Supreme Court Upholds Tax Subsidies for Federal Marketplace

In a historic 6-3 decision, the Supreme Court ruled today that the federal tax subsidies available to Americans who purchase health insurance through the Federal Health Insurance Marketplace (“Federal Marketplace”) are legal under the Affordable Care Act (“ACA”).  This ruling brings closure to the most recent challenge to the ACA.

In King v. Burwell, Obamacare challengers argued that tax credits were only available to individuals who purchased health insurance in one of the 17 jurisdictions with state-based Marketplaces because the ACA only allowed for tax subsidies in “an Exchange established by the State”.   The Court disagreed and held that tax credits will remain available for individuals who purchase health insurance through the Federal Marketplace.

In reaching its landmark decision, the Court focused on the underlying tenants of health insurance reform, the impact the outcome would have on the individual insurance market, and the ACA as a whole.  At bottom, the Court determined that an example of “inartful drafting” could not overcome Congress’ clear intent to create a system to provide affordable health insurance to all Americans.  The Court explained that numerous provisions of the ACA supported the conclusion that Congress intended state-based Marketplaces and the Federal Marketplace to be the same.  The Court noted that to reach a different conclusion would not make sense.  Furthermore, eliminating tax subsidies through the Federal Marketplace would destabilize the individual insurance markets in the 34 states that use the Federal Marketplace and likely create the very “death spirals” that Congress designed the ACA to avoid.  Ultimately, the Court concluded that it was implausible that Congress meant the ACA to operate in this manner.

To find out more about the Supreme Court’s decision and the impact the Affordable Care Act has on health care and your business, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

© 2015 Michael P. James, J.D., M.B.A., CSSGB

Small Business Health Care Affordability Tax Credits

Under the Affordable Care Act, small employers are not required to provide health insurance to their employees. However, many small employers plan to offer or continue to offer health insurance to their employees despite not being required to do so. An important factor in this decision has been the availability of the Small Business Health Care Affordability Tax Credits. Below are some of key components of the tax credit:

1.    The tax credits have been available since 2010. From 2010 to 2013, the available tax credits were:

  • Non-Profit Entity – 25% of employer contribution to employees’ health insurance premiums.
  • For-Profit Entity – 35% of employer contribution to employees’ health insurance premiums.

2.    The tax credit is available from 2014 to 2016. However, it is available only if the small business purchases an insurance product through the Small Business Health Options Program (SHOP) or from an insurance agent authorized to sell SHOP products.

  • Non-Profit Entity – 35% of employer contribution to employees’ health insurance premiums.
  • For-Profit Entity – 50% of employer contribution to employees’ health insurance premiums.The tax credit is available from 2014 to 2016. However, it is available only if the small business purchases an insurance product through the Small Business Health Options Program (SHOP) or from an insurance agent authorized to sell SHOP products.

3.    To qualify for a tax credit, the employer must meet the following requirements:

  • Have less than 25 employees;
  • Have average employee wages of less than $50,000; and
  • The employer must contribute at least 50% of health insurance premium costs.

4.    The maximum credit is available to employers with 10 or fewer full-time equivalent employees, who have average annual wages of $25,000 or less.

5.    The process to determine the number of employees, to calculate average wages and to apply the rules related to employer contributions can be complex. However, for some small employers, the ability to receive a tax credit of up to 50% of the employer’s contribution to the health insurance premiums of its employees can be significant.

To find out more about the Small Business Health Care Affordability Tax Credits and the impact the Affordable Care Act has on health care and your business, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

© 2014 Michael P. James, J.D., M.B.A., CSSGB

Independent Contractors and Health Care Reform

Independent contractors face unique challenges under the Patient Protection and Affordable Care Act (“ACA”).  Most notably, independent contractors (also referred to as “business professionals”) must look at health care reform from both the perspective of their external relationships and their internal business operations.  One the one hand, the ACA has motived many independent contractors to reexamine their relationships with the companies they work with.  At the heart of this analysis, these professionals focus on whether they should be classified as employees of the companies they work with or whether they are truly independent contractors.  Under health care reform, the differences between these classifications are substantial.  On the other hand, independent contractors are evaluating their own business operations to make sure these operations continue to make sense in the current health care reform environment.  Frequently, independent contractors discover that their existing business operations need to be modified to support their health care reform strategies.  Please allow me to discuss these challenges in greater detail.

