Due to these imposed fees, the individual consumer and employer groups could see an increase in their premiums, beginning 2013.

Specified Health Insurance Policies

The fee applies to health insurance policies issued to individuals living in the United States. Issuers of specified health insurance policies will be required to pay a fee for each policy year. For the first year, the fee is $1. The fee increases to $2 in the second year and increases with medical information after that.

The fee also applies to plan sponsors of self-insured health plans. The plan sponsor is usually an employer, but might be another group or entity.

Medicare, Medicaid and CHIP are exempt governmental programs. Also exempt are programs established by Federal law for providing medical care (other than through insurance policies) to members/veterans of the U.S. military or their spouses and dependents; and programs established by Federal law for providing medical care (other than through insurance policies) to members of Indian tribes.

More updates will be provided as they become available.

Question: Does the federal government have the right to require States to expand the eligibility requirements for Medicaid?

The federal government has the power to attach strings to money given to the States. However, the federal government cannot use those strings to compel States to act. States must always have a choice to take the money and accept the conditions or decline to participate in the program. The key to this decision will be whether the States have a choice in this instance or if the expansion is “coercive” to the point where they have no choice but to accept.

Yes, the federal government can attach conditions to Medicaid funding and States can choose whether to participate.

• The Court has previously supported the right of the federal government to attach strings to federal money, as long as the States could choose to decline the money.
• States are not entitled to Medicaid money, and both sides agreed it would be legitimate for the federal government to decide to stop funding Medicaid entirely. If that is an acceptable use of power, than attaching strings to that money must be as well.
• Just because it would be difficult for a State to drop out of Medicaid, doesn’t make it impossible. States could theoretically choose to do so.
• States have not objected to previous Medicaid expansions.
• It is unfair to use the size of the expansion as a justification that States have no choice. It would not be reasonable to assert that the more money the federal government provides to States, the less power it has over how that money is spent.

No, the States have no practical method of choosing not to participate in Medicaid, so they have to accept the federal conditions.

• The Court has also found that there is a line across which attaching strings to federal grants stops being an acceptable use of power, but it didn’t specify where the line is.
• Because of the size of Medicaid programs and the amount of money involved, States don’t really have the option of not participating
• States that decline the strings attached to the money allocated to pay for the expansion can also lose all of their money to pay for previous Medicaid programs. This complicates the notion of “choice,” because States chose to participate in the original Medicaid program without knowing that they would be forced to expand the program 40 years later.
• The federal government needs to be reminded that their spending powers have limits, and this is a good case to do so.
• States are constrained in their ability to run their own health programs because there is a finite amount of tax revenue available. To the extent that the federal government collects more taxes, that decreases the States’ ability to increase taxes.

Conventional Wisdom

There may be five votes to prohibit the Medicaid expansion, but this is unclear. Some analysts have predicted Justice Kennedy will vote against the expansion, but his questions during the argument could point either way. Other Justices are expected to vote along ideological lines, with the conservatives opposed.

Question: If the individual mandate is unconstitutional, does that mean the rest of the law is invalid?

Severability addresses the question of what happens to a law if one provision is found unconstitutional. Previous cases have not established a clear answer to this question, but the Court has often looked at whether the law can operate in the way Congress intended without the unconstitutional provision. It could also look at what Congress would want, i.e. would it want the Exchanges to exist without the mandate or would it want to start from scratch?

Yes, the Court should strike down all of PPACA

• This position was argued by the challengers to the law.
• Not striking down the whole law is the equivalent of the Court making laws because Congress would not have passed PPACA without the mandate.
• Lots of the provisions are indirectly tied to the mandate (i.e. Exchange is designed to compare community-rated plans).
• It is too complicated for the Court to try to determine, line by line, which provisions are tied to the mandate and which are not.
• Even if the Court could separate out all of the provisions that are tied to the mandate, all that would be left is a “hollow shell.” Congress would not want just a few of the provisions to stand if the bulk of the law was struck down.

No, the Court should only strike down the individual mandate, guaranteed issue, and community rating

• The mandate is “essential” to the guaranteed issue and community rating provisions. This is supported by the Congressional findings published during the debate, which the Court should use to determine intent.
• The mandate is not essential to the other provisions in PPACA, so those should be allowed to continue.
• Congress’ intent was to tie these three provisions together in a different way than the mandate is tied to any other provision.

No, the Court should only strike down the individual mandate

• This would be the least “active” approach because it only removes the unconstitutional parts and lets Congress decide if it wants all the other provisions to stand.
• If only the mandate is unconstitutional, then there is no “legal” cause for striking down the rest of the law.
• It is not clear that the rest of the law cannot work without the mandate.

