On Monday, January 23rd, Senators Bill Cassidy (R-LA) and Susan Collins (R-ME) introduced the Patient Freedom Act of 2017 (“PFA”), the first of what may be many Republican Affordable Care Act (“ACA”) “replacement” alternatives. The PFA is notable for several reasons. It is the first replacement plan to be introduced in the 115th Congress, it is sponsored by Senators who are considered comparatively moderate on health issues, and thus its content may represent an opportunity for compromise in the future, and, perhaps most interestingly, does not actually repeal the ACA. The overarching feature of the PFA is that it allows states to control which course they chart for health reform.

The ACA: What Stays and What Goes  

If enacted, the PFA would eliminate the majority of the provisions contained in Title I of the ACA. This includes the individual and employer mandates, the community rating provision, essential benefits requirements, and the establishment of the health benefit exchanges. However, the ACA provisions the PFA retains are just as notable as the provisions it removes. The PFA maintains the bans on lifetime and annual coverage limits, maintains the ACA ban on coverage exclusions based on preexisting conditions, continues to permit dependents to remain on their parents’ plan until age 26, keeps in place the ACA non-discrimination requirements, and maintains the ACA mental health parity coverage requirements. The PFA also does not repeal any provisions outside of Title I, leaving many features in place, such as Medicaid expansion and Medicare prescription drug plan provisions.

State Options

The PFA would shift the decision of how to implement health reform to individual states. The PFA allows states to choose between three options: 1) maintain the current ACA model using subsidies and health benefit exchanges to provide insurance coverage; 2) enact a market-based option or “state alternative;” or 3) select to design its own health system without federal funding. If a state fails to select one of the options by a certain date they will be deemed to have selected the market based option.

Option 1: Keep the ACA

States that elect to continue to operate under the ACA will be treated as if the changes to Title I of the Act in the PFA were never enacted. This will allow states to maintain health benefits exchanges and for eligible enrollees to receive federal subsidies and cost sharing reductions to purchase coverage from qualified health plans (“QHPs”). However, States may see a reduction in the exchange subsidies and costs sharing reductions available to enrollee as the PFA includes an additional provision designed to align federal funding between ACA states and states that elect the new market-based approach.

Option 2: Market-Based Approach

The market-based approach, or “State Alternative” option, will allow states to essentially shift residents enrolled in QHPs and potentially Medicaid into a standard high-deductible health plan containing basic pharmaceutical coverage and some coverage for preventive care and free immunizations. Residents currently enrolled in QHPs will receive Roth health savings accounts (“HSAs”) funded through tax credits.  These tax credits will replace the advanced premium tax credits QHP-enrollees are currently eligible to receive with a tax credit that is similarly advanceable and refundable.  The tax credit is also adjustable based on the age, income, and geographic location of the enrollee.

States may also include the Medicaid expansion population under this market-based alternative, but only enrollees not otherwise eligible for Medicare coverage, and eligibility for federal Roth HSA contributions will be limited to those not enrolled in a federal healthcare or veterans benefit program. States can either administer the market-based solution themselves or they can allow the federal government to administer the system. The total amount of the tax credits available under the market based approach will be equal to 95 percent of the total projected ACA premium tax credits and cost-sharing subsidies that the state would have otherwise received.

What’s Next and What to Watch?

The PFA is the first of what may be many Republican plans to replace the ACA. Reports indicate other members of Congress, including Senator Rand Paul, are expected to release alternative plans in the near future. It is unlikely that any one plan will be enacted in the form that it is introduced. However, significant insight into what ultimate changes may occur can be gained by monitoring how stakeholders- such as members of Congress, the administration, and governors- respond to the various provisions contained in these proposals. Health care entities should closely monitor the provisions that appear to have support among the various stakeholders to ensure that there is sufficient time to react and adapt to the changing health care environment.

