Health Care Reform and General Legal Update Conference Forum

Transcription

1 Health Care Reform and General Legal Update 2015 Conference Forum

2 Disclaimer The material in this update is provided as general information and education. It should not be construed as, and does not constitute, legal advice nor accounting, tax, or other professional advice or services on any specific matter, nor does this message create an attorney-client relationship. Readers should consult with their counsel or other professional advisor before acting on any information contained in this presentation. 2

3 Agenda Affordable Care Act (ACA) Cases Tax Credits Origination Clause Affordable Care Act Future Housing Allowance Litigation Church Plan Challenges Church Alliance Efforts 3

4 ACA Litigation

5 Tax Credit Cases Halbig v. Burwell* King v. Burwell* Challenges to premium tax credits (PTCs) through federally-facilitated exchange/marketplace (FFE) ACA 1311: Each State shall...establish an American Health Benefit Exchange...for the State. ACA 1321: The [HHS] Secretary shall...establish and operate such Exchange within the State * Sylvia Burwell: Secretary, U.S. Department of Health and Human Services (HHS) 5

6 Tax Credit Cases Code 36B(b)(2)(A) limits PTC availability to only taxpayers who enroll in exchange established by a state under Section 1311 IRS Final Rule authorized PTCs from FFE D.C. District and Virginia District Courts ruled for the government Challengers appealed 6

7 D.C. Circuit Court 2014 Halbig v. Burwell: Three-judge panel Ruled against IRS: July 22, 2014 Statute is not ambiguous: PTC limited to state-established exchanges Government sought rehearing by court en banc Court granted en banc rehearing (September 5, 2014) Vacated the three-judge panel ruling Hearing was set for December 17, 2014 but: Hearing stayed pending Supreme Court review of King 7

8 4 th Circuit Court 2014 King v. Burwell: Court of Appeals (Virginia) Ruled in favor of IRS: July 22, 2014 Statute is ambiguous: Agency ruling reasonable, so should be upheld (i.e., not second-guessed by courts) Chevron deference: Courts should not second-guess regulatory agency interpretation when statute text is ambiguous Plaintiffs appealed to Supreme Court 8

9 Supreme Court King v. Burwell: Granted Certiorari on November 7, 2014 Oral arguments: March 4, Justices (Justices Breyer, Ginsberg, Kagan and Sotomayor) appeared supportive of the government 2 Justices (Justices Alito and Scalia) appeared supportive of the challengers (Justice Thomas likely also) Chief Justice Roberts and Justice Kennedy harder to discern Decision by late June

10 Case Developments Briefs from parties and amici Statutory Construction Plaintiffs Read section on its face (i.e., at face value) Government Read section in context of 900 pages Standing Issues Questions about 4 plaintiffs standing 2 may be eligible for VA (veterans) coverage 1 may be Medicare-eligible 1 or more may be eligible for affordability exemption Court probed issue at hearing but appeared ready to reach the merits 10

11 Case Developments Federalism Constitutional Wrinkle Congress cannot condition federal spending on state action unless there is clear notice and consent No clear notice of conditioned funds in ACA language No clear notice in regulatory process setting up the exchanges May be an appealing conservative theory for Chief Justice John Roberts and Justice Anthony Kennedy Justice Kennedy expressed significant concern about this notion at oral argument 11

12 Case Developments Chevron deference to government agencies interpretations when statutory text is ambiguous Justice Kennedy expressed concern about so much power over spending in agency like IRS Chief Justice Roberts was cryptic but asked whether future administrations could change the interpretation Potential court delay of a ruling against the government Justice Alito suggested that court could, under precedent (e.g., Northern Pipeline case), delay its adverse ruling by six months to allow Congress and states time to remedy or mitigate the outcome 12

13 Case Developments Political Pressures on Court GOP in Congress: Not giving court much cover by acting like they would fix the ACA if court rules for the plaintiffs HHS giving no cover through regulatory process Per Secretary Burwell: over 7 million would lose PTCs Similar cases in District Courts: Indiana (7 th Circuit area) and Oklahoma (10 th Circuit: Court ruled against PTCs) Meanwhile: Tax credits allowed in FFE 13

