UNDERSTANDING THE NEW PATIENT PROTECTION AND AFFORDABLE CARE ACT (PPACA)



    After much debate and analysis, healthcare reform legislation was passed, and became effective, in part, in June, 2010.  The Patient Protection and Affordable Care Act (PPACA) affects employees, individuals, insurers, medical device manufacturers and drug companies.  This article will highlight the effects on employers and employees.
    
Before Year 2014:

    Employers.  The vast majority of changes affecting employers occurs after 2014.  Nevertheless, employers should evaluate two opportunities on the PPACA available now.

    First, small employers that pay 50% or more of specified insurance costs may receive a tax credit of up to 35% of its contribution.  The amounts available are graduated based on wages paid and number of employees.  

    Second, employers that provide retiree health coverage to former employees aged 55 to 64 may seek up to 80% reimbursement for costs of coverage between $15,000 and $90,000 from a pool of assets dedicated to providing retiree health coverage.

    Individuals.  The majority of changes affecting individuals will occur pre-2014.  Effective now, the PPACA mandates the following:

    ●    Launch of an Internet portal designed to provide information regarding insurance eligibility, availability, premium rates, and cost-sharing for the individual and small-employer market.
    ●    Establishment of a temporary insurance program for people with pre-existing conditions, which will provide stop-gap coverage until the exchanges are developed.  
    ●    Implementation of a 50% discount on prescription drug coverage for certain Medicare recipients.  Under the current Medicare prescription drug regime, a recipient initially receives high coinsurance for prescription drugs until the recipient and Medicare together spend a certain amount, referred to as the first “dollar threshold band,” then pays the full cost of prescriptions in the second dollar threshold band, and finally receives an even higher rate of coinsurance for any additional prescriptions.  


For plan years beginning on or after September 23, 2010, six important changes will occur:
            
    ●    Individuals may not be charged co-payments for preventative care.

    ●    Individuals may choose any doctor as their primary care physician.

    ●    Unmarried children under age 26 may be covered under a plan covering a parent, regardless of their status as full-time students.  

    ●    Women may obtain care from an obstetrician/gynecologist without a referral.

    ●    Pre-existing-condition exclusions may no longer be applied to children.

    ●    Individuals may not be subject to a lifetime maximum, meaning that individuals cannot be denied coverage because of the amount the plan has already expended for their medical care.  

Beginning on January 1, 2013, individuals will experience four tax-related consequences:

    ●    Flexible spending accounts will be limited to $2,500 per year (this amount will be adjusted for inflation).

    ●    Medicare withholding for individuals with over $200,000 of income ($250,000 for couples) will increase from .5% to .9%.

    ●    A new Medicare surtax of 3.8% will be imposed on investment income for individuals with over $200,000 of income ($250,000 for couples).

    ●    The threshold for deducting medical expenses will increase.  At the current time, individuals who itemize may claim a deduction for medical expenses above 7.5% of their adjusted gross income.  The threshold will be increased to 10% of adjusted gross income.  Individuals over age 65 will be grandfathered at 7.5% of their adjusted gross income until 2016.  

Year 2014 and Beyond:

    The exchanges, effective in 2014,  are state-run systems that will certify participating qualified health plans that provide essential health benefits and participate in coordinated open-enrollment periods.

    The Department of Health and Human Services (HHS) secretary will provide guidance to define the scope of “essential health benefits.”  The states will identify each qualified health plan as platinum, gold, silver, or bronze, based on the percentage of the insured’s health care costs the plan pays.  

    Percentage Plan Pays    Type of Plan

        90%                Platinum
    
        80%                Gold

        70%                Silver
    
        60%                Bronze
            

    Although the exchanges will initially be available only to individuals and small employers, they will become available to all employers in 2017.  

    Employers.  The vast majority of the PPACA changes applicable to employers will become effective post-2014.  The 8 major changes are as follows:

    ●    Guaranteed availability: Every insurance carrier must accept every employer.

    ●    Guaranteed renewability: An insurance carrier may not refuse to renew an employer.

    ●    Group coverage may not discriminate against an employer’s population based on the employer’s claims experience or the health status of the participants.

    ●    All annual dollar limits on coverage are eliminated.

    ●    Waiting periods may not exceed 90 days.

    ●    Deductibles are limited to the health savings account maximum.

    ●    Employers with 200+ employees are required to automatically enroll employees into the health insurance plan; employees may opt out of health insurance coverage.

    ●    Deductibles and premium increases will be controlled for small employers.

    Taxation of so-called “Cadillac” plans will begin in 2018.  Regulations will be developed more fully by that time to specify the exact impact.

    To appreciate the exchange-related implications of PPACA, it is important to understand the concept of premium assistance credit (PAC).  Simply put, if an employer’s plan covers less than 60% of the employee’s cost, or the plan premium exceeds 9.8% of the employee’s income, the employee is eligible for PAC to purchase coverage through an exchange.  If an employer with 50+ employees does not offer health insurance coverage and one or more of its employees is receiving PAC, the employer is assessed $2,000 per each full-time employee (excluding the first 30 employees).
    
