June 25, 2015
- Supreme Court Rules for Administration in King v. Burwell, Upholds Subsidies
- Treasury, IRS Release Proposed, Temporary Multiemployer Pension Reform Regulations
- Health Care Markup in the Senate Finance Committee; House Subcommittee Examines Health Insurance Premiums
Supreme Court Rules for Administration in King v. Burwell, Upholds Subsidies
The U.S. Supreme Court has ruled 6-3 for the Obama Administration in King v. Burwell, validating the availability of health insurance premium subsidies in federally-facilitated exchanges. The June 25 decision preserves subsidies for over six million low-income Americans who currently receive them and affirms the U.S. Court of Appeals Fourth Circuit July 2014 decision.
King v. Burwell is the controversial case that challenged whether the Patient Protection and Affordable Care Act (PPACA) allows individuals to receive federal subsidies to buy health coverage in states that have not established their own exchanges. The issue in the case was whether a phrase in Internal Revenue Code Section 36B stating that tax credits are available in exchanges “established by the State” precluded individuals from obtaining subsidies for coverage available in federally-facilitated exchanges. The Internal Revenue Service (IRS) issued regulations permitting federal subsidies for coverage obtained in state or federal exchanges. To date, 16 states and the District of Columbia operate exchanges. In the remaining states, the federal government runs the exchanges, some of them in partnership with the states.
The Supreme Court’s June 25 majority opinion, written by Chief Justice Roberts, held that the Section 36B tax credits are available to individuals that obtain coverage in a federal exchange. The Court declined to apply the Chevron deference, which is often used when analyzing an agency’s interpretation of a statute. Under Chevron, agency interpretations of statutes are given deference unless the interpretation is unreasonable. The Court concluded that Chevron did not provide the appropriate framework, given that the tax credits are a key reform and a question of deep “economic and political significance.” The Court’s task was to determine the correct reading of Section 36B. The opinion noted that if the statutory language is plain, the Court must enforce it according to its terms, but oftentimes the meaning or ambiguity of certain words or phrases may only become evident when placed in context. Finding that the text [in Section 36B] was ambiguous, the Court looked to the “broader structure of the Act” to determine the broader intent of PPACA as a whole.
The Court concluded that while the petitioners’ plain-meaning arguments were strong, the Act’s context and structure compel the conclusion that Section 36B allows tax credits for insurance purchased on any exchange created under the Act. The opinion also reasoned that “the statutory scheme compels the Court to reject petitioners’ interpretation because it would destabilize the individual insurance market in any State with a Federal Exchange, and likely create the very ‘death spirals’ that Congress designed the Act to avoid. . . . It is implausible that Congress meant the Act to operate in this manner.”
Justice Scalia wrote the dissenting opinion, stating that it is “quite absurd” that when PPACA says “Exchange established by the State” it means “Exchange established by the State or the Federal Government.” The dissent further argued that “rather than rewriting the law under the pretense of interpreting it, the Court should have left it to Congress to decide what to do about the Act’s limitation of tax credits to state exchanges.”
As we have previously reported, this case had the potential to significantly alter the future of PPACA. Even though the Court’s decision ends any pressure on Congress to act to restore subsidies, the Council is continuing to urge Congress not to return to “business as usual.” In a media release on the decision, Council President James A. Klein said “Given the Court's decision, Congress may believe there is no need to 'fix' the law. Now that matters are settled for six million people getting subsidies in the individual insurance market, however, it is time for Congress to address serious issues affecting over 150 million Americans covered by employer-sponsored plans,” noting several areas of the law causing serious problems for employers.
The Council recently released a package of legislative recommendations to amend PPACA in order to mitigate the burden on employers, most of which were included in our strategic plan, A 2020 Vision. The legislative proposals include:
- End the 40 Percent Tax on health benefits (the so-called “Cadillac tax”), which is already threatening health plans, whether rich or not, and pushing employers to take dramatic measures to avoid the tax.
- Expand Health Reimbursement Arrangements to allow employers to fund an account that employeescould use to purchase individual coverage inside or outside the exchanges.
- Simplify the significant new and complex employer reporting requirements to the Internal Revenue Service.