14 What Happens? No PTCs for 87% of 8.9 million enrolled through (7.1 million) $264 per month (average) increase in cost Employer Mandate undercut Employer Mandate penalty applies only if one or more employees receive PTC Individual Mandate undercut Individual Mandate penalty applies only if no plan available costing below 8.05% of taxable income 14

15 Status of State Exchanges February 2015 State Established Exchange State Established Exchange Using Federal Exchange Support Partnership Exchange Federal Established Exchange (No State Exchange) State SHOP/Federal Individual Exchange

16 What Happens? Issuers may quickly exit federal exchange Essentially creates two ACAs State exchange states: Robust Other states: Completely ineffective Pressure on GOP in Congress Greater pressure on GOP governors and state legislatures 16

17 What Happens? Interpretation What is state-established exchange? State-established and state-run (13) State-established and federal-supported (3) Partnership (7) States can remedy the holding Some states may scramble to establish exchanges Time may be too short Other States may refuse The $50 solution : State web portal that redirects to 17

18 Origination Clause Cases Sissel v. U.S. Department of HHS* Article I, Section 7 of U.S. Constitution (commonly referred to as Origination Clause ) All revenue-raising bills (e.g., tax bills) originate in House of Representatives Challengers claim that ACA originated unconstitutionally in the Senate * Other similar cases: Hotze v. Burwell; Pacific Legal Foundation v. Salazar 18

19 Origination Clause D.C. Circuit Court of Appeals rejected plaintiff s argument ACA not a bill primarily for raising revenue Primarily to expand health coverage; revenue incidental ACA originated in House (Senate substitute for House-originated tax bill H.R. 3590) Original bill covered housing taxes for veterans House did not object (know as blue slip ) Plaintiffs asked for en banc rehearing Will Supreme Court want to go there again? 19

20 ACA Status

21 2014 Results Final 2014 Marketplace Enrollment Overall Expansion of Coverage (25.4 million) 9.6 million Qualified health plans (QHPs) 8.4 million Paid 6.7 million As of November 14, million Exchange QHPs 8.0 million Off-exchange QHPs (private policies) 10.7 million Medicaid and CHIP* * CHIP: Children s Health Insurance Program 21

22 2015 Enrollment As of February 15, 2015 (End of 2015 open enrollment) million Exchange QHPs 10.4 million (Estimated) 9.5 million (Estimated) 8 million (Estimated) 13.9 million (Estimated) 8.98 million via Paid Qualify for PTCs Off-exchange QHPs Medicaid and CHIP 2.69 million via state marketplaces 22

23 Open Enrollment 2015 Compared to Top Enrollment States 2014: 8.04 million 2015: million 3.63 million increase (45% increase) Florida ( 1.6 million California (state exchange) 1.4 million Texas ( 1.2 million Georgia & North Carolina ( > 500,000 each 23

24 Open Enrollment 2016 November 1, 2015 January 31, 2016 Not October 1 Why later? Allows issuers more time to set premium rates for following year 24

25 New: Special Enrollment Tax Season Special Enrollment: 47 states March 15, 2015 April 30, 2016 for individuals: Not enrolled in coverage for 2015 Can attest: Paid tax penalty for not having health coverage in 2014 with tax return Can attest: First became aware of Shared Responsibility Payment after February 15, 2015 while preparing 2014 tax return 10 state exchanges have similar dates 25

26 Recent ACA Developments ACA FAQ XXII: Employer payment plans Notice : Employer payment plans, health reimbursement arrangements (HRAs) Final benefits and payments regulations ACA Reinsurance Fee for 2016: $27 per covered life Out-of-pocket limits: $6,850 single/$13,700 family Notice : Cadillac Plan Tax First step in multi-year implementation process between regulators and stakeholders 26

27 Employer Payment Plans (EPPs) Notice No stand-alone HRAs No employer payment plans employer reimbursement of employee premiums for individual health insurance policies Most viewed this applying only to nontaxable reimbursement ACA FAQ XXII No after-tax reimbursement arrangements violates ACA Market Reforms Notice Small employers (fewer than 50 FTEEs*) penalty relief for having EPPs January 1, 2014 June 30, 2015 * FTEE: Full-time equivalent employee 27

