Thursday, May 25, 2017

Benefits Opt-Out Payments Must Be Included in Overtime Calculation

Just in case employers needed any more reason to end their opt-out payment practices, this is from Kate McGovern Tornone over at the HR Daily Advisor:
The U.S. Supreme Court has left intact a 2016 appeals court ruling addressing how benefits opt-out payments interact with the Fair Labor Standards Act (FLSA). 
In a case of first impression, the 9th U.S. Circuit Court of Appeals (which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) ruled that when an employer pays an employee cash for opting out of its health insurance, that payment must be considered part of the employee’s “regular rate of pay” under the FLSA. This means it must be used in calculating compensation for overtime hours. ...
The 9th Circuit agreed with the city that its ruling may cause employers to discontinue cash-in-lieu of benefits payments, but said its hands were tied....
Full story here.

Friday, May 5, 2017

Obamacare Replacement Passes U.S. House, a Visit with Armstrong & Getty on Pre-Existing Conditions

On May 4, 2017 the U.S. House of Representatives narrowly passed the American Health Care Act (AHCA) by a vote of 217 to 213. The bill must still go to the Senate where it is expected to undergo substantial changes.

We’ll continue to update you on pertinent developments.

I went on the air with Jack and Joe this morning to discuss this, the media's coverage of it and what the AHCA will actually do with respect to pre-existing conditions.

You can listen to all Armstrong and Getty shows here.

Here is a smattering of some of the better media coverage on this proposed law:

How the GOP health care plan differs from Obamacare
May 4, 2017 - ABC News
Excerpt: "In brief: What the AHCA does:
  • Ends individual mandate, imposes surcharge for coverage lapse
  • Ends Obamacare premium subsidies, offers tax credits instead
  • Rolls back Medicaid expansion across 30 states
  • Allows states to impose Medicaid work requirement
  • Expands health savings accounts
  • Allows states to waive federal "essential health benefits" requirement and set own standard
  • Allows insurers to charge older people up to 5 times as much as younger
  • Repeals consumer taxes
  • Imposes abortion restriction on tax credits
  • Imposes Planned Parenthood restriction for Medicaid
  • Requires insurers to allow young adults to stay on parents' plans until 26
  • Allows states to permit insurers to charge more for pre-existing conditions
  • Allocates $8 billion to help subsidize people with pre-existing conditions in state high-risk pools
  • Prohibits insurers from imposing lifetime or annual limits on coverage
  • Establishes "patient and state stability fund" to help states service low-income Americans" 

House passes ObamaCare repeal
May 4, 2017 – The Hill
Excerpt: “The narrow 217-213 vote is a victory for GOP leaders, who faced a tumultuous path to getting the bill to the floor. The measure had to be pulled in March because of a lack of votes, but a series of deals since then brought on board the conservative Freedom Caucus and then wavering moderates.”

U.S. House Narrowly Passes AHCA; Bill Heads to Senate, Fate is Unclear

May 4, 2017 – The Council of Insurance Agents & Brokers
Excerpt: “The bill eliminates the employer and employee mandates; replaces the ACA’s income-based subsidies with tiered tax credits, gradually increasing for older Americans; allows states to apply for waivers to define their own essential health benefit requirements; expands the limits for Health Savings Accounts; discontinues Medicaid expansion in 2020; and repeals most of the ACA’s taxes. The legislation would delay implementation of the Cadillac Tax by five years, from 2020 to 2025, and it importantly preserves the tax exclusion for employer sponsored insurance.”

The health care bill's path forward in the Senate
May 4, 2017 – Axios
Excerpt: “It’s been widely assumed the current GOP health care bill working its way through the House would be vastly changed in the Senate-in fact, that’s part of leadership’s pitch to moderate holdouts. But Senate Republicans are already thinking about what it will take to get the bill through the upper chamber, and the changes are not as vast as some might think.”

Thursday, April 20, 2017

Potential Obamacare Replacement Bills and Taxation of Employer-Provided Coverage


With increasing regularity we receive some variation of this question, "What is this 'employer exclusion' that some lawmakers are considering for inclusion in they various proposed Obamacare replacement efforts?"

