Indiana School Leaders and Job Creators Describe Harmful Effects of Health Care Law

Below is an announcement issued by Education & The Workforce Press:

 

FOR IMMEDIATE RELEASE
September 5, 2014
CONTACT: Press Office
(202) 226-9440

 

Indiana School Leaders and Job Creators Describe Harmful Effects of President’s Health Care Law

 

WASHINGTON, D.C. – The Subcommittee on Health, Employment, Labor, and Pensions, chaired by Rep. Phil Roe (R-TN), held a field hearing in Greenfield, Indiana to examine the health care challenges facing the state’s classrooms and workplaces. According to a local news report:Hoosier business owners and education officials aired out their concerns about the Affordable Care Act to Congress without having to go all the way to Washington D.C. … The chambers there are clearly smaller than the halls of Congress, but that’s exactly the way committee members wanted it. Several panelists were concerned about how ACA has been affecting their budgets.As witnesses made clear, the president’s health care law is undermining the success of the nation’s schools and workplaces –Schools

  • The most significant impact is on our special needs students. These students need and want consistency … It is best for our special needs students to have the same bus driver for their routes. Unfortunately, we now must split the route between two drivers. By using different drivers for the same route, our special needs students are subject to constant change which is uncomfortable for our special needs students and not in their best interests. – Mr. Danny Tanoos, Superintendent, Vigo County School Corporation, Terre Haute, IN
  • Like many community colleges our funding is very limited. It does not allow us to absorb large unfunded mandates such as any employee who reaches 30 hours being offered health insurance. We would have to pass along such increases on the backs of students by increasing tuition. As a result many of those who are at the lowest income levels trying to improve their lives would no longer be able to afford college. – Mr. Tom Snyder, President, Ivy Tech Community College of Indiana, Indianapolis, IN
  • The Patient Protection and Affordable Health Care Act (PPACA) has had and continues to have a severe and disproportionately disruptive effect on our high performing school district. We have identified three categories in which these negative effects have occurred in our school district. There is the impact on our students, the impact on our employees, and the impact on the school district itself. These intertwined and interactive effects, taken together, are serious now and appear to be increasing in their severity over time. – Mr. Michael Shafer, Chief Financial Officer, Zionsville Community Schools, Zionsville, IN

Workplaces

  • In summary, since the ACA took effect, our company and employees have seen premiums increase dramatically while deductibles and out-of-pocket costs have been raised, all during a period when the overall health of our employees has improved … From the experience of IDS, I can say that the Affordable Care Act is anything but affordable for our company and employees. – Mr. Mark DeFabis, President, Integrated Distribution Services, Plainfield, IN
  • We offer health insurance to our full time employees although not affordable by government standards … This cost to our business is roughly in the area of $2.42 to $3.23 per hour per employee depending on hours worked. To meet the proposed guidance of not to exceed 9.5% of income that cost would move into the $2.87 to $5.15 range per hour per employee! Representing an 18 to 59% raise in cost per hour per employee. Where is the AFFORDABLE in this act? – Mr. Daniel Wolfe, President, Wolfe’s Auto Auctions, Terre Haute, IN
  • The Affordable Care Act’s reporting mandates will absolutely ‘bury’ our Human Resources Department … The forms must be filed electronically for companies with over 250 employees, such as Draper. However, there is no guidance or process yet established to explain how to do this … Our HR Department’s worst fear is that the final versions will be made available on December 15, with a December 31 deadline for submission! – Mr. Nate LaMar, International Regional Manager, Draper, Inc., Spiceland, IN

Congressman Luke Messer (R-IN) noted during the hearing, “Our nation’s school children and hourly workers shouldn’t be forced to pay the price of that law.” Chairman Roe echoed the sentiment: “Our children and working families deserve better.”

To read witness testimony, opening statements, or watch an archived webcast of the hearing, visit www.edworkforce.house.gov/hearings.

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EEOC Files Lawsuit Against Employee Wellness Program

On August 20, 2014, the U.S. Equal Employment Opportunity Commission (“EEOC”) filed suit in Wisconsin federal court challenging an employee wellness program’s legality under the Americans with Disability Act (“ADA”). As noted in a press release, this lawsuit is the EEOC’s first to directly challenge a wellness program under the ADA.