Employees v. Independent Contractors

Every business professional should evaluate whether he or she is an independent contractor or an employee of the company he or she works with.  Unfortunately, this question does not always have an easy answer.  In most cases, the classification of a business professional hinges on an individual analysis of the specific facts surrounding his or her relationship with the company.

For purposes of the ACA, employees are classified according to common law standards. Under the common law, a number of factors are evaluated to determine whether a business professional is the common law employee of a company.  Generally, these factors weigh the level of control the company has over the business professional.  Ultimately, the determination of whether an individual is an employee or independent contractor is based on a holistic analysis of the relationship between the business professional and the company.  It should be noted that just because a company classifies and pays a business professional as an independent contractor, it does not always mean that the business professional is truly an independent contractor under the law.  Courts typically focus on the substance of the relationship over its form.

Over the last several years, courts across the country have been increasingly asked to determine whether business professionals are employees or independent contractors.  While many of these cases have focused on claims related to tax withholdings, wages and uncompensated work, it is possible that future litigation will focus on the health insurance regulations under the ACA.  Under the ACA, a large employer is required to offer health insurance to full-time employees or pay penalties to the IRS, under certain circumstances.  A large employer is an employer who employs an average of at least 50 full-time equivalent employees during an applicable year.  Furthermore, if a small employer offers health insurance to its employees, it is required to offer the coverage to all of its full-time employees.  As such, future cases may focus on whether business professionals, who have been classified as independent contractors by the companies they work with, are nevertheless entitled to participate in the applicable company’s health plan.  Cases may also consider whether these same business professionals should be included in the company’s calculation of full-time equivalent employees to determine whether the company is a large employer and subject to ACA requirements.

Clearly, many companies may prefer to have current independent contractors remain classified as independent contractors for health care reform purposes.  For business professionals, the answer may not be as clear.  On the one hand, some business professionals may desire to be classified as employees so they can participate in the health plans of the companies they work with, especially if health insurance premiums continue to rise.  On the other hand, some business professionals may prefer to remain independent contractors so they can take advantage of the tax incentives associated with health insurance plans under the ACA.  For example, individuals who purchase health insurance through the Health Insurance Marketplace may be entitled to premium tax credits and subsidies if they meet certain requirements.  However, if the individual is offered affordable coverage through an employer that provides minimum value under the law, the individual is not eligible to receive premium tax credits and subsidies, even if he or she otherwise qualifies for the credits and purchases his or her own insurance coverage through the Health Insurance Marketplace.  In addition, some business professionals that qualify as small businesses may be eligible to receive a small business health care tax credit of up to 50% of the employer’s contribution to its employees’ health insurance premiums.  If a business professional provides health insurance to his or her employees and the company that the business professional providers services to does not, the business professional may lose key employees if the business professional cannot maintain his or her independent contractor status.  Finally, a business professional may have more flexibility and choice in choosing a health plan as an independent contractor.

Ultimately, the determination of whether a business professional is an employee or independent contractor of a company will have a profound impact on the health care reform strategy for that business professional.  As such, business professionals should carefully evaluate their current classification with their trusted advisors and develop a health care reform strategy that is consistent with that classification.

Internal Business Operations

Business professionals should also evaluate their operations to make sure they continue to make sense in the current health care reform environment.  An important part of that process is looking at the structure of the independent contractor’s business. Some business professionals elect not to create a corporate entity for their operations.  This strategy has several potential pitfalls.  First, the existence of a separate business entity is a factor that weighs in favor of the business professional being classified as an independent contractor.  The contracting company pays the independent contractor’s corporate entity and enters into applicable contracts and agreements with that entity.  The business professional’s corporate entity helps substantiate the independence of the business professional from the contracting company.  Second, the corporate entity provides the business professional with a layer of protection from potential exposure and liability related to the independent contractor’s business activities.  Business professionals that do not utilize a corporate entity in their business dealings risk being personally liable for potential claims.  Third, if the independent contractor does have employees, the lack of a corporate entity may have a significant impact on tax matters related to the operations.  On a positive note, some corporate entities do not increase the tax liabilities associated with business operations, yet they provide the protection and independence the business professional desires. Ultimately, if a business professional does not currently utilize a corporate entity for his or her business dealings, he or she may want to speak with his or her trusted advisors about the structure of his or her business operations.