Short Answer

Private employer-sponsored health insurance covers approximately 177 million Americans. Currently, employer-sponsored health insurance premiums paid for by the employer, or paid by employees through a cafeteria plan, are completely excluded from income taxation. This is sometimes referred to as the "employer exclusion," but it is really a tax exclusion for employees on the cost of employer-provided health care. This tax-favored status helps create stability in the largest of marketplaces: the employer group coverage market.

In the Affordable Care Act (ACA), the complicated "Cadillac tax" was developed to impose a 40 percent excise tax on high-cost employer-sponsored health plans. The tax, however, would have been imposed on employers and insurers, not employees.The tax was delayed until 2020. Under the recently introduced (but not passed) American Health Care Act (AHCA), and a subsequent "Manager's Amendment" to the AHCA, there would be a further delay until 2026.

Prior to introducing the AHCA, in order to collect revenues to pay for the replacement bill, Republicans hinted they want to tax employees for health insurance coverage exceeding a set statutory cap. In a very simple example, if the first $20,000 of employer-sponsored family coverage is determined to be tax free and $13,000 is the aggregate premiums paid, then the employee owes no tax. Under the same example, if $22,000 is the cost of premiums, then the $2,000 excess above $20,000 is taxed to the employee as ordinary income - and presumably subject to payroll taxes (FICA and FUTA), as well. To be clear, this is an example only. No cap has been set yet. While the draft version of a bill leaked in February 2017 included such a tax, the AHCA did not.

The AHCA would have, however, retained the Cadillac tax for 2026 and later, while the earlier draft completely eliminated the Cadillac tax. It remains to be seen whether there will be some "horse trading" and the tax on employer-provided coverage reappears in the AHCA in return for a full repeal of the Cadillac tax. This tax might also enter into comprehensive tax reform discussions, which will likely take place later this year or next.

Click on the link below to read the American Benefits Council white paper, "Taxing Employer-Sponsored Health Benefits: Myths and Realities." This is an area of real concern for employers and, even though not included in the AHCA, will likely still be relevant to the ACA replace/repair debate, as well as tax reform discussions.

Section 61(a) of the Internal Revenue Code (IRC) provides that all forms of income, from whatever source, are taxable unless there is an express exception. With respect to employer-provided health care coverage, there are two exceptions that are relevant:
  1. An exclusion for the cost of coverage (e.g., the amount of premiums paid for the coverage) under IRC Section 106
  2. An exclusion for the benefits received under IRC Section 105
Thus, unlike almost any other benefit, employees are neither taxed for the cost of coverage nor for the benefits they receive. Also, the employer receives a tax deduction for providing the coverage. Estimates are that the coverage exclusion under IRC Section 106 reduces federal income and payroll tax revenues by about $260 billion per year.

Several of the earlier versions of the Republican replace/repeal proposals for the ACA limited the exclusion (from income under IRC Section 106) on the cost of employer-provided health care coverage. Some reasons for these proposals are ideological - the belief that employer-provided coverage does not afford employees with enough "skin in the game" to be wise users of health care dollars, which results in them obtaining more coverage than they otherwise would or should have. Others note the effect on tax revenue mentioned above. The more pressing reason in the earlier versions of these proposals, however, is the need for replacement of budget dollars that would be lost by repeal of the Cadillac and other taxes.

Of course, with the AHCA, Republican leaders have, at least for now, backed off the notion of taxing employer-provided health care coverage, but they have retained the Cadillac tax for years 2026 and later. We must see if the concept of taxing employer-provided health care coverage reappears in return for a complete repeal of the Cadillac tax or in subsequent comprehensive tax reform negotiations.

None of the earlier proposals eliminated the exclusion entirely. These proposals all kept the exclusion for employer-provided health care coverage up to a certain level. One proposal, for example, kept the exclusion for employer-provided health care coverage up to $12,000 for individual coverage and $30,000 for family coverage. The draft Republican bill leaked in February set the cap at the nationwide 90th percentile of average premiums for group health care coverage. As mentioned above, however, this taxation is currently not part of the most recent version of the AHCA.

