Posted by Janae Schaeffer on May 14, 2012 | 
The City of San Francisco has fined a commercial janitorial services company more than $1.3 million for violations of the City’s Health Care Security Ordinance (HCSO). The city ordered the company to pay 100% of its required payments to the health reimbursement account to its 275 current and former workers.
Under the HCSO, all but the smallest employers doing business in the city are required to contribute a certain amount toward health care benefits for each of their employees who do work in the city. The amount the employer must contribute depends on the employer’s size. Employers may spend their required health care expenditures in one of three ways: (1) payments to a third party (for instance, an insurance company) to provide health care coverage or services, (2) payments to private health reimbursement accounts or (3) payments to the City for the “City Option”, also known as “Healthy San Francisco.”
In this case, the janitorial services company argued that it took the second option, establishing an account for the purpose of reimbursing incurred health care costs for its workforce. The company said it set up the reimbursement fund and publicized it through notices in three of its employees’ work areas. In addition, the company claimed that in January 2008 it supplied all current employees with a handout regarding the health care ordinance and began providing a notice to all new employees in a packet of new hire orientation materials.
However, a city investigator testified that the notices discussed “Healthy San Francisco,” one of the payment options the janitorial services company was not using; the notices were not specifically addressed to the company’s employees and the notices did not refer to the company’s responsibilities under the ordinance.
Employees testified that they were not aware of the fund and that when they notified their supervisors of their ailments, they were told no such fund existed. Of the eleven former employees who testified, none of them recalled ever receiving informational material or seeing any posting regarding a health reimbursement account.
Over the three-year audit period, no health care expenditures were made on behalf of the vast majority of the company’s workforce.
The city ordered the company to pay $1,339,028.39 in payments to 275 current and former employees and to pay $66,900.08 in administrative penalties (the HCSO imposes a variety of penalties for failing to comply with various aspects of the ordinance).
Lessons taken from this case: The San Francisco Office of Labor Standards Enforcement (the body that enforces the HCSO on behalf of the city) will pursue the “nuclear option” against employers who are subject to the ordinance and don’t adequately publicize to employees that health reimbursement accounts have been set up for their medical expenses. Recent changes to the HCSO require that employees receive quarterly notice of deposits by employers to reimbursement accounts (if the employer uses such accounts to satisfy its obligations under the HCSO) and that the funds be made available to the employee for at least 24 months. However, in the case of the employee’s termination of employment, the funds need only be available for the ensuing 90 days, but the employer must provide the employee a written summary of his or her health reimbursement account balance within three days after termination. In addition, employers must maintain complete and accurate records of any health care expenditures and employee voluntary waiver forms.
For a detailed look at the HCSO, see our “Employer’s Guide to the San Francisco Health Care Security Ordinance,” available from your Lockton Account Services Team.
Posted by Janae Schaeffer on April 30, 2012 |
Under the federal health reform law, insurers offering health coverage must meet minimum “medical loss ratios,” that is, they must spend a minimum percentage of premiums they collect in a given state, for a given year, on medical claims or quality improvements for their insured in that state. The medical loss ratio is 80 percent in the individual and small-group market, and 85 percent in the large group market. If a health insurer doesn’t spend the required percentage on medical claims and quality improvements, it must give back the difference to customers.
The Kaiser Family Foundation estimates that under these medical loss ratio rules, $1.3 billion in rebates will be paid-out by August 2012 to individual health policy holders and employers who have group health plans, on account of premiums collected and claims paid in 2011.
More than three million individual policyholders will reap rebates of $426 million, averaging $127 apiece. These are individuals who are not covered through an employer and buy their policies directly from an insurance company.
In the small employer market, plans covering nearly five million people will receive rebates totaling $337 million. Large employer plans will receive rebates of $541 million, covering 125 plans with 7.5 million participants.
Rebates for employer-sponsored plans will generally go to the employers which, in some cases, may be required to treat at least some or all of the rebates as an asset of the plans. That means the employers will be required to use that portion of the rebates to benefit the covered employees, either through enhanced benefits, premium holidays, or in other ways. An employer’s obligation to share the rebates depends on what the plan says (if anything) about who owns the rebate. If the plan is silent, then the employees’ share of the rebate might depend on the portion of premiums paid by employees. See our Compliance Alert on this topic by clicking here.
The rebate provision does not apply to self-insured plans because they pay their own health claims. According to the Kaiser Foundation, 60% of employees with workplace coverage were enrolled in self-funded plans in 2011.
When averaged by state, the largest per-person rebates will be paid to individuals in Alaska ($305) and Maryland ($294). Texas and Florida will reap the largest total amount of rebates with insureds in Texas receiving $186 million and insureds in Florida receiving $149 million in rebates. The report’s findings don’t include California, where data wasn’t available yet.
