay at least 60% of the costs of benefits.
  • Affordable coverage: A plan is considered affordable if the employee’s required contribution does not exceed 9.56% (this amount is adjusted annually based on the federal poverty line; 9.86% will be the 2019 affordability percentage).

ALEs that fail to offer coverage are subject to paying a fine (called the responsibility payment) to the IRS.

How the new rule would work

The IRS is developing guidance on how HRAs could be used to satisfy the employer mandate.

In its recent notice, the agency addressed how the regulation will play out, as follows:

Requirement that ALEs offer coverage to 95% of their employees, and dependents if they have them – Under the proposed regs and the notice, an employer could satisfy the 95% test by making all of its full-time employees and dependents eligible for the individual coverage HRA plan.

Affordability – The employer would have to contribute an amount into each individual account so that the remaining out-of-pocket premium cost for each employee does not exceed 9.86% (for 2019, as adjusted) of the employee’s household income.
This could be a logistical nightmare for employers, and the IRS noted that employers would be able to use current affordability-test safe harbors already in place in regulations.

Minimum value requirement – The notice explains that an individual coverage HRA that is affordable will be treated as providing minimum value for employer mandate purposes.

What you should do

At this point, employers should not act on these regulations. The IRS is aiming for the regs to take effect on Jan. 1, 2020.

The final regulations have yet to be written, so they could change before they are promulgated. We will keep you informed of developments.

Despite Ruling That ACA Is Invalid, the Law Stands for Employers

A ruling by a U.S. District Court judge in December 2018 that the Affordable Care Act is unconstitutional is not expected to stand but, if it does, the moves that have been made in the health insurance space to reduce costs, deliver better care outcomes and make the system more efficient would be expected to stay.

For those employers that were offering health coverage to their employees before the ACA and have continued since, the marketplace dynamics would likely not change much if the ruling were not overturned on appeal.

Additionally, since there has been some success in the employer-sponsored health care space in keeping cost inflation relatively tame, there would likely be no incentive for health insurers and providers to abandon those efforts.

The more likely outcome is that a higher court (and eventually likely the U.S. Supreme Court) overturns U.S. District Judge Reed O’Connor’s ruling that because Congress eliminated the individual mandate portion of the ACA, the rest of the law is also invalid and cannot stand. That means all aspects of the law, including health care exchanges, the employer mandate, and the requirement that policies cover 10 essential benefits, and much more. The individual mandate was repealed at the end of 2017.

Several states such as Massachusetts, New York and California have since intervened to defend the law. They argue that, if Congress wanted to repeal it, it would have done so. The Congressional record makes it clear Congress was voting only to eliminate the individual mandate penalty in 2019; it indicates that they did not intend to strike down the entire ACA.

The original lawsuit against the ACA was brought by 20 attorneys general from Republican states, and now 17 attorneys general led by California’s Xavier Becerra have filed a notice of appeal with the 5th U.S. Circuit Court of Appeals in New Orleans.

Interestingly, the Trump administration filed a brief early in 2018 encouraging the court to uphold the ACA but strike down the provisions relating to guaranteed issue and community rating.

There have been more than 70 attempts to invalidate the ACA in courts across the country, and two of those cases made it to the Supreme Court. The last time the ACA was upheld was in 2012 and all five justices who voted at that time to uphold the law are still on the bench today.

Additionally, the ACA is an extremely expansive piece of legislation, which has been on the books since 2010. Legal pundits say it’s unlikely the Supreme Court would want to strike down a law that affects millions of people in the country. In fact, because of this the court may decide not even to take up the case if the 5th Circuit has overturned O’Connor’s ruling.

Employer effects

While this case is under appeal the law will stand, meaning that all parts of it, except the individual mandate, will remain. That means all employers who are considered “applicable large employers” under the ACA, will be required to continue offering health insurance to their workers.

If you are one of them, you need to continue complying with the law of the land as it stands. And remember, while Congress eliminated the penalties associated with not complying with the individual mandate, the penalties for not complying with the employer mandate are still very much in place. Fines can be severe for non-compliance.

This ruling is not expected to affect those penalties, reporting requirements, or any other applicable ACA requirement at this time.

Getting a Head Start on Open Enrollment

As open enrollment is right around the corner, now is the time to gear up to maximize employee enrollment, help them make the best selections for their own personal circumstances, and stay compliant with relevant laws and regulations.

It’s a lot to take in as uncertainty has been a constant during the last many years with the onset of the Affordable Care Act, and now that its future is hazy at best.

Still, since health coverage and other employee benefits are an important part of your compensation package – and your competitive edge for talent – it’s important that you get it right.

Here are some pointers to make open enrollment fruitful for your staff and your organization.

Review what you did last year

Review the results of the previous year’s open enrollment efforts to make sure the process and the perks remain relevant and useful to workers. How effective were various approaches and communication channels, and did people give any feedback about the process itself?

Start early with notifications

You should give your employees notice at least a month before open enrollment to let them know it’s coming, as well as provide them with information on the various plans you are offering. Encourage them to read the information and come to your human resources point person with questions.

Help them sort through plans

You should be able to help them figure out which plan features fit their needs, and how much the plans will cost them out of their paycheck. Use technology to your advantage, particularly any registration portal that your plan provider offers. Provide a single landing page for all enrollment applications.

That said, you should hold meetings on the plans and also put notices in your employees’ paycheck envelopes.

Plan materials

Communicate to your staff any changes to a health plan’s benefits for the 2019 plan year through an updated summary plan description or a summary of material modifications.

Confirm that their open enrollment materials contain certain required participant notices, when applicable – such as the summary of benefits and coverage.

Check grandfathered status

A grandfathered plan is one that was in existence when the ACA was enacted on March 23, 2010 and is thus exempt from some of the law’s requirements. If you make certain changes to your plan that go beyond permitted guidelines, the plan is no longer grandfathered.

If you have a grandfathered plan, talk to us to confirm whether it will maintain its grandfathered status for the 2019 plan year. If it is, you must notify your employees of the plan status. If it’s not, you need to confirm with us that your plan comports with the ACA in terms of benefits offered.

ACA affordability standard

Under the ACA’s employer shared responsibility rules, applicable large employers must offer “affordable” plans, based on a percentage of the employee’s household income. For plan years that begin on or after Jan. 1, 2019, the affordability percentage is 9.86% of household income. At least one of your plans must meet this threshold.

Out-of-pocket maximum

The ACA’s out-of-pocket maximum applies to all non-grandfathered group health plans. The limit for 2019 plans is $7,900 for self-only coverage and $15,800 for family coverage.

Make sure your plan is in line with these figures.

Other notices

Consider also including the following notices:

  • Initial COBRA notice
  • HIPAA notice. This may be included in the plan’s summary plan description
  • Notice of HIPAA special enrollment rights
  • HIPAA privacy notice
  • Summary plan description
  • Medicare Part D notices
Get spouses involved

Benefits enrollment is a family affair, so getting spouses involved is critical. You should encourage your employees to share the health plan information with their spouses so they can make informed decisions on their health insurance together.

Also, encourage any spouses who have questions to schedule an appointment to get questions answered.