In its recent decision in U.S. House of Representatives v. Burwell,[1] the U.S. District Court for the District of Columbia ruled that the Obama administration’s payment of cost-sharing subsidies for enrollees in plans offered through the Affordable Care Act’s Exchanges is unauthorized for lack of Congressional appropriation. The decision would affect future cost-sharing subsidies, though the court immediately stayed the decision pending its outcome on appeal.[2]

In its decision, the court found in favor of the members of the House of Representatives, based upon its interpretation of the applicable law. Specifically, the court found that, when Congress passed the Affordable Care Act, including Sections 1401 (premium subsidies) and 1402 (cost-sharing subsidies), it permanently appropriated funds for the former but not the latter.

The court examined prior Office of Management and Budget submissions to the House Appropriations Committee, finding that the administration had explicitly acknowledged the lack of appropriated funds for the cost-sharing reduction payments. After the Republican-controlled Congress declined the administration’s appropriations requests for the cost-sharing reduction funds, President Obama signed an appropriations bill without it. Treasury subsequently paid the cost-sharing subsidies to issuers without an appropriation. As of December 2015, 56.4% of Exchange plan enrollees were receiving the subsidies.[3]

The court rejected the administration’s arguments that, under King v. Burwell, the Act must be read for its intended effect. While King identified “three key reforms”—guaranteed coverage and community rating, individual mandate and premium tax credits—the court found that King did not treat the section 1402 cost-sharing reduction provisions as integral to those reforms. Moreover, King found the Exchange statute nonfunctional due to drafting failure and thus in need of saving. By contrast, the district court found that, here, Congress’s simple failure to appropriate cannot be remedied by a court.

The case will almost certainly be appealed to the D.C. Circuit Court of Appeals.

Ultimately, if the ruling is affirmed, absent a Congressional fix, new legal problems would arise for the Affordable Care Act’s Exchanges. Regardless of an appropriation, the Act still requires issuers to reduce cost-sharing for eligible enrollees, which would likely shield consumers but leave issuers financially exposed.

Moreover, notwithstanding the apparent lack of appropriation, the Act requires the government to pay issuers for the cost-sharing subsidies. This raises questions concerning the government’s ability to recoup payments already made. Should the government elect to discontinue the payments going forward, issuers could seek legal redress.

Notably, an affirmation of the district court could impact Exchange premiums. Many issuers have already raised premium rates for 2017, citing a high proportion of costlier, sicker enrollees. Should the courts ultimately place the burden on issuers to subsidize cost sharing, these costs are also likely to be shifted to premiums.

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[1] House of Representatives v. Burwell, No. 14-1967 (D.D.C. May 12, 2016), available at https://ecf.dcd.uscourts.gov/cgi-bin/show_public_doc?2014cv1967-73.

[2] In an earlier, controversial ruling in this proceeding, the same court allowed members of the Republican majority of the U.S. House of Representatives to proceed with the suit against the Secretaries of Treasury and Health and Human Services. The administration had argued that the House members did not standing to sue, but the court disagreed and declined to dismiss the suit.

[3] According to CMS, as of December 31, 2015, the ten highest states by percentage of Exchange plan enrollees receiving cost sharing subsidies were Mississippi (76.7%), Alabama (72.2%), Florida (70.1%), Georgia (68.1%), Hawaii (67.90%), North Carolina (63.9%), South Dakota (63.3%), Idaho (62.9%), Tennessee (62.7%) and Utah (62.6%). See CMS, Effectuated Enrollment Snapshot (Mar. 11, 2016), https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-03-11.html.

Epstein-Becker-Green-ClientAlertHCLS_gif_pagespeed_ce_KdBznDCAW4In February 2012, two years after the passage of the Affordable Care Act (“ACA”), the Centers for Medicare & Medicaid Services (“CMS”) issued a proposed rule, which was subject to significant public comment, concerning reporting and returning certain Medicare overpayments (“Proposed Rule”). On February 12, 2016, four years from the issuance of the Proposed Rule (and six years after passage of the ACA), CMS issued the final rule, which becomes effective on March 14, 2016 (“A and B Final Rule”).

The A and B Final Rule applies only to providers and suppliers under Medicare Parts A and B. The return of overpayments under Medicare Parts C and D are addressed in a final rule that was published by CMS in May 2014 (“C and D Final Rule”). To date, no final regulations have been adopted that address Medicaid requirements.