In reviewing any proposal to tax employer-provided health care coverage, it is not only important to focus on any cap, but also on how the cap will be indexed in the future. Some earlier proposals are similar to the Cadillac tax, where the cap is indexed to the consumer price index. Others use the consumer price index plus a certain percentage. Significantly, these proposals do not set the index to the rise in the cost of health care. Therefore, if health care costs escalate faster than the selected index, as years go by, more and more employees could be subject to taxation for employer-provided coverage.

Also of critical importance is what will be included in the cost of employer-provided coverage. For example, some proposals did not include Health Savings Accounts (HSAs) in that cost. The likely result, if such a proposal became law, would be employers providing lower-cost high-deductible plans with increasingly higher deductibles, so their employees will not be taxed, but "making up the difference" with an employer contribution to an HSA.

But, again, we stress these are merely proposals and, while included in the leaked bill, were not included in the most recent version of the AHCA. The failure to include these provisions in the AHCA is likely the result of push-back on limiting this income tax exclusion, which has been in existence for more than 50 years. In the summary above, you will find the link to the American Benefits Council's white paper, "Taxing Employer-Sponsored Health Benefits: Myths and Realities," which provides some of the reasons for this pushback.

We will simply have to wait and see whether any type of tax on employer-provided health care coverage reappears in any future version of the AHCA or in any comprehensive tax reform package.

Friday, March 24, 2017

PPACA Repeal and Replace, GOP Alternative Pulled From Consideration

March 23 - House announces vote on American Health Care Act is postponed. Republicans held a closed door meeting later in the evening.

March 23 - President Trump asks that the House vote be held on Friday, March 24.

March 24
- Vice President Pence meets with conservative Freedom Caucus members to convince them to join as a Yes vote.

March 24
- H. B. 1628, American Health Care Act, is pulled and no vote takes place. Speaker Ryan said: "Moving from an opposition party to a governing party comes with growing pains, and, well, we're feeling those growing pains today. We came really close today, but we came up short. I spoke to the president just a little while ago and I told him that the best thing I think to do is to pull this bill, and he agreed with that decision. I will not sugar coat this, this is a disappointing day for us. Doing big things is hard."

We will continue to monitor the aftermath of these events. If any new legislation is proposed in 2017, we will be tracking that as well as the regulatory changes we anticipate will still proceed.

Health Care Reform News:


House Republicans pull health care bill
March 24, 2017 – CNN
Excerpt: “House Speaker Paul Ryan sensationally pulled his Obamacare repeal bill from the floor on Friday, a day after President Donald Trump had threatened to walk away from health care reform if he didn't get a vote.”

GOP health-care bill: House Republican leaders abruptly pull their rewrite of the nation’s health-care law
March 24, 2017 – Washington Post
Excerpt: “House Republican leaders abruptly pulled a rewrite of the nation’s health-care system from consideration on Friday, a dramatic acknowledgment that they are so far unable to repeal the Affordable Care Act.”

Ryan pulls GOP health care bill following call from Trump

March 24, 2017 – ABC News
Excerpt: “Republican leadership has decided to pull their Obamacare replacement bill at the last minute at the request of President Donald Trump -- capping a rocky series of weeks since the controversial measure was introduced and an order from the president for legislators to put their cards on the table today.”

Republicans Yank Obamacare Repeal Bill
March 24, 2017 – Politico
Excerpt: “The decision is a staggering defeat for Ryan and President Donald Trump in their first attempt to partner on major legislation and fulfill a seven-year Republican promise to repeal Obamacare. It comes a day after Trump issued an ultimatum to House Republicans to vote for the bill or live with Obamacare."