- Modify the employer “Shared Responsibility” requirement to relieve some administrative costs and burdens on employers that create disincentives for employing “full-time employees” as defined by the law.
- Improve Health Savings Accounts, including clarificationthat certain prescription drugs are preventive care that may be covered before an employee has satisfied his or her deductible, and clarification that employers may provide care at on-site medical clinics free of charge without first requiring an employee to meet his or her deductible.
- Repeal the requirement that employers automatically enroll new full-time employees in health plans, which is unnecessary since virtually everyone is legally required to have coverage and which, ironically, can have adverse consequences on employees’ eligibility for premium tax credits and cost-sharing reductions.
Treasury, IRS Release Proposed, Temporary Multiemployer Pension Reform Regulations
The U.S. Department of the Treasury issued proposed and temporary regulations on June 19 on the suspension of benefits, or a temporary or permanent reduction of any current or future payment obligation of a defined benefit pension plan to any participant or beneficiary under the plan, under the Multiemployer Pension Reformation Act of 2014 (MPRA).
Also on June 19, the Internal Revenue Service (IRS) issued Revenue Procedure 2015-34 with application procedures for approval of benefit suspensions for multiemployer plans in a new “critical and declining” funded status, as added under MPRA.
Many multiemployer plans struggled with underfunding prior to the enactment of the MPRA, which was enacted as a part of the Consolidated and Further Continuing Appropriations Act (see the December 15, 2014, Benefits Byte). A recent Benefits Blueprint summary, prepared for the Council by Venable LLP, outlines many of the key provisions of MPRA, including the criteria for “critical and declining” funded status as well as the process for these plans to suspend benefits.
The regulations and procedure follow a June 17 Interim Final Rule from the Pension Benefit Guaranty Corporation (PBGC) in beginning implementation of multiemployer pension reform under MPRA. The new rule clarifies the agency’s authority to “partition” certain multiemployer plans, under which a plan can apply to PBGC for financial assistance to fund a portion of their benefit liabilities in order to remain solvent (see the June 18 Benefits Byte).
Under the temporary regulations, a multiemployer plan that has been in “critical and declining status” for a plan year may implement a suspension of benefits that the plan sponsor deems appropriate by plan amendment. Once a plan has been amended to suspend benefits, a plan may pay or continue to pay a reduced level of benefits only if the terms of the plan are consistent with the requirements of Internal Revenue Code Section 432(e)(9) and the regulations. The suspension can apply to a plan participant regardless of whether the participant, beneficiary or alternate payee had started receiving benefits prior to the effective date of the suspension.
The temporary rules also provide that a retiree representative must be selected for plans with 10,000 or more participants “to advocate for the interests of the retired and deferred vested participants and beneficiaries of the plan throughout the suspension approval process.” The temporary regulations are effective immediately and expire on or before June 15, 2018.
The proposed rules address general rules on suspension of benefits, as well as the conditions and limitations on suspensions. The proposed rules also asked for comments on both the proposed and temporary regulations.
Comments are due on August 18. A public hearing on the proposed regulations has been scheduled for September 10.
Rev. Proc. 2015-34 sets out the procedures for applying for an approval of a suspension of benefits, including that the application also much include a description of the proposed suspension, the proposed effective date, an expiration date if the suspension will end by its own terms and the categories or groups of those who will be affected by the proposed suspension.
According to Rev. Proc. 2015-34, an actuary's certification is needed to demonstrate that a plan is in “critical and declining” status and eligible for a benefit suspension. The actuary must also certify that the plan is projected to avoid insolvency through the proposed benefit suspension, assuming that the proposed suspension continues until it expires by its own terms or indefinitely, if there is no expiration date.
Treasury has stated that it does not expect to approve applications until the proposed and temporary regulations are finalized. Any plan that applies prior to finalization of the proposed and temporary regulations may have to submit a new application or revise proposed suspensions to take account of any differences between the proposed and temporary regulations and the final regulations.
Congressional lawmakers have already begun to discuss the “next phase” of multiemployer plan reform which could include additional premium increases for the multiemployer system. The Council will continue to monitor these discussions. In addition, the Council is continuing its advocacy for no additional premium increases for the single employer system. For more information, contact Diann Howland, vice president, legislative affairs or Lynn Dudley, senior vice president, global retirement and compensation policy, at (202) 289-6700.