Among other things, the A and B Final Rule and its preamble provide:

  • a six-year lookback period;
  • that providers and suppliers must exercise “reasonable diligence” in connection with identifying potential overpayments;
  • that the time period to conduct “reasonable diligence” should be no more than six months, except in extraordinary circumstances; and
  • that “identification” includes quantifying the amount of the overpayment.

Kirsten M. Backstrom, George B. Breen, Anjali N.C. Downs, David E. Matyas, and Meghan F. Weinberg coauthored a Health Care and Life Sciences Client Alert that addresses a number of the significant provisions of the A and B Final Rule, describes an important difference between the two final rules, and sets forth a list of nine key “takeaways” that we believe all Medicare providers and suppliers should be aware of.

Click here to read the full Health Care and Life Sciences Client Alert.

Epstein Becker Green’s Lynn Shapiro Snyder, Senior Member of the Firm, and Tanya Vanderbilt Cramer, Of Counsel, will present “Accountable Care Organizations and Other Provider Risk Sharing Arrangements — a Legal and Regulatory Overview,” a webinar hosted by Bloomberg BNA.

While the federal government has encouraged the growth of accountable care organizations (ACOs) through the Affordable Care Act, the regulation of ACOs and other provider risk sharing arrangements remains a patchwork of federal and state requirements that span many different areas of law. This webinar will explore some of the regulatory issues faced by ACOs, integrated delivery systems, and other provider organizations that assume some or all of the financial risk for providing covered health care benefits to patients through reimbursement arrangements such as capitation or shared savings.

Epstein Becker Green would like to offer you a 25% discount off the registration fees for this program.  To sign up at this discounted rate, please follow the steps below:

  1. Go to http://www.bna.com/accountable-care-organizations-m17179934019/
  2. Click on “add to cart.”
  3. Sign in to your bna.com account – if you do not have a bna.com account, please click “create an account & continue”
  4. On the checkout screen you will see a box on the right side labeled “promotion code”.  Please enter the code FIRMDISC25 in this box and click submit.  Then click proceed to checkout.

firm_sgersonIn a split decision announced today, June 25, the U.S. Supreme Court, in King v. Burwell, ruled in upholding the tax credits to individuals in all states, including those with only a federal exchange.  In a 6-3 decision, Chief Justice Roberts delivered the opinion of the Court.

“Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them. If at all possible, we must interpret the Act in a way that is consistent with the former, and avoids the latter. Section 36B can fairly be read consistent with what we see as Congress’s plan, and that is the reading we adopt.”

This is one of the rare times that my prediction (6-3 with Chief Justice Roberts and Justice Kennedy joining the liberals, affirming the 4th Circuit) has been accurate.  I note that the case was decided on statutory construction grounds and so is much more important as an statutory interpretation and administrative law case than it is as a health care case. In sum, the subsidies were upheld as to economically-eligible persons in all states, whether their exchanges are State exchanges or Federal exchanges. The Court held that the term “State” in the provision at issue was, in context, ambiguous. It declined Chevron deference but held that in the total context of the statute and what Congress was trying to establish, the whole ACA scheme would collapse if the subsidies/tax credits were not available. This is an important win for the Administration and for health insurers and their customers because the decision in King won’t, in itself, require rate increases and open season can go forward without a hitch. Context wins over text.

As you may recall, a DC Circuit panel held that the Affordable Care Act makes federal premium tax credits available to taxpayers only in States where the State has established an exchange – which is what the ACA literally provides. On the same day, the Fourth Circuit issued a contrary decision in King v. Burwell, accepting the government’s argument that where HHS sets up an exchange in a State, that is a State exchange. The same argument is being made by the appellant (the government lost in District Court) in Oklahoma ex rel. Scott Pruitt v. Burwell, which is pending before the 10th Circuit. Immediately following the contradictory decisions of DC Circuit and Fourth Circuit panels, the DC Circuit, en banc, vacated the panel decision and set the case down for rehearing en banc. The 4th Circuit King plaintiffs have filed a petition for cert. which has not been acted upon and likely won’t be favorably acted on unless a split were to arise in the Circuits. Given recent appointments to the DC Circuit and the fact that only active judges sit on the en banc court, it is likely that the full court will reach the same result as the Fourth did. The Tenth is another story altogether, so continue to watch this space for developments.

