Health Care Reform: One Year Later (Part 1)

One year ago today President Obama signed the Patient Protection and Affordable Care Act – the landmark health care reform legislation – into law. A week later he signed the Health Care and Education Reconciliation Act of 2010 (containing the “Senate fixes”) to complete the legislative process that made national health care reform a reality. One year later, where do things stand? This week we’ll summarize the state of compliance by employers, offer a roundup of regulatory guidance and highlight a few of the key changes that have been made to the law. Next week we’ll summarize the status of the constitutional challenges making their way through federal courts, identify some key changes that are in the offing and offer some thoughts about what employers should be focusing on now.

Legislative Repeal Effort Over (For Now)

Back in January the House passed H.R. 2, the “Repealing the Job-Killing Health Care Law Act.” The introduction of the bill was expected after the mid-term congressional elections, as many newly elected members ran on platforms that included repeal of health care reform. (That’s why many lawmakers in the House referred to the passage of the bill as “a promise kept” to their constituents.) Just as predictable was the defeat of the bill in the Senate. At this point, no one expects the health care reform legislation to be repealed by Congress. Bottom line: health care reform is the law of the land, even though (as we’ll discuss next week) a number of proposed changes to the law are working their way through Congress.

State of Compliance

Several major provisions of health care reform applied to nearly every employer by January 1, 2011 (for most group health plans, the first day of the first plan year after health care reform’s effective date). As of that date, all employer group health plans had to: (1) make coverage available to adult children up to age 26, if they provided for dependent coverage at all; (2) eliminate lifetime limits and restrict annual limits on “essential benefits”; (3) remove pre-existing condition exclusions for children under 19; (4) refrain from rescinding coverage except in cases of fraud or misrepresentation on the part of the participant; and (5) stop reimbursing over-the-counter (OTC) medicines from health FSAs, HRAs, HSAs, and Archer MSAs unless the medicine is prescribed or is insulin. Employer group health plans that were not grandfathered health plans (described in earlier posts) had to meet additional requirements, such as providing certain patient protections and appeals processes and covering preventive health services with no cost-sharing.

From what we see in our practice, affected employers are complying fully (though in some cases grudgingly) with these immediate requirements and are preparing to comply with other near-term requirements despite political attacks, constitutional challenges and a dynamic regulatory environment. We think this trend will continue, with many small employers (who may have been on the fence about offering coverage) jumping in to capture the small employer tax credit (discussed in an earlier post). Uncertainty about the details of certain aspects of health care reform (such as the meaning of “essential benefits”) and the complexity of other aspects (including the small employer tax credit) will continue to vex many employers, large and small. But as more guidance is published and employers and their advisors become more familiar with the new rules, there is every reason to expect broad compliance – perhaps even acceptance – to follow as we approach 2014, when many of the most critical elements of health care reform kick in.

Most states are moving forward with the development of their state insurance exchanges. Some states are well along in this process; Massachusetts and Utah, having implemented health insurance exchange programs prior to the passage of health care reform, are frequently cited as prototype systems. In July 2010 HHS awarded $49 million (approximately $1 million per applicant) for states to begin planning and developing their exchanges, and on January 20, 2011 announced a new grant opportunity to help states establish their exchanges. HHS also recently awarded $241 million in “early innovator” grants to seven states (Kansas, Maryland, New York, Oklahoma, Oregon, Wisconsin, and a multi-state consortium led by the University of Massachusetts Medical School and including individuals and small businesses in Connecticut, Maine, Massachusetts, Rhode Island, and Vermont) to implement consumer-friendly IT infrastructures that will serve as the foundation for other state exchange IT systems.

In our home State of Maine, the legislative panel studying the development of a state exchange issued a report in January, suggesting that Maine implement a single-state exchange (as opposed to a multi-state or regional exchange other New England states, for example). Governor LePage has indicated at least some measure of support for the exchange, stating that the state’s Dirigo Health Plan would be phased out and replaced by the state exchange.

Significant Agency Guidance to Date

As even casual observers know, IRS, DOL and HHS (the three agencies charged with the regulation and enforcement of health care reform) have issued many regulations and other guidance on the Affordable Care Act. Here is a quick sampling of the more significant guidance released so far:

• IRS guidance on the taxation of benefits to under-27 adult children and interim final rules on adult child coverage;
• Interim final rules on grandfathered health plans and subsequent amendment to those rules;
• Interim final rules on preexisting condition exclusions, lifetime and annual limits, rescissions, and patient protections;
• Interim final rules on coverage of preventive services;
• Interim final rules on internal claims and appeals and external review processes and subsequent guidance on federal external review;
• IRS guidance on OTC medicine reimbursement and debit cards for heath FSAs and HRAs;
• Interim final rules on medical loss ratio requirements; and
• Proposed rules on state innovation waivers.

Changes in the Rules So Far

Some regulations issued in the past year have already been revised, primarily through administrative pronouncements, and many more changes are in the works. Some of these changes are the result of political pressure, others represent recognition by the Obama administration and its allies in Congress that some aspects of the health care reform legislation were overly burdensome, and still others (mostly temporary in nature) were required simply because the agencies charged with implementation were unable to meet the necessary deadlines for guidance. A few of the more important changes and delays thus far: (1) relief for grandfathered plans that change insurance carriers; (2) a delay in the effective date of the new nondiscrimination rules for insured group health plans; (3) relief from rules that essentially prohibited the use of health FSA and HRA debit cards to purchase OTC medicines; (4) a delay in Form W-2 reporting of the cost of group health plan coverage; and (5) two delays in certain new internal claims and appeals procedures applying to non-grandfathered health plans.

State-Specific Waivers from Medical Loss Ratio Requirements

As we have discussed in a prior post, health care reform’s medical loss ratio rule requires that health insurance companies devote at least 80 cents (85 cents in the large group market) of every premium dollar to providing health care services for their customers. Thus far eight states (Florida, Georgia, Iowa, Kentucky, Maine, Nevada, New Hampshire and North Dakota) have applied for waivers from this rule, and earlier this month HHS granted the first waiver to Maine. The waiver affects only Maine’s individual insurance market and allows health insurance companies to spend 65 percent of premiums on health care services until the end of 2013, after which the state insurance exchange should provide individuals with new, affordable health insurance options. Although it may be too soon to tell, Maine’s success at receiving a waiver may encourage other states to apply (or embolden insurance companies to threaten to withdraw from certain state markets, as in Maine) and weaken the medical loss ratio rule.

Still to Come

It’s fair to say that the enactment of health care reform legislation last year and the developments since that time have brought us to the end of the beginning. We can’t predict exactly where things will go from here. We do, however, expect more changes to the legislation, more regulatory relief and refinements, and many more developments in the coming months. Next week we will turn to the constitutional challenges making their way through federal courts, identify some of the key rule changes in process or likely to be made, and offer a few thoughts about what employers should be focusing on in the coming months.