28 One Employee Exception Strict reading of Tax Code ( 9831): Employer plan with only one* employee may be exempt from ACA Market Reforms, i.e., not a group health plan Example: Plan of small local church with one clergyperson, no lay employees * Fewer than two current employees Would permit single employee stand-alone HRA or EPP Nontaxable employer $ used to purchase individual plan (however no premium tax credit according to IRS guidance) Also: Local church would have to report the coverage under Section 6055 with a Form 1095-B Notice does not state this expressly, but supports this interpretation Statements from IRS officials seem to support, too 28

29 Cadillac Plan Tax Notice IRS starting conversation with stakeholders series of Notices Definition of applicable coverage Employer-provided health coverage excluded from taxation under Code Section 106 (or would be excluded if it were employer-paid) Employer-paid, employee pre-tax (cafeteria plan) and employee after-tax COBRA cost of coverage Church plans not subject to COBRA 29

30 Cadillac Plan Tax Applicable coverage likely to include: Employer and employee pre-tax contributions to health savings accounts (HSAs) Employer and employee pre-tax contributions to health flexible spending accounts (FSAs) Health reimbursement arrangements (HRAs) Subject to future additional guidance Where offered: On-site medical clinics Executive physical programs 30

31 Cadillac Plan Tax Applicable coverage likely to exclude: Vision and dental benefits if excepted benefits either fully-insured or self-insured Employee after-tax contributions to HSAs Employee assistance programs (possibly) Long-term care insurance 31

32 Plan Sponsor ACA Preparation Employer Shared Responsibility 2016 for employers with 50 of more FTEEs Minimum Essential Coverage Reporting Section 6055 and Form 1095-B Employer Shared Responsibility Reporting Section 6056 and Form 1095-C Nondiscrimination Rules Section 105(h) Cadillac Plan Tax 2018 Glide path to avoidance 32

33 ACA Outlook

34 Near-Term Gallup: U.S. uninsured rate has dropped from 18.0% to 12.9% Largely attributable to ACA Supreme Court case GOP Congress 34

35 Current Congress GOP majority in House (245 R, 188 D) GOP Majority in Senate (54 R, 44 D, 2 I) Short of majority to break filibuster (60) Short of veto override (67) Early GOP actions First vote: Amend Employer Mandate (40 hours) Second vote: Repeal ACA (59 th time) 35

36 GOP Replacement Plan Repeal ACA; replace with Lifetime limits prohibition 5:1 premium variation limit for age Dependent child coverage up to age 26 Guaranteed renewability and no pre-existing conditions only for those with continuous coverage Age-banded tax credits for individuals up to 300% of FPL (including those at employers with <100 employees) More state flexibility for Medicaid Cap on nontaxable employer-provided health coverage: $12,000 single or $30,000 family* * Indexed to Consumer Price Index

37 Future Elections 2016 Presidential Election Changing U.S. demographics may favor a Democrat 2010 redistricting still strongly favors GOP majority in House Senate outlook indicates Democrats picking up seats, but maybe not a majority Divided government likely for the near future 37

38 ACA Over Time ACA becomes more permanent 2014 QHP Enrollment 9.6 million 2015 QHP Enrollment 11.7 million (or more) 2016 Enrollment Projection CBO* 22 million Medicaid expansion and lower uninsured rates Employer actions: CBO* estimates that 6 million will lose employer coverage annually due to ACA from 2016 to 2024 * CBO: Congressional Budget Office 38

39 Housing Allowance Litigation

40 History of Housing Exclusion Value (in-kind) of church-owned housing (parsonage) excluded from clergy income since (1) of Internal Revenue Code of 1986 (Code) Value (cash) of clergy-owned housing excluded under the Code since 1954 Code 107(2) Clergy Housing Allowance Clarification Act of 2002 limited to fair rental value Warren v. Commissioner case ( ) 40

41 Wisconsin Case Freedom From Religion Foundation (FFRF) v. Lew Western District, Wisconsin November 21, 2013 Code 107(2) ruled unconstitutional by Judge Barbara Crabb Violates Establishment Clause: U.S. Constitution First Amendment Congress shall make no law respecting an establishment of religion Court ruling did not affect 107(1) exclusion of value of parsonage Plaintiffs lacked standing to challenge exclusion 41

