The Road to 2014: Obamacare Regulations Ramp Up
We are now only a month into the President Obama lame duck-era, yet the post-election deluge of Obamacare regulations is already well underway. Clearly, these regulations were completed prior to the election, withheld to prevent any political blowback. This should come as no surprise. Here’s a quick rundown of the latest expansive entries into the Federal Register:
Essential Health Benefits (77 FR 70644, November 26, 2012)
Obamacare lists ten broad categories of health benefits as essential health benefits (EHB), to be defined in detail by the Secretary of Health and Human Services (HHS). Secretary Kathleen Sebelius has instead put this burden on the states. States are to choose a benchmark plan to serve as the framework for EHB in that state. The states that refuse will have a default benchmark plan assigned to them. Individual health policies sold on state or federally facilitated exchanges (referred to as qualified health plans, or QHP) must actually provide these EHB. For employer sponsored group health plans, only non-grandfathered plans that are insured in the small group market must provide EHB. Any grandfathered, large market, or self-funded group health plan does not need to provide EHB, but they cannot impose any lifetime or annual limits on the dollar value of EHB. Welcome to Obamacare.
Obamacare oddities: Is this the administration’s attempt to extend an olive branch to the states in a show of deference to federalism and respect for state sovereignty? Hardly. As Michael Cannon of Cato has written prior to these latest regulations, Sebelius is again having states act as sub-contractors to implement federal law, and most have refused. State benchmark plan choices are limited to a few types of state policies, and each policy will be larded with more PPACA mandates before being certified as a benchmark plans. Is this what the states had in mind when they gave birth to the federal government?
Furthermore, take a federal law that is imposed nationwide, then vary the requirements on a state-by-state basis. Now ask employers with group health plans covering employees in all states to comply. In other words, employers will now potentially have to keep track of EHB benchmark plans in every state. There’s a reason ERISA expressly preempts self-funded plans from complying with state insurance mandates – this approach is near unfeasible.
Minimum Value (77 FR 70644, November 26, 2012)
Obamacare’s minimum value requirement is a component of the employer play or pay rules, also referred to as employer shared responsibility or the employer mandate. The play or pay mandate requires employers with 50 or more full-time employees to offer certain coverage to all full time employees and their dependents. Full-time employees are defined as employees working an average of 30 hours per week. IRS Notice 2012-58 establishes an incredibly complex look-back/stability period safe harbor for making this 30-hour/week determination.
There are two different penalties that will employers will pay for failing to provide Obamacare-approved coverage. The first penalty is for failing to provide any coverage. You will become familiar with this concept in the near future as dumping employees onto the exchange, a reference to employers that give up trying to pay for and comply with everything required to maintain a group health plan under Obamacare. This is a monster penalty ($2,000 annualized times the total number of full-time employees minus 30, provided at least one such employee receives subsidized coverage on the exchange), although not as expensive as actually providing coverage in most cases.’
The second penalty applies where the employer does offer coverage, but the coverage isn’t “affordable” or doesn’t provide “minimum value.” In other words, your coverage isn’t Obamacare-approved. The coverage isn’t affordable if the employee has to pay more than 9.5% of his income to pay the premium. The plan has to pay for at least 60% of the covered benefits to provide minimum value. These new regulations establish three different ways for plans to make the minimum value determination – an HHS/IRS government calculator, a safe harbor checklist, or an actuary certification where the first two methods aren’t appropriate. An employer providing coverage that fails to be affordable or of minimum value must pay a smaller but still significant penalty ($3,000 annualized times the number of full time employees who actually receive subsidized coverage on the exchange).
Obamacare oddities: As I’ve written about previously, with all due credit again to Michael Cannon and Jonathan Adler who are have been on the cutting edge of research on this issue, Obamacare fails to apply these penalties in states that refuse to establish an exchange. However, the implementing regulations from Treasury disregard this oversight in Obamacare, applying the penalties even in such states that instead have a federally-facilitated exchange. This fourth branch reinvention of Obamacare is currently being challenged in the courts.
Wellness Programs (77 FR 70620, November 26, 2012)
Wellness programs are those pesky little additions to your health plan telling you to meet certain BMI or cholesterol levels, fill out a health risk assessment, or walk a mile a day to receive a reward or avoid penalties. What’s new about this under Obamacare? Not much. Now the reward is allowed to be up to 30% of the cost of coverage, up from the previous limit of 20% under HIPAA. And if it’s a tobacco cessation program, the limit can go up to 50%.
Obamacare oddities: Obamacare essentially codified as statue the 2006 HIPAA regulations governing wellness programs. Now we have regulations based on the PPACA codification. If you’re following along at home, that means we started with the HIPAA statute, got regulations under HIPAA, had those regulations codified as statute in PPACA, only to get a new batch of regulations from those codified regulations. Ain’t big government grand?
Patient-Centered Outcomes Research Institute and Transitional Reinsurance Fees (77 FR 72721, December 6, 2012; 77 FR 73118, December 7, 2012)
Fees! Now we’re really in the Obamacare sweetspot. There’s a $1 per covered person fee (increasing to $2 in 2014) for the Patient-Centered Outcomes Research Institute, applied to the insurance company or employer. Here’s how Obamacare describes the institute: “Through research, the Institute will assist patients, clinicians, purchasers, and policy-makers in making informed health decisions by advancing the quality and relevance of evidence-based medicine through the synthesis and dissemination of comparative clinical effectiveness research findings.” In other words, money well spent.
The transitional reinsurance fee will be about $5.25 per covered person. It’s essentially an Obamacare exchange tax to buy off the insurance carriers for accepting all takers without preexisting condition exclusions beginning in 2014.
Obamacare oddities: Exactly how do more fees, which will clearly be passed on to the participant, make coverage more affordable?
Additional Medicare Payroll Tax and Investment Income Tax (77 FR 72268, December 5, 2012; 77 FR 72612, December 5, 2012)
Taxes! Rapacious capitalists will start paying more of their fair share (note: actual fair share unknown) in 2013 even if the Bush tax cuts are extended across the board. Individuals making over $200,000 and married couples making over $250,000 and filing jointly will pay 0.9% in Medicare payroll taxes for wages earned in excess of those amounts. Those same “rich” people will also pay an additional 3.8% tax on all investment income — including stocks, bonds, mutual funds, investment real estate, and personal real estate gains in excess of the statutory exclusion.
Obamacare oddities: Employers must begin withholding the 0.9% additional Medicare payroll tax on any income over $200,000 – even if you’re married and filing jointly. Enjoy your refund next year.
Durable Medical Equipment Tax (77 FR 72924, December 7, 2012)
More taxes! A 2.3% excise tax on durable medical equipment beginning 2013.
Obamacare oddities: Wasn’t Obamacare supposed to help the type of patient who relies on durable medical equipment?
Obamacare continues to expand through the regulatory process, almost always at an inverse relation to state sovereignty, individual liberty, and free market capitalism. And this first post-election wave of implementing guidance is still the tip of the iceberg. Let’s hope the Republican push for consumer-driven market reforms to the health coverage industry doesn’t get lost in the fiscal cliff and debt ceiling negotiations.