Orion Energy Systems (“Orion”) implemented a wellness program that included health screenings and disability related inquiries. The ADA prohibits medical examinations and inquires unrelated to employment, unless they are voluntary. The EEOC alleges that Orion’s wellness program did not qualify as voluntary under the ADA because one employee who refused to participate was forced to bear the entire cost of her health coverage premium and was ultimately terminated. “Employers certainly may have voluntary wellness programs,” stated John Hendrickson, regional attorney for the EEOC Chicago district. “But they have to actually be voluntary. They can’t compel participation by imposing enormous penalties such as shifting 100 percent of the premium cost for health benefits on the back of the employee or by just firing the employee who chooses not to participate. Having to choose between responding to medical exams and inquiries – which are not job-related – in a wellness program, on the one hand, or being fired, on the other hand, is not choice at all.”

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Roe to Hold Indiana Field Hearing on Health Care Challenges Facing Schools and Workplaces

Below is an announcement issued by the Subcommittee on Health, Employment, Labor, and Pensions:

On Thursday, September 4, at 10:00 a.m., Subcommittee on Health, Employment, Labor, and Pensions Chairman Phil Roe (R-TN) will hold a field hearing entitled, “The Effects of the President’s Health Care Law on Indiana’s Classrooms and Workplaces.” The hearing will take place at Greenfield City Hall, 10 South State Street, Greenfield, Indiana.

Across the country, workers and employers are struggling with the consequences of the president’s health care law. For example, in response to a survey by the Federal Reserve Bank of New York, businesses generally expect health care costs to increase by 10 percent next year and a majority cited the health care law as the reason. The survey also revealed the law was leading employers to raise the number of part-time employees, lower employee compensation, and increase consumer prices.

The House Education and the Workforce Committee is examining how many of these same consequences are affecting the nation’s K-12 and higher education systems. Through testimony and the committee’s YourStory initiative, school leaders have shared stories of health care costs going up and staff work-hours being cut.

The field hearing will provide members an opportunity to learn how the health care law is affecting Indiana’s schools and workplaces. For more information about the field hearing, visit www.edworkforce.house.gov/hearings. Media interested in attending the field hearing must RSVP to Liz Hill at liz.hill@mail.house.gov.

 

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IRS Releases Draft Versions of Forms for Health Information Reporting by Employers

The IRS released final regulations on March 5, 2014, outlining the employer reporting requirements that will take effect for the 2015 taxable year. While the final regulations specified the type of information that will need to be reported, the actual reporting forms were not issued at that time. As a result many employers were taking a wait and see approach to the reporting requirements. We now have draft reporting forms. On July 24, 2014, the IRS released draft forms that employers will use to report on health coverage they offer to their employees. The forms are the primary mechanism used by the government to track and enforce the Affordable Care Act’s minimum essential coverage and shared responsibility requirements for employers. The first reports will be due in 2016.

There are two types of reporting requirements. First, is section 6055 reporting, which is to aid the IRS in enforcing the ACA individual mandate. The second type of reporting is section 6056 reporting, which applies to applicable large employers and is to aid in the enforcement of the shared responsibility penalties under the ACA. The IRS recently released draft forms may be found using the following hyperlinks: 1094-B (Transmittal of Health Coverage Information Return), 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns), 1095-B (Health Coverage), and 1095-C (Employer-Provided Health Insurance Offer and Coverage). The draft instructions relating to the forms have not been released. The IRS anticipates posting draft instructions to IRS.gov sometime in August.

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King Decision on ACA Subsidies

On July 22, 2014, two conflicting decisions on the legality of insurance subsidies provided in federally established health care exchanges were handed down. In the Halbig decision, discussed previously in this blog, the D.C. Circuit of the U.S. Court of Appeals ruled that such subsidies are not allowable on federally established exchanges. The second decision, in King v. Burwell, directly conflicted with the Halbig decision, with the Fourth Circuit of the Court of Appeals ruling that such subsidies are allowable on federally established exchanges. This case is the topic of this post.