Health Care Markup in the Senate Finance Committee; House Subcommittee Examines Health Insurance Premiums
The 114th Congress has prioritized a return to regular order and as such the U.S. Senate Finance Committee held a markup on June 24 and favorably reported 12 bipartisan health care bills – many pertaining to the Medicare program. Earlier this month, the U.S. House of Representatives Ways and Means Committee also held a markup and favorably reported a package of health care legislation, including H.R. 160, the repeal of the medical device tax, which passed the House on June 18 by a vote of 280 to 140.
The House Ways and Means Subcommittee on Oversight also held a June 24 hearing on the effects of the Patient Protection and Affordable Care Act (PPACA) on health insurance premiums. The hearing focused on the proposed premium rates for 2016 and whether PPACA was effectively lowering health care costs.
In convening the hearing, subcommittee Chairman Peter Roskam (R-IL) noted that even though the proposed premium rates for 2016, which have significant increases from 2015, are not finalized and still must be approved, “there’s a reason insurers are asking for such big rate hikes” and stated that PPACA has driven up costs.
Ranking Democratic member John Lewis (D-GA) said in his opening statement that the focus on the proposed rates does not take future projected premium cuts into account. He said that he looked forward to hearing about how these premiums are proposed.
The subcommittee heard testimony from the following witnesses:
- Seth Chandler, insurance law professor at the University of Houston, urged caution in looking at premium increases, as there are many occasions on which the net premium percent increase for an individual will be considerably higher than the gross premium percent increase, which could limit choice for participants. He also noted that although they will contribute, the phase out of transitional reinsurance and changes to the risk corridors will not be responsible for particularly large premium increases for 2016. He said that “the major source of increases is likely to be higher-than-expected claims from insureds, particularly in the more generous platinum and gold plans.”
- Mike Kreidler, insurance commissioner of Washington State, noted the success that Washington State has had with their insurance market since the passage of PPACA, including a lower uninsured rate, increased consumer choice and lower premium increases and lower premiums in some cases. He attributed this to PPACA as well as to expanding Medicaid, not allowing grandfathered plans to continue and creating standards for narrow networks.
- Julie McPeak, commissioner of the Tennessee Department of Commerce & Insurance, testified that the coverage requirements under PPACA are “cost-drivers in terms of premium prices,” including essential health benefits (EHB) requirements and increased overhead costs for insurance company administration. She noted that the implementation of PPACA has been a challenge and that they anticipate increased costs for consumers in 2016.
- Al Redmer, Jr., commissioner of the Maryland Insurance Administration, noted the uncertainty in the insurance markets with the expansion of the small group market to businesses with up to 100 employees in 2016 and the uncertainty of how increasing the penalty for not obtaining insurance will affect those who choose to remain uninsured and whether it will drive younger enrollees into the market.
During the question-and-answer session, Representative Pat Meeham (R-PA) asked about Washington State’s experience with increased co-pays and deductibles, to which Kreidler responded that they are a challenge as they try to limit out-of-pocket costs, but those continue to increase.
Rep. Jim McDermott (D-WA) of the full committee asked about the recent activity of insurance company mergers and how that may affect health care costs. McPeak responded that they will likely continue to see increased consolidation.
Roskam asked about other health care cost trends, including the 40 percent tax on health benefits, dubbed the “Cadillac tax.” McPeak responded that there is a lot of concern from employers about the tax in Tennessee, especially that the cost of on-site clinics is included in determining whether a plan is subject to the tax. She noted that employers are closing the clinics to avoid the tax. Chandler noted that consumer-driven health care should be used more to drive down costs.
Chandler also noted the impending decision from the U.S. Supreme Court in King v. Burwell, the controversial case regarding the legality of premium subsidies in federally-facilitated exchanges. He stated that Congress may have the opportunity to re-examine PPACA and encouraged them to repeal the employer mandate, as it keeps healthier individuals out of the individual insurance market, creating adverse selection, as well as imposes cost burdens on employers who would rather invest money in their employees through higher wages.
For more information, contact Katy Spangler, senior vice president, health policy, at (202) 289-6700.