Conventional Wisdom

Analysts were divided in their predictions about this part of the case. This is probably because most of the Justices did not provide a clear signal as to which of the three options they preferred.

Question: Does the government have the right to require individuals to purchase health insurance?

The Constitution gives the government the right to regulate interstate commerce and to create taxes, which the government says makes the mandate constitutional. However, the challengers point out that the individual mandate doesn’t regulate existing commerce in the health care market. Instead, it requires people to enter the health insurance market, which is an unjustified expansion of power.

Yes, the Commerce Clause allows the government to regulate all interstate commerce, including the health insurance market.

• The Commerce Clause of the Constitution gives Congress the power to regulate interstate commerce.
• People almost inevitably use health care, and insurance is the predominant method of payment for that care. If individuals don’t have insurance, they are subsidized through the premium payments of other individuals, which has a direct, negative impact on commerce.
• A key distinguishing feature of the health care market is that people generally cannot predict or control when they will need to enter the market.
• Health care and health insurance are structured in a way that is very different from other markets because certain people (i.e. young, healthy people) can have a disproportionate effect on prices by choosing not to buy insurance.
• The Supreme Court has previously given the federal government broad power under this clause.
• The Congress also has the right to impose taxes, which would include the penalty for noncompliance with the mandate. The Justices were unconvinced by this argument.
• The mandate is also justified because it is necessary to make other parts of PPACA work as intended.

No, the government does not have the right to require someone purchase a product

• Congress is not regulating commerce it is compelling it, which is not allowed under the Commerce Clause.
• Justice Kennedy pointed out this is an expansion of government power that goes beyond any previous laws.
• There is no practical legal way to allow the government to require people to purchase health insurance but prohibit it from requiring people to purchase broccoli.
• The mandate requires a purchase that is beyond what is necessary to address the free-rider problem.
• Congress had other less intrusive methods available to achieve its goals.
• The uninsured are not necessarily free riders. It is not until they access health care and default on their debts that they become free riders.
• The mandate isn’t justified under the tax power, because the penalty isn’t a tax.

Conventional Wisdom

Many commentators said the government’s attorney looked uncomfortable and unprepared. CNN analyst Jeffrey Toobin described the oral arguments as “a train wreck for the Obama administration.” Because of this poor performance and Justice Kennedy’s unexpectedly hostile questions, the consensus is that the individual mandate is likely to be struck down.

However, Justice Kennedy could decide to vote to uphold the mandate if he can persuade the liberal justices on the Court to include a strong limit on government power in the majority opinion.

Question: Does the Anti-Injunction Act Apply?

The Anti-Injunction Act (AIA) is a federal law that prohibits individuals from bringing lawsuits to stop the collection of a tax until they have already paid the tax. In this case, if the penalty for noncompliance with the individual mandate is a “tax” then this case cannot be decided until after the tax has actually been collected in 2015.

Yes, the Anti-Injunction Act Does Apply

Both the government and the challengers agree that the AIA does not apply. However, the Fourth Circuit ruled that it does. For this reason, the Court appointed independent counsel to argue the laws applicability.

Argument One: The law is jurisdictional.

• If a law is jurisdictional, the government cannot ask the Court to ignore that law. This would mean that the government’s position does not matter in this case.

Argument Two: The penalty is a tax.

• PPACA directs that the penalty shall be assessed and collected in the same manner as taxes.
• The penalty will be included in tax payments from individuals.
• Neither the Internal Revenue Code nor the AIA explicitly define “tax.” However, the AIA was written at a time when “tax” had a very broad definition, which could include this penalty.
• The Court has moved away from deciding the “purpose” of a tax or penalty, so it does not matter if the penalty is intended to raise revenue or to induce compliance. Further, even if the penalty was not intended to raise revenue, it is expected to raise substantial amounts of revenue, which could be considered a secondary purpose.

No, the Anti-Injunction Act Does Not Apply

Government Argument: The penalty is not a tax.

• The AIA draws a distinction between a “tax” and a “penalty.”
• Congress explicitly uses “penalty” not “tax” to describe the consequences of noncompliance.
• It is included in the Internal Revenue Code solely for the purposes of collection.
• The AIA is intended to prevent interference with revenue sources. The penalty was not created to raise money, so AIA doesn’t apply.

Challenger Argument: The challenge is to the mandate, not the penalty.

• Even if a person is not subject to the penalty and obtains an exception, they could still be injured by the mandate itself. This is because it requires them to obtain insurance they do not want in order to be compliant with the law, even though they would not suffer any consequence if they chose not to comply.
• States, some of which are included as challengers, are injured by the mandate because it will increase their Medicaid enrollment substantially. This injury will occur regardless of the existence of the penalty.