42 Government s Appeal 1. FFRF directors lack standing to sue Never sought administrative refund of taxes Directors might qualify as ministers of the gospel under 107 of an atheist church (2) is constitutional Does not establish any particular religion If 107(1) is constitutional, then: 107(2) is free exercise accommodation of younger, more mobile churches/denominations (without parsonages) Without 107(2), then: 107(1) discriminates among religions 42

43 Seventh Circuit Decision Freedom From Religion Foundation (FFRF) v. Lew Seventh Circuit U.S. Court of Appeals November 14, 2014 FFRF lacked standing to sue Court dismissed case Did not suffer injury in fact Did not exhaust administrative remedies with the IRS (i.e., request refund of taxes paid on housing) 43

44 Future of Housing Allowance Litigation: FFRF may be back May pursue administrative refund with IRS, and litigate again if denied May take a few years Legislation: tax reform in Congress Maybe not 114 th Congress After presidential election Simplification of individual tax provisions Could lead to elimination of or cap on housing exclusion 44

45 Church Plan Challenges

46 Dignity Health Case Plaintiffs Claim Rollins v. Dignity Health, et al. Northern District, California Definition of church plan under Tax Code ( 414(e)) should not include defendant Catholic-affiliated hospital (Dignity Health) Judge denied Dignity Health s motion to dismiss Disagreed with IRS interpretation and several other courts 46

47 Dignity Health Case Ruling: Plan sponsored by Dignity Health cannot be church plan as a matter of law Must be established by a church (or convention or association of churches); and Must be maintained by a church (or convention/association of churches) or church pension/benefit board Result: Dignity Health plan will be subject to ERISA (funding rules, notice requirements, PBGC*, etc.) Appeal underway (9 th Circuit Court of Appeals) * PBGC: Pension Benefit Guaranty Corporation 47

48 Church Plan Cases Scorecard Narrow Reading (Only churches can establish church plans) Rollins v. Dignity Health, et al. (Northern District, California) Question of law appealed to 9 th Circuit U.S. Court of Appeals Kaplan v. St. Peter s HealthCare System,et al. (New Jersey District) Question of law appealed to 3 rd Circuit U.S. Court of Appeals Stapleton v. Advocate Health Care Network (Northern District, Illinois) Expansive Reading (Nonprofits associated with churches can have church plans) Overall v. Ascension Health, et al. (Eastern District, Michigan) Appealed to 6 th Circuit U.S. Court of Appeals Medina v. Catholic Health Initiatives et al. (Colorado District) Thorkelson v. Publishing House of ELCA (District Minnesota) Not Yet Decided Lann v. Trinity Health Corp. (Maryland District) Chavies et al. v. Catholic Health East et al. (Eastern District, Pennsylvania) Owens v. St. Anthony Medical Center, Inc. (Northern District, Illinois) 48

49 Form 990 Case

50 Kentucky Atheists Case American Atheists v. Shulman Eastern District, Kentucky Three atheist nonprofit organizations challenged tax code provisions that treat churches differently than other 501(c)(3) tax-exempt organizations: Church exemptions from Form 990 and Form 1023 Church special audit procedures of 7611 Clergy housing exclusion under 107 Special SECA tax treatment of ministers May 19, 2014: District Court dismissed all counts for American Atheists lack of standing to sue 50

51 Wisconsin Case FFRF v. Koskinen Western District, Wisconsin FFRF (Freedom From Religion Foundation) challenged tax code provisions that treat churches differently than other 501(c)(3) tax-exempt organizations with regard to requirements to file Form 990 December 17, 2014: District Court (Judge Crabb) dismissed claim for lack of standing to sue 51

52 Church Alliance Efforts

53 Church Alliance Legislation Church Health Plan Act Allows church health plan participants to qualify for ACA PTCs Did not pass in 113 th Congress Working on reintroduction with Senator Alexander (R-TN) and Senate HELP Committee Church Plan Clarification Act Clarifies controlled group rules for churches; allows automatic enrollment for church retirement plans; clarifies Code limits for CRSP-DB; among other things Did not pass in 113 th Congress Working on reintroduction with Senators Cardin (D-MD) and Portman (R-OH) 53

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55 2015 General Board of Pension and Health Benefits of The United Methodist Church, Incorporated in Illinois. 55

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