Tuesday, March 21, 2017

Changes to American Healthcare Act Designed to Entice the Right and Left Wings of the GOP

Republicans in the House of Representatives have proposed a handful of changes to the American Healthcare Act in an attempt to woo a few of the more liberal and conservative members of the GOP.  The House plans to vote on the full bill on Thursday.  Here is a quick summary of the enticements offered to placate the party's edge members: 
  1. About $85 billion more allocated to lower income and older Americans to use as tax credits in purchasing healthcare.  The House will charge the Senate with actually delineating how these credits are to be doled out.  But the change was an olive branch to moderates who felt that seniors and low income folks were going to have to pay too much for their own healthcare.  
  2. An option for states to choose between the per-person funding Medicaid caps and the more traditionally proposed per state block grants
  3. States now will have the freedom to place work requirements on non-disabled adults who get free healthcare via Medicaid.  Any state instituting this change will receive 5% more financial support from the federal government. 
  4. All Obamacare taxes (other than the "Cadillac Tax") will be repealed in 2017 instead of 2018.  
  5. Excess tax credits that were not used in purchasing healthcare, can now not be rolled over into Health Savings Accounts as was proposed in the original legislation.  And,
  6. An alteration in the Medicaid reimbursement rates for the elderly and disabled alleviating a concern some governors had about cuts to reimbursements for those categories of beneficiaries. 

Monday, March 13, 2017

A Brief Analysis of the CBO Report on the American Health Care Act

The Congressional Budget Office ("CBO") has scored the American Health Care Act (which I like to pronounce as "Ahaaa").  It is only 37 pages and can be found here.  I've summarized it and my thoughts on it into one page below.   

20% to 50% Reduction in Taxpayer Costs
  •  Taking the CBO at its word, the proposed bill reduces federal deficits by $337 billion over the next 10 years. (About a 20% reduction in the cost of Obamacare if we assume PPACA was at roughly $1.7 trillion.)
Fewer Americans Covered Under Taxpayer Funded Insurance
  • In 2018, 14 million fewer people would be insured than under current law. However,
    • 11 million people fewer will be dependent on taxpayer funded healthcare; and 
    • 5 million fewer people forced into a failing Medicaid system.
A 10% to 25% Reduction in Premiums for Most Americans by 2026
  • The proposed legislation would reduce prices enough overall to stabilize the insurance market by enticing younger and healthier people to purchase healthcare and do so with fewer taxpayer handouts. I.e., free market improvements with less reliance on government. (Top of P. 3 in CBO report.)
    • By 2026, premiums in the non-group market would be 20% to 25% percent lower for a 21-year-old and 8% to 10% lower for a 40-year-old—but 20 percent to 25 percent higher for a 64-year-old. (Page 22 in CBO report.) This is actuarially correct but politically challenged. 
    • For those with household income exceeding 150% of the Federal Poverty Level ("FPL"), the legislation would generally reduce the percentage of income that younger people had to pay toward their premiums and increase that percentage for older people. (Bottom of page 11 in CBO report.) This helps to correct the PPACA underwriting perversions that unduly burden young Americans.
Minor Improvements in Insurer and Employer Ability to Offer Creative Free Market Healthcare Plans
  • This bill fails to eliminate the 10 categories of “essential” benefits as defined by PPACA and therefore limits the ability for insurers to sell cheaper, mini-med or catastrophic types of policies to people who do not want or need full blown high-dollar coverage. This is a clear shortcoming. (Page 14 of CBO report.)
    • However because somewhat lower actuarial values will be allowed and because HSAs will be expanded, this bill does incrementally improve individual healthcare consumerism and lessen taxpayer reliance on governmental subsidies. 
      • A Safety Net, Not a Safety Hammock: In an illustrative example, CBO and JCT estimate that a 21-year-old with income at 175 percent of the FPL in 2026 would be eligible for a premium tax credit of about $3,400 under current law; the tax credit would fall to about $2,450 under the legislation. (Page 16 in CBO report.)
IRS Still Involved in Healthcare and Employers Still Reporting. Unfortunately, this bill did add in an income limit for the tax credit test (earlier versions were solely based on age; not income). This means that the IRS will still have to be involved in determining who gets tax credits and employers will still have to engage in the onerous reporting that PPACA spawned.  In theory, however, this reporting could be less detailed. 