Conventional Wisdom

The consensus among many analysts is that the Court will find that the AIA does not apply. The Court could do so by upholding a previous ruling that held that the AIA is not jurisdictional, so the government can ask the Court to ignore the AIA for this case. Alternatively, the Court could find that the AIA is jurisdictional, but that it does not apply because the penalty for noncompliance is not a tax.

We believe that MLR requirements do not address the underlying cause of persistently rising healthcare costs.

Our primary commitment at Blue KC is ensuring that our members receive proper healthcare at the time and place they need it and at a reasonable price. We know that when our members buy insurance, they are buying comfort and peace of mind knowing that they will be able to pay for their healthcare needs whenever they arise. Although some members will receive premium rebates this year, we know that these rebates cannot provide long-term healthcare security for our members by controlling rising healthcare costs.

If we want to guarantee high-quality, affordable healthcare for all Americans, we must take the necessary steps to control the ever-increasing medical costs. These steps include changing the way healthcare is delivered, meaning more emphasis on primary and preventive care as well as government assistance to eradicate avoidable errors, infections and complications. In addition, we must change the incentive structure in our healthcare system to reward superior care.

Blue KC is leading efforts to control healthcare costs and encourage families to make healthier decisions and focus on preventive and primary care. We are promoting healthier lifestyles and combating the obesity epidemic by encouraging families to take preventative measures such as changing eating habits and getting more exercise. In addition, we have taken steps to: improve information technology to help doctors understand and communicate with patients better, base payment of doctors and hospitals on the quality of care delivered, and improve coordination of family doctors, specialist and other care providers to ensure the best possible care at the lowest possible cost. Blue Cross and Blue Shield of Kansas City is focused on providing more affordable, safer and higher quality healthcare for our members.

Facts About Rebates

• Some individuals will receive rebates, others will not. It depends on factors including each insurer’s market segment and individual state.
• Rebate determinations will be finalized June 1, 2012 and exact rebate amounts will not be known until that time.
• Consumers will be notified by their insurance company or employer if they will be receiving a rebate.
• Consumers will receive rebates by August 1, 2012.

Guidelines on the new SBCs include:

• A new, standardized health plan comparison tool known as “coverage examples” will be provided. This format will model the Nutrition Facts label on packaged foods.
• A list of definitions (“Uniform Glossary”) that clearly explains commonly-used terms, such as “deductible,” “co-payment,” and “co-insurance” will be provided.
• All information will be printed in at least 12-point type.

Insurers and group health plans will begin providing SBC’s and the uniform glossary to consumers starting Sept. 23, 2012. Blue Cross and Blue Shield of Kansas City (Blue KC) is working to comply with these guidelines. Blue KC customers will receive the benefit summary documents they receive now, in addition to the new SBCs in September. This will ensure that Blue KC customers have the most complete benefits information possible.

More updates on this form and others will be provided as new guidelines become available.

Summary 

On December 2, 2011, the Department of Health and Human Services (HHS) issued a final regulation outlining changes regarding MLR. These new regulations specifically address how MLR is calculated and how rebates are distributed in the group market.

Reporting and Rebate Requirements 

Fraud Reduction Expenses
The final regulation does not change how fraud reduction expenses are calculated for MLR. Fraud prevention activities are still not considered quality improvement activity (QIA) expenditures. However, insurers can still allow fraud reduction expenses to count as an adjustment for unpaid claims.

ICD-10 Conversion Expenses
ICD-10 conversion costs acquired in 2012 and 2013 may be included as QIA in an amount up to 0.3 percent of the earned premium for the relevant State market. ICD-10 maintenance costs and any ICD-10 costs incurred in 2014 and beyond are excluded from QIA.

Community Benefit Expenditures
Community benefit expenditures are expenses for activities or programs that aim to improve public health and access to health services. The requirements for expenses that qualify as community benefit expenditures were not changed. The MLR calculation was changed to allow an insurance company to deduct the higher of the amount it paid in State premium taxes or the amount of its community benefit expenditures up to the highest State premium tax rate. In addition, not-for-profit insurers are no longer required to estimate the amount of taxes they would have paid if they were for-profit.

Rebates to Enrollees in Group Markets

Most of the time, insurers in the group market will give the rebates to the group policyholder. For church plans, there are specific circumstances under which the rebate will need to be provided to the individual subscribers. There are also regulations limiting how the employer may use the rebates for all groups.