The plaintiffs in King v. Burwell, which may be read in full here, were Virginia residents who did not wish to purchase comprehensive health insurance. Due to Virginia’s refusal to establish a state health care exchange, citizens of the state were to use the federally established exchange healthcare.gov. The plaintiffs’ opposition to the availability of insurance subsidies in federally established exchanges is linked to the individual mandate provision of the ACA. The plaintiffs argue that absent these subsidies, they would fall under the ACA’s unaffordability exemption and not be required to purchase health insurance. Due to their low income, the plaintiffs argue that the availability of these subsidies makes them subject to the individual mandate and therefore imposes an undue financial burden on them, as they will be required to either obtain insurance or pay a penalty.

The crux of the plaintiffs’ argument in King is essentially the same as that of the plaintiffs in Halbig; they believe that the language of the ACA which allows for insurance subsidies in exchanges “established by the state” prevents these subsidies from being available on federally established exchanges. However, unlike the court in Halbig, the Court found this argument unpersuasive and ruled in favor of the government’s broader interpretation of the statutory language.

The rationale behind the Fourth Circuit’s ruling is centered on the perceived ambiguity of the statutory language. The King court explains that, taken in context of the entire act, the language in question could have two reasonable interpretations. One of these interpretations is that taken by the plaintiffs, while the other is the broad interpretation presented in the IRS’ final regulation on this matter, which allows for insurance subsidies on all health care exchanges. Due to the fact that the IRS has interpretative authority, the Court explains that they are not authorized to supplant the IRS’ interpretation of the statute unless it is clearly “arbitrary, capricious, or manifestly contrary to the statute.” The Court determined that the IRS’ interpretation did not fall into any of these categories, and therefore upheld the IRS’ ruling and the legality of insurance subsidies in federally established exchanges.

This decision will be appealed, similar to the Halbig decision. Until a final decision on this issue is published (likely by the United States Supreme Court), employers should continue to proceed as if the employer penalties are applicable in states with federally facilitated exchanges.

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The Shaky Future of the ACA Employer Penalty After Halbig

In a previous post, we discussed the murky legal status of insurance subsidies in federally established insurance exchanges. This post will focus on the July 22, 2014 decision in Halbig v. Burwell and the impact this ruling will have if it is upheld.

Yesterday, in a potentially landmark decision, the D.C. Circuit of the U.S. Court of Appeals ruled that federally established health care exchanges are not authorized to provide insurance subsidies. The case centered on language of the Affordable Care Act (“ACA”) which, on its face, limits the availability of insurance subsidies to state-established exchanges. The language in question, found in Section 36B of the Internal Revenue Code, made tax credits available as a subsidy for individuals purchasing health insurance through marketplace which were “established by the State.”

The appellants, a group of individuals and employers residing in states without state-established exchanges, argued that this language prohibited the offering of insurance subsidies on federal exchanges; the government argued that the broad interpretation of this language, as interpreted and promulgated by the IRS in a final regulation on this issue, should be used to allow federal exchanges to offer insurance subsidies. With its ruling in Halbig, the Court sided with the appellants and held that the ACA “unambiguously restricts the . . . subsidy to insurance purchased on Exchanges ‘established by the State’. . .”

The crux of the Court’s ruling relied on the language of the ACA itself. As noted above, the ACA provides that subsidies should be available for plans “enrolled in through an exchange established by the state;” it makes no mention of these subsidies being provided in federal exchanges. The government argued that by allowing the federal government to establish exchanges in the states which failed to do so, the ACA made federal exchanges equivalent to the state exchanges, thus allowing subsidies to be provided within these exchanges. However, the Court rejected this argument. Additionally, the court rejected the government’s arguments that a narrow construction would make other provisions of the ACA unworkable and that a narrow interpretation would be contradictory to the law’s purpose and legislative history.

The federal government intends to appeal the Court’s decision. However, if this decision is ultimately upheld, it would have a material impact on the employer shared responsibility penalty under the ACA. The employer penalty, which will be effective January 1, 2015, will impact applicable large employers that have at least one full-time employee who receives a subsidy through the new insurance exchanges. If the Halbig decision is upheld, employers in the thirty-four states utilizing federally established exchanges would not be subject to this penalty.