Reduction in the Tax on Work and Saving. Less Punishment for Work - in another example, CBO and JCT estimate that a 21-year-old with income at 450% of the FPL in 2026 would be ineligible for a credit under current law but newly eligible for a tax credit of about $2,450 under the legislation. (Page 16 in CBO report.)

Less Reliance on Government and More Personal Responsibility
: “total federal subsidies for nongroup health insurance would be significantly smaller under the legislation than under current law for two reasons. First, by the agencies’ projections, fewer people, on net, would obtain coverage in the nongroup health insurance market under the legislation. Second, the average subsidy per subsidized enrollee under the legislation would be significantly lower than the average subsidy under current law. In 2020, CBO and JCT estimate, the average subsidy under the legislation would be about 60 percent of the average subsidy under current law. In addition, the average subsidy would grow more slowly under the legislation than under current law.” (Page 17 in CBO report, the italics are mine.) This is a significant improvement on PPACA in terms of fostering more individual responsibility and keeping deficits under control.

Tuesday, March 7, 2017

Obamacare Repeal/Replacement Watch: First Bills Released

On March 6, 2017 House Republicans released their American Health Care Act (AHCA) proposal for repealing and replacing Obamacare. Both the House Ways and Means Committees and Energy and Commerce published amending language. Articles and proposals are linked below.  I spent this morning discussing the changes, benefits and negatives of this proposed legislation on the Armstrong and Getty Radio Program.

In the afternoon I was on the Michael Berry Radio Show for a more in depth analysis of the bill.

There are two significant changes from the “leaked” discussion draft seen in mid-February versus this newer version. The newer AHCA has no mention of taxing employer sponsored health care and keeps the Cadillac tax in play but delays it even further until 2025. As in the “leaked" bill, the individual mandate and the employer mandate would be repealed (or more accurately reduced to $0) for months beginning after December 31, 2015.  Many other provisions are phased out from 2018 to 2020.

We will need to monitor any amendments closely as the bill progresses in the House and then in the Senate.

Please keep in mind, these are proposals only and subject to change.  Congress is recessed April 7-21 so we hope to have a clearer picture of legislative maneuvers. This is a works in progress but we will let you know if final action takes place to impact your employer obligations.

The American Health Care Act: Fact Sheet (PDF)
March 6, 2017 – Committee on Ways and Means, U.S. House of Representatives
Excerpt: “"[T]he primary Committees with jurisdiction over health care -- Ways and Means and Energy and Commerce -- have released the American Health Care Act -- legislation that not only repeals the law, but replaces it with reforms President Trump laid out.... [H]ere's what the American Health Care Act will do: ... [1] Dismantle the Obamacare taxes ... [2] Eliminate the individual and employer mandate penalties ... [3] Prohibit health insurers from denying coverage ... [4] [Allow] dependents to continue staying on their parents' plan until they are 26.... [5] Establish a Patient and State Stability Fund ... [6] Modernize and strengthen Medicaid ... [7] [Expand] Health Savings Accounts (HSAs) -- nearly doubling the amount of money people can contribute and broadening how people can use it.... [8] [Provide] a monthly tax credit -- between $2,000 and $14,000 a year -- for low- and middle-income individuals and families who don't receive insurance through work or a government program."

The American Health Care Act: House Ways and Means Committee Provisions
March 6, 2017 – Committee on Ways and Means, U.S. House of Representatives
Excerpt: "The legislation, part of House Republicans' American Health Care Act, ... [1] Dismantles Obamacare taxes and mandates -- including the individual and employer mandate penalties and taxes on prescription drugs, over-the-counter medications, health insurance premiums, and medical devices. [2] Empowers individuals and families to spend their health care dollars the way they want and need by enhancing and expanding Health Savings Accounts (HSAs). [3] Helps Americans access affordable, quality health care by providing a monthly tax credit to individuals and families who don't receive insurance through work or a government program."