The Kaiser report said the rebate requirement may be acting as a brake on the health insurance industry, discouraging insurers from seeking big premium increases to avoid having to issue rebates later.
Posted by Janae Schaeffer on April 23, 2012 |
The California Department of Insurance (DOI) is backing a bill in the California State Senate which imposes new limits on certain stop-loss policies sold to small employers whose health plans are self-funded. Such policies guarantee that the small employers’ plans won’t be responsible for any medical claims over a specified amount, sometimes as low as $10,000 or $20,000 per employee, with the remainder paid by the stop-loss insurer.
Amended Senate Bill 1431 prohibits a stop-loss carrier from issuing a stop-loss insurance policy to a small employer that contains an individual participant attachment point for a policy year that is lower than $95,000 or an aggregate, plan-wide attachment point for a policy year that is lower than the greater of the following:
- $19,000 times the total number of covered employees and dependents;
- 120% of expected claims; or
- $95,000.
In addition, the Senate Bill requires a stop-loss carrier to offer coverage to all employees and dependents of a small employer to which it issues an insurance policy; the carrier may not exclude an employee or dependent on the basis of actual or expected health status-related factors. Moreover, the stop-loss carrier would be required to renew all stop-loss policies at the option of the small employer and would be prohibited from providing direct coverage of an employee’s health claims.
According to an article in the Los Angeles Times, the DOI is concerned that plans with such a low stop-loss threshhold will appeal to companies with healthier workers and, as a result, drive up premiums for small businesses remaining in the typical group health plans. If that happens, a key goal of healthcare reform – to lower premiums by pooling together both healthy and sick employees — would be undercut. In addition, the DOI argues that low threshhold stop-loss coverage undermines the notion of self-insurance because the plans aren’t bearing much of the risk.
The National Association of Insurance Commissioners is updating its recommended limit for stop-loss policies. Its current limit of $20,000 per employee was set in 1995. According to the Kaiser Family Foundation, the average stop-loss policy for firms with fewer than 200 workers was $78,321 per employee last year.
Nonprofit insurer Blue Shield of California came out in support of the bill, with their Vice President of Government Affairs noting that “stop-loss insurers are using this product line to cherry-pick young and health small employers for coverage while leaving less health populations to the fully insured market.” Several trade groups, however, have vowed to stop the proposed law in court if necessary. They note that ERISA governs self-insured plans and preempts state laws that affect the administration of these plans.
While this bill was introduced in California, other states are considering similar legislation.
Los Angeles Times, “Proposed Limits on Health Self-Insurance Plans Debated” (April 21, 2012) - http: //www.latimes.com/business/la-fi-small-business-health-20120421,0,7969005.story
Posted by Ed Fensholt on March 29, 2012 |
Well, we didn’t see this coming.
Wednesday morning, during the third of three days of oral arguments before the U.S. Supreme Court concerning the federal health reform law’s “individual mandate,” the Court’s conservative justices made clear their doubts about the ability of the remainder of the law to survive, if the Court strikes down the individual mandate as unconstitutional.
We have thought for some time that the individual mandate would probably—but narrowly—survive its consideration by the Supreme Court (a prediction perhaps a bit more in doubt after Tuesday’s arguments). But we would have bet a considerable sum that, were the Court to strike the mandate, the justices would simply carve it and perhaps a related provision or two out of the law, and allow the balance of the legislation to survive.
Not so fast, said the Court’s conservative justices yesterday morning.
By way of background, the individual mandate is a provision in the health reform law that requires virtually all Americans to obtain health insurance. As a practical matter, the mandate is necessary to compel the nation’s healthy but uninsured population into the insurance pool, along with the uninsured and unhealthy population. That’s because the health reform law requires insurers to issue policies to all applicants, without individual underwriting and without exclusions for the applicants’ pre-existing conditions. In short, insurers must insure every unhealthy person who knocks on their doors, but for that to work in a cost-efficient manner the insurance pool needs all the healthy people too.
Pieces of legislation typically come with a “severability clause,” that is, a provision that says if any portion of the law is deemed invalid, it may be severed from the rest of the law, and the rest of the law may survive. Interestingly, however, the health reform law does not contain such a provision.
There’s no clearly defined standard or test for determining how a court, once it rules that part of a statute is invalid, decides what other parts should also be tossed out, what parts might be able to stand alone, or whether the entire law must go. In fact, the Supreme Court spent considerable time Wednesday morning noting the lack of consensus about just how to go conduct a severability analysis.
