McGuireWoods Healthcare Reform Guide: Installment No. 18 – Recent Health Care Reform Updates

McGuireWoods Healthcare Reform Guide: Installment No. 18

March 9, 2011

Postponed Deadline for Insured Group Health Plans to Comply with Nondiscrimination Rules

One of the more contentious rules under the Patient Protection and Affordable Care Act (PPACA) provides that non-grandfathered insured group health plans must satisfy nondiscrimination rules that are “similar” to the rules for self-insured plans under IRC Section 105(h). This change was to be effective for plan years beginning on or after Sept. 23, 2010.

An insured group health plan that fails to comply with these rules may be subject to an excise tax of $100 for each day in the noncompliance period for each individual to whom such failure relates, or a civil action to enjoin a noncompliant act or practice or for other appropriate equitable relief under ERISA. Other penalties would apply to noncompliance by non-federal governmental group health plans.

The agencies responsible for administering this provision (IRS, DOL and HHS) have had difficulty clarifying what requirements are “similar” to the rules of IRC Section 105(h). Accordingly, in Notice 2011-1, the agencies postponed the effective date of the rule until a date following the issuance of regulatory guidance, and will not apply the sanctions described above for noncompliance during the period of postponement.

MW Note: The postponement of compliance with IRC Section 105(h) applies only to fully insured group health plans. Self-insured group health plans must continue to comply with the nondiscrimination rules in that section.

Virginia Seeks Direct Review of PPACA

After successfully arguing to the U.S. District Court for the Eastern District of Virginia that the individual mandate under Section 1501 of the PPACA is unconstitutional (click here for our previous WorkCite discussing the ruling), Virginia has filed a petition for direct Supreme Court review.

Although rarely invoked, Supreme Court Rule 11 permits an immediate review to the high court upon a showing of “imperative public importance” that the case requires an immediate determination. In its petition, Virginia Attorney General Ken Cuccinelli cited conflicting district court decisions and resulting economic uncertainty as justification for the request. Additionally, he emphasized that the PPACA is already forcing states to “devote considerable resources” to implement the significant changes required by the law. To date, there has been no indication from the Supreme Court as to whether it will grant Virginia’s request.

Florida District Court Grants Justice Department Stay on Ruling Declaring PPACA Unconstitutional

In a lawsuit brought by 26 state attorneys general, two private citizens, and the National Federation of Independent Business, the District Court for the Northern District of Florida held that Congress lacked authority under the Constitution to enact the individual mandate under the PPACA (click here for our previous WorkCite discussing the ruling). However, unlike the Virginia ruling that found only the individual mandate unconstitutional, Judge Vinson in Florida ruled that the individual mandate could not be severed from the rest of the PPACA, and declared the law unconstitutional in its entirety.

In his declaratory judgment ruling, Judge Vinson indicated that the ruling served as the “functional equivalent of an injunction,” but declined to grant the injunction specifically requested by plaintiffs. Citing confusion by states as to whether to continue implementing the reform measures during the appellate process, among other reasons, the Justice Department requested a clarification that the ruling does not relieve the parties of “any obligations or deny[] them any rights” under the PPACA while the ruling is under review.

On March 3, Judge Vinson granted the Justice Department’s motion, construing it as a motion to stay pending appeal, provided that the Justice Department files an expedited appeal with the Eleventh Circuit Court of Appeals or directly to the Supreme Court within seven days of the ruling.

Progress Made Toward Repeal of New 1099 Reporting Rules, But Future Still Uncertain

Beginning in 2012, all businesses must issue IRS Form 1099s to all individuals and corporations from which they purchase more than $600 in goods and services annually. The provision was intended as a revenue raiser under the PPACA by increasing compliance on business income tax returns. The business community has expressed strong opposition to this reform measure due to the expected onerous paperwork and accounting burden, particularly on small businesses.

Repeal of the new 1099 reporting rules has bipartisan support, including from the Obama Administration, which acknowledged this “flaw” in the healthcare reform framework. However, the debate now shifts to how to eliminate the measure, and whether such repeal requires offsetting cost savings to account for the lost revenues the measure was expected to generate.

The Senate has approved an amendment to the Federal Aviation Administration Reauthorization bill to repeal the new 1099 reporting rules by offsetting the estimated $22 billion of lost revenues with budgetary rescissions. On March 3, 2011, the House passed a measure that repeals the new 1099 reporting rules and offsets the lost revenues by increasing the repayment limits for ineligible individuals that receive premium assistance in the healthcare exchange subsidy program. Senate and House leadership have not yet indicated how they intend to proceed to compromise on this legislation.