The American Health Care Act: House Energy and Commerce Committee Provisions (PDF)
March 6, 2017 – Energy and Commerce Committee, U.S. House of Representatives
Excerpt: "The legislation, part of House Republicans' American Health Care Act, ... [1] Creates a Patient and State Stability Fund -- This new and innovative fund give states broad flexibility to design programs that best serve their unique populations. They can also use funds to increase access to preventative services. [2] Responsibly unwinds Obamacare's Medicaid expansion -- By freezing new enrollment after 2 years and grandfathering in current enrollees, we protect patients and offer a stable transition. [3] Strengthens Medicaid -- Using a per capita allotment, our legislation ensures a fair funding formula for states while creating a viable financial future for the program."
March 6, 2017 - New York Times 
Excerpt: "House Republicans released on Monday legislation to repeal and replace the Affordable Care Act, also known as Obamacare.  It fundamentally changes how health care is financed for people who do not have insurance through work, and it eliminates the mandate requiring most Americans to have health insurance, a centerpiece of the Affordable Care Act."

Rand Paul: House GOP Healthcare Plan Will Not Pass
March 7, 2017 - Washington Examiner
Excerpt: "Kentucky Sen. Rand Paul promised the healthcare plan proposed by House GOP leadership would not pass the Senate and become law because it's just 'Obamacare lite.'
Paul told Fox News he has serious problems with the plan, especially the replacement for the Affordable Care Act's individual mandate. Paul said there will still be a mandate, of sorts, in the bill but instead of paying the government a penalty for backing out of a health insurance plan that payment would go to private insurance companies."

The American Health Care Act: The Republican’s Bill to Replace Obamacare, Explained

March 6, 2017 – Vox
Excerpt: “House Republicans released their long-awaited replacement plan for the Affordable Care Act on Monday. The American Health Care Act was developed in in conjunction with the White House and Senate Republicans. Two big questions-how many people it will cover and how much it will cost-are still unresolved: It will likely cover fewer people than the Affordable Care Act currently does, but we don’t know how many. And the Congressional Budget Office has not yet scored the legislation, so its price tag is unknown.”

The Republicans Take on Health Care—and It Won’t Be Easy
March 7, 2017 – CNN
Excerpt: “Republican lawmakers have finally unveiled a plan to repeal major portions of Obamacare, capping years of attacks against the health care law and a months-long debate that exposed deep rifts within the GOP.”

Trump Praises New Health Care Bill as GOP Tries to Sell It
March 7, 2017 – Associated Press
Excerpt: “The new bill aims to replace that law - one of former President Barack Obama's signature achievements - with a system designed along conservative lines. Primarily affected would be some 20 million people who purchase their own private health plans directly from an insurer and the more than 70 million covered by Medicaid, the federal-state program for low-income people.”

Wednesday, February 22, 2017

On the Michael Berry Show Discussing the Trump Admin's Blow to Obamacare's Indiv. Mandate

A detailed discussion with Michael Berry of the IRS announcement that it will accept tax returns which do not answer the question as to whether they have health insurance.

PPACA's individual mandate, which took effect in 2014, requires individuals who don't qualify for one of the many exceptions to obtain acceptable health insurance coverage for themselves and their family members or face a penalty ("tax").

Beginning in 2015, individuals filing a tax return (Form 1040) for the previous tax year were required to indicate which members of their family (including themselves) had health insurance coverage for the year.  Based on this information, the IRS assessed a tax for each nonexempt family member who did not have coverage. The IRS put systems in place for 2016 where individual tax returns that did not provide this health insurance coverage information would be labeled as "silent returns" and automatically rejected.

In a private meeting with tax preparation software companies on Feb. 3, 2017, however, the IRS indicated, effective Feb. 6, 2017, it would not automatically reject silent returns for 2016. Instead, silent returns would still be accepted and processed by the IRS.

Obviously, this change in processing returns does not eliminate the ACA's individual mandate penalty. The change in policy does mean, however, that returns will not automatically be rejected. Completely removing the individual mandate penalty (or reducing the penalty amount to $0) would require action by Congress. This change in processing individual returns, however, is clearly a move toward considerably less strict enforcement of the individual mandate.