As noted in yesterday’s blog, the Fourth Circuit issued a conflicting ruling on the same issue within hours of the Halbig decision. Accordingly, the current status of insurance subsidies and employer penalties in states with federally established exchanges is unclear. The next step is likely an en banc review of the Halbig decision by the D.C. Circuit; however, there is a good chance that this issue will ultimately be decided by the Supreme Court. If the Halbig decision is ultimately upheld, it will provide significant relief to large employers in the thirty-four states without state-established exchanges. It is important to note, however, that while the issue is on appeal, the administration has stated that these subsidies still will be available on all exchanges; therefore, employers must still comply with the mandate until a final ruling is made on this issue

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Conflicting Federal Rulings Issued Today on ACA

Earlier today, two circuits of the U.S. Court of Appeals handed down conflicting rulings regarding the legality of insurance subsidies offered in connection with federally facilitated exchanges. The controversy surrounding these subsidies involves language found in the Affordable Care Act (“ACA”) which provides that subsidies are available to individuals purchasing insurance through exchanges “established by the State.” The IRS interpreted this language broadly to allow for subsidies to be offered with both state and federally facilitated exchanges.  The plaintiffs in both cases believe that the IRS exceeded its authority in expanding subsidies to states with federally facilitated exchanges, thereby unfairly exposing applicable large employers in those states to shared responsibility penalties.

In Halbig v. Burwell, the U.S. Court of Appeals for the District of Columbia held that the language of the ACA allowing for insurance subsidies in state operated exchanges did not apply to federally facilitated exchanges. However, only hours later, in King v. Burwell, the Fourth Circuit sided with the government and upheld the legality of insurance subsidies in connection with federally facilitated exchanges.

The conflicting results are due to differing interpretations of the statutory language. The Halbig Court, which struck down subsidies in connection with federal exchanges, relied on the actual language of the statute. This court determined that the language was unambiguous and restricted subsidies to insurance purchased on exchanges “established by the State.” Conversely, the King Court found the language of the statute to be ambiguous and “subject to multiple interpretations.” Due to this, the Court gave deference to the government’s broad interpretation of the language, and upheld the IRS final rule on the issue, which allowed for subsidies to be provided on both state and federal exchanges.

Both of today’s decisions will be appealed. In addition, we are still awaiting a decision from the federal court in Indianapolis in State of Indiana v. IRS, which involves similar arguments raised by the state and thirty-nine Indiana public schools. The public schools in State of Indiana v. IRS are represented by Bose McKinney & Evans LLP.  (State v. IRS – Amended Complaint)   For now, employers should continue to assume that the shared responsibility penalties will be effective January 1, 2015. Ultimately, the United States Supreme Court may need to determine whether the IRS may validly impose penalties upon employers located in states that do not operate a state-based exchange.

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Health Plan Identifier Deadline Approaching

Large self-funded health plans are required to obtain a Health Plan Identifier (“HPID”) by November 5, 2014. Small self-funded health plans, with annual claims of $5 million or less, have an extra year until November 5, 2015. If an employer maintains a fully insured plan, the insurance company will be responsible for obtaining the HPID.

The HPID is a 10-digit numeric code assigned to health plans in an effort to standardize the transaction process for health care services. For the purposes of the HPID, there are two classes of health plans: (1) controlling health plans (“CHP”) and (2) subhealth plans (“SHP”). CHPs are health plans that control their own business activities or are controlled by an entity that is not a health plan; CHPs are required to obtain HPIDs. SHPs are health plans whose business activities are directed by a CHP; they are not required to get a HPID, but may do so at the direction of its controlling CHP or on its own accord.

In order to obtain a HPID, health plans should apply through HHS’ Health Plan and Other Entity Enumeration System (“HOPES”). In order to do so, an organization must register in the Health Insurance Oversight System (“HIOS”) within HOPES, access the user management role, select the application type, complete the application and have the application reviewed by the organization’s authorizing official. Once this process is completed, and the applications are approved by the organization’s authorizing official, the system will provide a HPID.

The date for full implementation of HPIDs in standard transactions is November 7, 2016. On this date, all covered entities are required to use the HPID in standard transactions involving health plans possessing an identifier. More information concerning HPIDs and the registration process for obtaining one can be found here.