The Obama Administration’s lawyer conceded that if the individual mandate goes, the law’s “guarantee issue” requirement and community rating rules (the rules that prohibit individual underwriting) would also have to go, to prevent a death spiral of the individual insurance market. But he urged the Court to let the remainder of the law survive. The Court’s liberal justices tended to agree. Justice Ginsburg thought the Court should work to salvage as much of the law as possible, rather than go at it like a wrecking ball.
Paul Clement, representing the 26 states challenging the individual mandate, said the individual mandate is connected to the insurance exchanges, and they in turn are connected to the law’s subsidy provisions, which are related to the employer mandate, and so on. He said the best, most expedient path forward would be to toss the entire law and let Congress decide what portions of the law it should reconstruct.
The Court’s conservative justices tended to agree, particularly Justice Scalia, who said the Court wanted no part in inching step-by-step through the 2,000-page statute, trying to figure out which provisions are related to the individual mandate and which are not, or to guess which provisions Congress might have been willing to let stand on their own and which provisions Congress might have intended to pass only as part of a complete package. He quipped that requiring the Court to do that would be cruel and unusual punishment.
So now we wait and see. The Court is expected to issue an opinion in June.
Tags: constitutional, Fensholt, health, Health Reform, healthcare, healthcare reform, individual mandate, Lockton, PPACA, Supreme Court, unconstitutional
Posted by Ed Fensholt on March 28, 2012 |
Day two of the oral arguments before the United States Supreme Court, regarding the constitutionality of the federal health reform law’s “individual mandate,” did not disappoint.
If Monday’s oral arguments (largely dealing with jurisdictional issues) were tantamount to a skirmish, Tuesday’s arguments—taking head-on the legitimacy of the individual mandate—seemed more akin to a genteel sort of firefight. By late Tuesday morning the ideological battle lines noticeably absent Monday were starkly drawn between the conservative and liberal wings of the Court.
We have long believed those lines would become clear at this point in the oral arguments, with Justices Breyer, Ginsburg, Sotomayor and Kagan on the left, and Justices Scalia, Thomas, Alito and (probably) Chief Justice Roberts on the right. It appeared the the wildcard might be Justice Anthony Kennedy. Kennedy is a Reagan appointee who has been the deciding swing vote in a number of cases.
Although later in the morning Justice Kennedy seemed more open to the argument that the mandate is constitutional, his questions much earlier in the proceedings seemed to signal a healthy dose of skepticism. Just minutes into the argument by Solicitor General Donald Verrilli (arguing on behalf of the Obama Administration in defense of the mandate), Justice Kennedy interrupted him:
Justice Kennedy: [W]hen you are changing the relation of the individual to the government in this, what we can stipulate is, I think, a unique way, do you not have a heavy burden of justification to show authorization under the Constitution?
His conservative colleagues, Justices Alito and Scalia, and Chief Justice Roberts, were more pointed in the early moments. They challenged Verrilli’s argument that the mandate is necessary to stem the cost shifting that occurs when those without insurance receive medical care. The cost of that care is shifted to those with insurance.
The conservative justices peppered Verrilli with requests to explain why, if Congress can compel Americans to buy health insurance, it cannot also compel them to buy burial insurance (to prevent shifting the cost of burial to the state), a cell phone (to dial authorities in the case of an emergency), broccoli, automobiles (to help hold down the cost of cars to others) or health club memberships (to reduce the need for medical care and thus reduce cost shifting).
Verrilli distinguished a mandate to purchase health insurance as a product that is used to finance something else (e.g., medical care) and without it, someone else must pay.
But Justice Kennedy seemed troubled by the precedent the individual mandate sets. He repeatedly pushed Verrilli to articulate—assuming Congress has the right to impose the individual mandate—what limits, if any, Congress then has under the Constitution’s Commerce Clause.
“[T]he federal government is not supposed to be a government that has all powers,” Kennedy noted. “It’s supposed to be a government of limited
powers…what is left? If the government can do this, what else can it not do?”
Verrilli struggled to articulate a limit.
Chief Justice Roberts seemed sympathetic to the problem Congress was trying to correct, in imposing the individual mandate. But he too expressed concern that if the mandate were ruled constitutional, there would effectively be no limit to Congress’s reach under the Commerce Clause:
Chief Justice Roberts: But once we say that there is a market and Congress can require people to participate in it…it seems to me that we can’t say there are limitations on what Congress can do under its commerce power…all bets are off….
The Mandate Makes a Second-Half Rally
By the time Verrilli sat down the individual mandate seemed destined for a 5-4 decision striking it down as unconstitutional. Yet when former Solicitor General Paul Clement rose to make his argument against the mandate, the proceedings took additional interesting turns.