When pressed as to whether the change meant that the IRS would not follow up and inquire about the filer's silence on health insurance status, the IRS clarified that it did, in fact, reserve the right to follow up on the subject.  This, however, was a legally necessary response.  Because if the IRS directly stated the that information was optional and that the IRS would not follow up on any silent forms, it would be a direct abdication of the IRS' responsibility (as part of the executive branch) under Article II of the U.S. Constitution to execute and enforce the laws created by Congress.

On Armstrong & Getty: Individual Mandate Made Optional; Aetna CEO says O'Care in Death Spiral; 70% of Californians on Taxpayer Healthcare


Monday, February 20, 2017

A Brutal Week for Obamacare: Enrollment Shrinking; Costs Soaring - Death Spiral

An excellent paragraph from Megan McArdle explaining the phenomenon of death spiral.  The end is near:
Why not just raise the premiums? Because a pool comprising too many sick people can’t be stabilized at any price. Once you start jacking up the premiums to pay for all the pricey health care your members are using, you start losing your remaining healthy customers, and the premiums have to be jacked up still further. The result -- the dread “death spiral” that Bertolini [Aetna's CEO] was talking about -- will ultimately end up with premiums that no one is willing to pay, or can afford to. What Humana is saying (and Bertolini made similar remarks) is that they’ve got a pool that they simply don’t think can be sold into profitably, because the problem isn’t that they mispriced the premiums. The problem is that too few healthy people are buying insurance. And now that exchange enrollment has begun to shrink, it’s obvious that problem isn’t going to get better. It’s likely it’s going to get worse. Bertolini predicts that more insurers are going to pull out for 2018, leaving many areas without any insurers at all offering plans.

Friday, February 17, 2017

U.S. Healthcare Costs to Escalate 6.4% Per Year Over Next Decade

Federal agencies typically low-ball this number. It is probably about right for a self-funded plan, but fully insured plans should budget 25% to 33% more to be safe.

This is from Reuters, reporting on a U.S. Centers for Medicare and Medicaid Services (CMS) study:
The cost of medical care in the United States is expected to grow at a faster clip over the next decade and overall health spending growth will outpace that of the gross domestic product, a U.S. government health agency said on Wednesday.
A report by the U.S. Centers for Medicare and Medicaid Services (CMS) cited the aging of the enormous baby boom generation and overall economic inflation as prime contributors to the projected increase in healthcare spending. 
Overall healthcare spending will comprise 19.9 percent of the economy in 2025, up from 17.8 percent in 2015, the report forecast. The pace of growth in U.S. spending on health is expected to pick up in 2017, increasing 5.4 percent over 2016. That compares with an estimated 4.8 percent spending uptick in 2016. Spending for 2016 was estimated at $3.4 trillion. 
When the final numbers are in, the growth in prescription drug spending for 2016 is expected to have slowed to 5 percent from 9 percent in 2015. However, CMS has forecast growth of 6.4 percent per year between 2017 and 2025, in part because of spending on expensive newer specialty drugs, such as for cancer and multiple sclerosis.

The projections for 2016 to 2025 were made assuming that the Affordable Care Act (ACA), former President Barack Obama's signature healthcare law widely known as Obamacare, would remain intact. It does not take into account likely changes to the law.... 

Wednesday, February 15, 2017

Obamacare Dealt a Violent Blow: IRS Won't Reject Tax Returns That Don't Answer Health Insurance Question

In a stealth maneuver, President Trump's IRS has all but neutered Obamacare's individual mandate.  The IRS will no longer require filers to indicate whether they maintained health insurance or paid the individual mandate penalty/tax as required under PPACA.  