    If an employer with 50+ employees does offer health insurance coverage, the employer is assessed the lesser of $3,000 for each employee receiving PAC, or $2,000 per full-time employee.  If an employee is not eligible for PAC, but the premium cost exceeds 8% of his or her income and the employee chooses to enroll in an exchange, the employer is required to provide a “free choice voucher” to use in purchasing coverage through the exchange, in the amount of the coverage the employer would have provided to the employee.  

    Individuals.    In the post-2014 era, individuals who do not have health insurance coverage
will be required to pay a penalty of the greater of $95 per person or 1% of taxable income in 2014, increasing to $325 per person or 2% of taxable income in 2015, and to $695 per person or 2% of taxable income in 2016.  The penalties are adjusted for inflation after 2016.

CONCLUSION

    The PPACA will obviously change the way business is done in the United States.  You should be planning now to implement these requirements and adjust your plans as needed.  If you have any questions on what needs to be done, I would be happy to assist in the process.  



                        James C. Zalewski
 

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HOT TOPIC 3:  BECK v. PACE INTERNATIONAL UNION
No. 05-1448 Supreme Court, June 11, 2007

FACTS:
            Crown Paper Company operated seven different paper mills and employed approximately 2,600 persons.  Pace International Union represented employees covered by seventeen of Crown’s defined benefit pension plans.  Crown administered these plans, none of which were part of a multi-employer pension plan.
            Crown filed for bankruptcy in March of 2000 and proceeded to liquidate assets.  Crown informed the Union that it was considering a standard termination of the plans, which would mean that the terminated plans would have sufficient assets to cover potential benefit liabilities.
            Pace proposed that Crown merge its plans into the Union’s multi-employer plan.  The Pace proposal was simple:  Crown would be required to convey all plan assets to its multi-employer plan, and Pace would be responsible for all plan liabilities. 
            Though Crown took the matter under advisement, it discovered that it could purchase annuities to cover its plan liabilities and retain a $5 million reversion for its other creditors, since the plans were over-funded.  Based upon this financial reasoning, Crown rejected the Pace proposal to merge the plan.

 

DECISION:
            In Beck v. Pace International Union, 551 U.S., 05-1448 (Sup. Crt. 2007), the Court ruled that Crown did not breach its fiduciary duties by refusing to consider the plan merger.  Its decision reversed that of the 9th Circuit Court of Appeals, which had ruled that the implementation of the termination decision was fiduciary in nature, and that merger was a permissible termination method. 

            The Supreme Court rejected this reasoning, holding that ERISA Section 1341(b)(3)(A) provides only two methods of terminating a single employer plan:  (1)  the purchase of irrevocable commitments from an insurer (annuities) to provide all benefit liabilities, or (2) a full payout of benefit liabilities in accordance with the plan terms. 
            Pace argued that the statutory language, “...otherwise fully provide all benefit liabilities under the plan” could be construed to require discussion of a plan merger.  The court placed great reliance on the PBGC’s Regulations, which basically conclude that a merger is an alternative to, rather than an example of, a plan termination. 
            The court found that three points were particularly persuasive.  First, terminating a plan through the purchase of annuities formally severs the applicability of ERISA to any plan assets and employer obligations.  Second, a standard termination allows the employer to recoup surplus funds, as Crown sought to do in this case.  However, ERISA prohibits employers to obtain a reversion of plan funds if there is not a plan termination. Third, the court concluded that the structure of ERISA, and the legislative history, amply demonstrated that the statutory provision in question does not include a merger as an option. 

            The court concluded its holding in part as follows:

“For all the foregoing reasons, we believe that the PBGC’s construction of the statute is a permissible one, and indeed the more plausible.  Crown did not breach its fiduciary obligations in failing to consider Pace’s merger proposal because merger is not a permissible form of termination.  Even from a policy standpoint, the PBGC’s choice is an eminently reasonable one, since termination by merger could have detrimental consequences for plan beneficiaries and plan sponsors alike.” 

 

IMPACT
            The court’s decision is a logical one, and is consistent with its past decisions calling for a strict interpretation of ERISA statutory provisions.  The decision may likely have an impact on future NLRB claims as well, clarifying any duty to bargain over these issues.  It is also difficult to fault under bankruptcy court standards, since the decision netted an additional  $5 million to be distributed to creditors. 

            The ruling is a benefit to employers that also serve as their own plan administrators, since it limits the scope of fiduciary duty.  The court’s deferral to PBGC regulations and its position is not surprising, given the fact that a merger would involve less PBGC oversight in the process.  Since ERISA matters are to be construed in the best interest of plan beneficiaries, and no one disputed that the annuities purchased by Crown were sufficient to satisfy its commitment to plan participants and beneficiaries, the court’s decision is both logical and consistent, and should not be a cause of alarm for any future similarly-situated plan beneficiaries.