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Final Regulations on Qualified Longevity Annuity Contracts (Distributions exempt from RMD Rules)

On July 2, 2014, the IRS issued final regulations concerning qualified longevity annuity contracts (“QLACs”) and how these are to be treated under the required minimum distribution (RMD) that apply to qualified retirement plans. The final regulations are effective immediately, and, when applicable allow for QLACs to be exempt from the RMD rules.

The increase in average life expectancy of Americans increases the likelihood that more retirees will outlive their retirement savings. To combat this potential problem, many retirees have begun to purchase longevity annuities, which provide a steady stream of retirement income and provide protection against the risk of a retiree outliving his or her savings. Prior to the IRS’s issuance of the final regulations, an acquisition of these annuity contracts within a qualified retirement plan was problematic. In particular, before the issuance of the regulations, the value of any annuity held in the account of a plan participant was includible in calculating a participant’s RMD. However, if the value of the annuity represented the primary value of the participant’s account, the participant could be faced with the possibility that he/she did not have other funds in his/her account to make the necessary RMD because of the annuity’s fixed payment schedule.

The final regulations provide a solution to this issue. Pursuant to the final regulations, any QLACs purchased on or after July 2, 2014, by a participant in a defined contribution, 403(b), or 457(b) plan or the owner of a non-Roth IRA may be exempted from RMD rules. This means that, so long as the annuity meets the requirements to be a QLAC, the value of the annuity will not be included when calculating RMD payments, thereby eliminating the concern about insufficient funding for RMD payments.

It is important to note that not all longevity annuity contracts will be considered QLACs. To qualify as a QLAC, an annuity must meet seven requirements:

  1. The annuity must be purchased from an insurance company;
  2. Annuity payments must begin no later than the first day of the month following the employee’s 85th birthday;
  3. The annuity contract’s premiums cannot exceed the lesser of 25% of the employee’s retirement plan account balance on the date of the payment or $125,000;
  4. The annuity contract cannot include any features that would provide for lump sum distribution or cash surrender rights;
  5. The annuity contract must state that it is intended to be a QLAC;
  6. Death benefits must meet the requirements laid out in the final regulations, which vary depending on who the beneficiary is and when the spouse dies; and
  7. The annuity cannot be a variable annuity.

With the enactment of the final regulations, the IRS has provided a new way for retirees to ensure sufficient funding for their retired lives. However, employers sponsoring qualified retirement plans are under no requirement to offer QLACs as part of such plans. Employers considering offering QLACs should weigh the benefit of adding the product to the employer-sponsored retirement plan against the out-of-pocket and administrative cost of making such an offer. For more information on the QLACs, the final regulations can be found, in full, here.

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New 1023-EZ Form

On July 1, 2014, the IRS introduced Form 1023-EZ.  This form is a shorter (only three pages) version of Form 1023 (26 pages), which is the application used by charities seeking recognition of tax-exempt status under section 501(c)(3) of the Internal Revenue Code.  This new form streamlines the filing process for smaller charities and reduces the costs involved in the process.

In a press release concerning the new form, the IRS stated that most new charities with gross receipts of $50,000 or less and assets of $250,000 or less will be eligible to use the short form application.  (Apparently, such charities make up nearly 70% of all applicants for tax-exempt status.)  Prior to the release of 1023-EZ, small charities had to go through the same drawn-out application process of larger charities.

In addition to providing small charities with a less strenuous application process, Form 1023-EZ also provides these charities with an opportunity to save money, both in the expense incurred in preparing the application and the filing, user, fee payable to the IRS.  When filing the current Form 1023, a user fee of $850 was due if the organization’s annual gross receipts averaged or were anticipated to average more than $10,000.  When filing Form 1023-EZ, eligible charities will only be required to pay a $400 user fee, i.e., a savings of $450.

The creation of Form 1023-EZ also establishes a faster path to receiving IRS tax-exempt recognition.  There is a current backlog of more than 60,000 tax exempt applications within the IRS.  Because considerably less information is required by Form 1023-EZ,  less time will be required of IRS personnel to review the application, which should then result in the IRS completing their and issuing tax-exempt determinations over a much shorter timeframe.

Those interested in learning whether an organization is eligible for using Form 1023-EZ should complete the Form 1023-EZ Eligibility Worksheet found here.

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