Group health plans are split into the following three categories:

• ERISA plans: In this group the rebates may be considered a plan asset. This means the employer has a legal duty and, therefore, the rebates must not be used to benefit the employer, but must be used only to benefit plan participants or to resolve reasonable administrative costs. Examples of uses that benefit participants include expanded benefits, lower premiums or cost-sharing and direct payments. Generally, the premium amounts paid directly by the employer are not considered plan assets. Only the remaining premium amount would be considered a plan asset. For example, if the entire premium is paid out of a plan trust, then the entire rebate must be returned to the trust and used to benefit participants.
• School district plans: This group consists of non-Federal government plans such as school districts, cities etc. In these plans, the rebate is distributed to the group policyholder. The portion of the rebate given to subscriber premium payments must be used to reduce premiums or be paid directly to payment-year enrollees. Payment reductions may be applied across plans or only to the plan on which the rebate was based. Cash payments can only be made to those individuals enrolled in the plan for which the rebate was paid.
• Church plans: This category consists of plans that are not subject to ERISA and are not governmental plans. In these plans, insurers must obtain a written guarantee from the policyholder that the rebate will be used for the benefit of current subscribers. If this written guarantee cannot be obtained, the policymaker must allocate the rebate directly to individual subscribers by dividing the amount equally among them.

Former subscribers in the group market are not eligible for rebates unless their entire plan was terminated. If a group health plan has been terminated, the insurer must make a reasonable effort to locate the policyholder. If the policyholder cannot be located, the insurer must allocate the entire rebate to the former subscribers by dividing the rebate equally among all subscribers entitled to a rebate.

Notice of Rebates

Insurers must provide notice of the rebates to subscribers in the direct pay and group markets, and group policyholders.

Content of Notices: In general, all subscribers must receive a notice along with the distribution of the rebate. In the individual market, this notice must come with the individual’s check. In the group market, individual subscribers must receive a notice when the rebate was distributed to their group policyholder. For terminated groups or church groups where the policyholder does not agree to use the rebate to benefit subscribers, subscribers who receive a rebate also receive the notice.

All MLR notices must include:

• A general description of the concept of an MLR;
• The purpose of setting an MLR standard;
• The appropriate MLR standard;
• The insurer’s MLR;
• The insurer’s collective premium revenue minus any Federal and State taxes or fees;
• The rebate percentage and amount; and
• A notice that the rebate for the group health plan is being provided to the policyholder in the group market.

In addition, group health plan notices must also include:

• For ERISA plans, the notice must also include discussion of the plan’s legal responsibilities and contact information for questions concerning the plan’s handling and distribution of rebates.
• For church plans, the notice must explain that the policyholder must agree to use a portion of the rebates to benefit current subscribers or the subscribers will receive the entire amount.
• For school district plans, the notice must explain that a portion of the rebates will be used for the benefit of current subscribers.

De minimus Rebates 

The minimum threshold for rebates when the rebate is paid directly to the policyholder is raised to $20 per group. When an insurer pays the rebate directly to subscribers in the group or in the individual market, the minimum threshold remains at $5 per subscriber.

Reporting of Rebates 

An annual reporting form will be published by HHS. Insurers must report:

1. The number of subscribers in each of the markets who were paid the rebate directly, and the number of group policyholders who were paid a rebate on behalf of enrollees;
2. The amount of rebates provided as a premium credit;
3. The amount of rebates provided as a lump sum payment, regardless of method;
4. The amount of rebates that were de minimus and the number of enrollees who did not receive a rebate because it was de minimus; and
5. The amount of unclaimed rebates, a description of the methods used to locate applicable enrollees, and a description of how the unclaimed rebates were handled.

Mini-med Policies 

Mini-med policies are policies with annual limits of $250,000 or less. Such plans are allowed an adjustment to their acquired claims and quality improvement expenditures to compensate for special circumstances like frequent enrollment changes and low utilization. For plan years beginning after January 1, 2014, non-grandfathered individual plans and all plans in the group market will be prohibited from imposing annual dollar limits on essential health benefits, so new mini-med policies will no longer be issued.

*Note: Blue Cross and Blue Shield of Kansas City does not offer Mini-med policies.

Expatriate Policies 

The definition of expatriate policy (a group policy providing coverage for employees working outside the U.S.) was modified to clarify that all of the covered employees must be working outside their country of citizenship or non-U.S. citizens working in their home country. The definition continues to exclude policies issued in the individual market.

*Note: Blue Cross and Blue Shield of Kansas City does not offer expatriate policies.

Effective Date

These regulations take effect January 1, 2012. The regulations apply to group and individual contracts and are issued by Health Service Corporations, HMOs and Insurance companies.

If you have lost your COBRA subsidies, check around with various healthcare insurers. For instance, Blue KC has many affordable direct pay plan options available. If interested, visit www.BlueKC.com.