By Stuart Gerson

The September 30, 2014 decision of a United States District Judge for Eastern District of Oklahoma in the case of State v. Burwell  adds an interesting wrinkle to the debate over whether the provision in the Affordable Care Act that authorizes federal subsidies (tax credits) applies to individuals who are covered by  a qualified health plan that is enrolled through an Exchange established by the Federal government, not a State.  An IRS Rule (26 C.F.R.§ 1.36B-1(k)) allows this, while the ACA itself bases eligibility on participation in a plan that was “enrolled in through an Exchange established by the State . . . .”  26 U.S.C. §36B(b)(2)(A). These provisions also affect ACA subsidies that relate to employers.  Holding to the literal language of Affordable Care Act itself, the Oklahoma District Court held that the IRS rule was unlawful.

As we’ve previously noted, there had been a split in the United States Courts of Appeals created on the same day when a panel of the DC Circuit took the same literalist approach in Halbig v. Burwell as did the District of Oklahoma, but the 4th Circuit ruled in King v. Burwell that “Exchange” meant any Exchange and held that the ACA subsidies were available to anyone who was a subscriber to a health plan in a state that had not established its own Exchange but where the Federal government had. This split, however, was quickly erased when the DC Circuit, as a whole, vacated the panel’s decision and voted to rehear the case en banc, which it has yet to do.  Without any split to rely upon, a factor that increases the probability of Supreme Court review, the 4th Circuit plaintiffs nevertheless have petitioned for cert., claiming that the case should be taken because it presents an important question of federal law that must be resolved at some point.  The Supreme Court has not yet acted on that petition.

The District Court in Oklahoma stayed its order and the Obama administration will file an expedited appeal.  If the 10th Circuit affirms the case quickly, that would create a new Circuit split and very well could serve as a catalyst for Supreme Court review.  We’ll keep you posted as this is a matter that affects both employers and employees in the States that have not established Exchanges.

Epstein Becker Green colleagues Robert S. Groban, Jr. and Matthew S. Groban provide an update to the health care industry in the Immigration Alert: September 2014, including an update on the Sixth Circuit Expanding the Liability of Health Care Employers for Sponsorship Costs.

Based on the Kutty decision, health care employers can expect more aggressive enforcement activity in connection with their employment of foreign nationals (“FNs”) generally and foreign medical professionals sponsored for H-1B classification and J-1 waivers of the two-year foreign residence requirement that many J-1 residents face.  For the full client alert, click here.

 

Our Epstein Becker Green colleagues have released a new Take 5 newsletter: “Five ACA Issues that Employers Should Be Following” by David W. Garland, Adam C. Solander, and  Brandon C. Ge.  Below is an excerpt:

Employers have about three months to finalize their employer mandate compliance plans under the Affordable Care Act (“ACA”). While most employers are in the final stages of planning, this month’s Take 5 will address five ACA issues that employers should be aware of as they move forward:

  1. ACA-related litigation
  2. Employer mandate reporting
  3. Section 510 liability
  4. Alternatives to traditional plan offerings
  5. The looming Cadillac tax

Read the full newsletter here.

 

Epstein Becker Green and EBG Advisors, as part of the Thought Leaders in Population Health Speaker Series, will host a complimentary webinar on September 30, 2014 on emerging trends in value-based purchasing in health care. The next session will feature a former key official from the U.S. Department of Health and Human Services (HHS), Gary Cohen, JD, who played a central role in the implementation of the Affordable Care Act over the past several years and is moderated by Lynn Shapiro Snyder, Senior Member, Epstein Becker Green.  The session, The Impact of the Affordable Care Act on Population Health Management, will assess how much progress the federal and state governments have made expanding health care coverage and bending the cost curve.  Specific insurance reforms to the individual and small group markets will be examined along with emerging trends such as the role of accountable care organizations (ACOs), patient accessibility issues, and the drive towards integrated population health solutions.

For more information, please visit:  http://www.ebgadvisors.com/cciio-director-gary-cohen-address-key-health-care-reforms-impact-population-health-management/.