Clement represents the 26 states challenging the individual mandate. Under questioning from the Court, Clement conceded that his clients’ view of the mandate’s unconstitutionality is poised on a very narrow ledge indeed. He admitted that Congress could legitimately have passed a law requiring that all payment for health care services be made with insurance. That is, he conceded that Congress could have required the purchase of insurance at the point of sale, at the point the individual receives health care.
“Well, Mr. Clement,” quipped Justice Kagan, the Court’s newest member, “now it seems as though you’re just talking about a matter of timing…and Congress surely has within its authority to decide, rather than at the point of sale, given an insurance-based mechanism, it makes sense to regulate it earlier. It’s just a matter of timing.”
Clement deftly parried Kagan’s argument:
Clement: Well, Justice Kagan, we don’t think it’s a matter of timing alone, and we think it [the mandate] has very substantive effects. Because if Congress tried to regulate at the point of sale, the one group it wouldn’t capture at all are the people who don’t want to purchase health insurance and also have no plans of using health care services in the near term. And Congress very much wanted to capture those people. I mean, those people are essentially the golden geese that pay for the entire lowering of the premium.
But as the morning wore on, the Justices closer to the political center, Chief Justice Roberts and Justice Kennedy, seemed to grow more sympathetic to the cost-shifting problem the mandate is intended to solve.
Earlier, two of the Court’s more liberal Justices had come to Verrilli’s defense, suggesting that what Congress may do, in terms of compelling individuals to engage in commercial transactions, depends on the situation. Questions from Breyer and Ginsburg implied that they see the tremendous cost shifting that occurs in the health care marketplace as justification for Congressional intervention via the mandate.
Justice Alito swatted impatiently at the argument:
Justice Alito: The reason there is cost shifting is because the government has mandated that. It has required hospitals to provide emergency treatment, and instead of paying for that through a tax which would be borne by everybody, it has…set up a system in which the cost is surreptitiously shifted to people who have health insurance and who pay their bills when they go to the hospital.
Michael Carvin, arguing against the mandate on behalf of the National Federation of Independent Businesses, seized the opening:
Carvin: [The government] seems to be saying, “Look, we couldn’t just force people to buy insurance to lower health insurance premiums. That would be no good. But we can do it because we’ve created the problem. We, Congress, have driven up the health insurance premiums, and since we’ve created that problem, this somehow gives us authority that we wouldn’t otherwise have.” That can’t possibly be right.
As he neared the end of his allotted time, Clement worked to move the Court’s focus from the cost-shifting problem to the question of whether Congress’s answer to the problem was a necessary and proper answer, as it must be to pass muster under the Commerce Clause.
The Justices and the attorneys seemed to agree on one thing: Congress has the right to regulate individuals once they enter the stream of commerce. The question that divided them was whether an individual without insurance is, at that point, actually in the stream of commerce.
Clement argued that the individual without insurance is not in the market, and that the mandate forces him or her to enter that market. Yet Justice Kennedy was quick to point out, “But they [the uninsured] are [already] in the market in the sense they are creating a risk the market must account for.”
Justice Breyer wondered whether Congress could require certain high-polluting cars to install specific emission-control devices, to control pollution that crosses state lines and collaterally affects commerce. Carvin conceded it could. Then why, Breyer asked, can’t Congress impose the individual mandate to arrest the cost-shifting that occurs nationwide in the context of uninsured health care?
Carvin had the answer. “[The distinction] is this,” he said. “They can’t require you to buy a car with an anti-pollution device.”
Congress and the Power to Tax
Solicitor General Verrilli also argued that, even if Congress does not have the power to impose the mandate under the Commerce Clause of the Constitution, the mandate is authorized by Congress’s general power to impose taxes. The mandate, Verrilli argued, is sufficiently tax-related because failure to comply can trigger an assessment that is collected like a tax.
But it was hard to find a Justice, on either side of the political spectrum, who seemed inclined to agree with him. Justice Sotomayor noted that Congress took pains to not call the individual mandate penalty a “tax,” and likely did so for a reason. Justice Ginsburg noted that taxes are, fundamentally, designed to raise revenue but the individual mandate penalty was designed to compel behavior and, if successful, would raise no revenue.
Justice Alito wondered how the mandate could be viewed as a tax when it is imposed on individuals some of whom, due to income levels, won’t be subject to the penalty no matter how the penalty is described (i.e., as a tax or something else).
Conclusion
Today (Wednesday) the Court turns its attention to another question: If the mandate is struck down, must the Court jettison all or at least a portion of the balance of the health reform law?
– Ed Fensholt
Tags: constitutional, Fensholt, health insurance exchange, Health Reform, healthcare, healthcare reform, individual mandate, insurance, PPACA, reform, Supreme Court, unconstitutional