How much difference does a single line on a tax form make? For Obamacare's individual mandate, the answer might be quite a lot.
Following President Donald Trump's executive order instructing agencies to provide relief from the health law, the Internal Revenue Service appears to be taking a more lax approach to the coverage requirement.
The health law's individual mandate requires everyone to either maintain qualifying health coverage or pay a tax penalty, known as a "shared responsibility payment." The IRS was set to require filers to indicate whether they had maintained coverage in 2016 or paid the penalty by filling out line 61 on their form 1040s. Alternatively, they could claim exemption from the mandate by filing a form 8965. 
For most filers, filling out line 61 would be mandatory. The IRS would not accept 1040s unless the coverage box was checked, or the shared responsibility payment noted, or the exemption form included. Otherwise they would be labeled "silent returns" and rejected. 
Instead, however, filling out that line will be optional. 
Earlier this month, the IRS quietly altered its rules to allow the submission of 1040s with nothing on line 61. The IRS says it still maintains the option to follow up with those who elect not to indicate their coverage status, although it's not clear what circumstances might trigger a follow up. 
But what would have been a mandatory disclosure will instead be voluntary. 
Silent returns will no longer be automatically rejected. The change is a direct result of the executive order President Donald Trump issued in January directing the government to provide relief from Obamacare to individuals and insurers, within the boundaries of the law. 
"The recent executive order directed federal agencies to exercise authority and discretion available to them to reduce potential burden," the IRS said in a statement to Reason. "Consistent with that, the IRS has decided to make changes that would continue to allow electronic and paper returns to be accepted for processing in instances where a taxpayer doesn't indicate their coverage status." 
The tax agency says the change will reduce the health law's strain on taxpayers. "Processing silent returns means that taxpayer returns are not systemically rejected, allowing them to be processed and minimizing burden on taxpayers, including those expecting a refund," the IRS statement said. 
The change may seem minor. But it makes it clear that following Trump's executive order, the agency's trajectory is towards a less strict enforcement process. ... 
"It's hard to enforce something without information," says Ryan Ellis, a Senior Fellow at the Conservative Reform Network. ... 
Ellis says the new policy doesn't fully rise to the level of declining to enforce the law. "If the IRS turns a blind eye to people's status, that isn't quite not enforcing it," he says. "It's more like the IRS wanting to maintain plausible deniability." 
Tax software companies are already making note of the change. Drake Software, which provides services to tax professionals, recently sent out a notice explaining the change in policy. As of February 3, the notice said, the IRS "will now accept an e-filed return that does not indicate either full-year coverage or an individual shared responsibility payment or does not include an exemption on Form 8965, as required by IRS instructions, Form 1040, line 61." 
The mandate is a key component of Obamacare's coverage scheme, which is built on what experts sometimes describe as a "three-legged stool." The law requires health insurers to sell to all comers regardless of health history, and offers subsidies to lower income individuals in order to offset the cost of coverage. In order to prevent people from signing up for coverage only after getting sick, it also requires most individuals to maintain qualifying coverage or face a tax penalty. While defending the health law in court, the Obama administration maintained that the mandate was essential to the structure of the law, designed to make sure that people did not take advantage of its protections. 
In a 2012 case challenging the law's insurance requirement, the Supreme Court ruled that the individual mandate was constitutional as a tax penalty. The IRS is in charge of collecting payments. 
Some health policy experts have argued that the mandate was already too weak to be effective, as a result of the many exemptions that are included. A 2012 report by the consulting firm Milliman found that the mandate penalty offered only a modest financial incentives for families making 300-400 percent of the federal poverty line. More recently, health insurers have said that individuals signing up for coverage and then quickly dropping it after major health expenses is a key driver of losses, and rising health insurance premiums. 
It's too early to say whether the change will ultimately make any difference. But given the centrality of the mandate to the law's coverage scheme and the unsteadiness of the law's health insurance exchanges, with premiums rising and insurers scaling back participation, it is possible that even a marginal weakening of the mandate could cause further dysfunction. Health insurers have said the mandate is a priority, and asked for it to be strengthened. Weaker enforcement of the mandate could cause insurance carriers to further reduce participation in the exchanges. One major insurer, Humana, said today that it would completely exit Obamacare's exchanges after this year. ...
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