Many business professionals have engaged workers to help them with the operation of their businesses.  For example, in the real estate industry, some workers may be hired to hold open houses and discuss the price and terms with prospective buyers who come to see the property.  Other workers are hired to do more administrative tasks such as bookkeeping, scheduling and/or managing ads and social media.  Regardless of whether a worker is a family member, neighbor or intern, the critical question is: are these workers the employees of the independent contractor or are they independent contractors themselves?  Here, the business professional will have to engage in the same common law employee analysis discussed above to determine whether each worker is an employee or independent contractor.  As noted above, the more control the business professional has over the worker, the more likely it is that the worker is an employee.  If the business professional wants to classify his or her workers as independent contractors, it is possible that the business professional may have to make modifications to the existing relationships with the workers.

The classification of workers as employees may have important implications under the ACA.  While a few employees may not require the business professional to engage in a detailed analysis of whether he or she is a large or small employer under the ACA, these employees will likely trigger other requirements.  First, as an employer, the business professional is required under the ACA to provide notice to his or her employees about the Health Insurance Marketplace and the business professional’s existing health care coverage for eligible employees.  This requirement applies to all employers that have at least one employee.  Second, the business professional may be required to report information to the IRS related to his or her health care coverage and applicable employee data.  Third, even if the business professional does not offer health insurance to full-time employees, the business professional’s employees may, nevertheless, seek guidance from the business professional related to health insurance and the Health Insurance Marketplace.  Finally, if the business professional has employees, he or she will likely want to continue to monitor the health care reform landscape as ACA regulations are continually changing and numerous rules are scheduled to become effective over the next several years.

Conclusion

Ultimately, independent contractors should evaluate their operations to make sure they are consistent with the independent contractor’s overall business and health care reform strategies.  In light of the changes related to the ACA, it is possible that independent contractors may wish to modify their business structure and practices to provide them with greater stability, protection and flexibility.  Independent contractors may wish to discuss their business operations with their team of trusted advisors to develop a strategy that is aligned with their goals and objectives.

To find out more about the Affordable Care Act impacts independent contractors, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

© 2014 Michael P. James, J.D., M.B.A., CSSGB

(The Greater Lansing Association of Realtors has received permission to republish a similar version of this article I prepared for its Realtor members.)

Final Rules Regarding “Pay or Play” Create Important Changes for Employers Under ACA

IRS Final Regulations on Employer Shared Responsibility Released

On February 10, 2014, the United States Department of Treasury issued its final rules concerning the shared responsibility requirements for employers regarding health coverage under the Affordable Care Act.  Although these regulations affect numerous aspects of health care reform and its applicability to various employers, I have identified some of the most important changes that employers should be aware of:

1)     Large Employer Mandate Delayed (50-99 Employees, including full-time equivalent employees): The shared responsibility requirements for large employers, also known as “Pay or Play,” have been further delayed for some large employers.  Employers with 50 to 99 employees (including full-time equivalent employees (“FTEs”)) will not be penalized for failing to provide health insurance to their full-time employees until 2016.  Before this change, employers with 50 to 99 employees (including FTEs) were required to provide health insurance to their full-time employees starting in 2015 or face penalties.

2)     Large Employer Mandate Modified (100+ Employees, including full-time equivalent employees): The shared responsibility requirements for employers with over 100 employees (including FTEs) have also been changed.  Now, these employers are only required to provide adequate and affordable coverage to 70% of their full-time employees in 2015.  In 2016, these employers must provide appropriate coverage to 95% of their full-time employees.  Before this change, the requirement to provide appropriate coverage to 95% of full-time employees was slated to take effect in 2015.

3)     “Pay or Play” Penalties Modified for 2015:  For 2015 plus any calendar months of 2016 that fall within the employer’s 2015 plan year, if a 100+ FTE Employer is subject to the “Pay or Play” penalties for failing to provide health insurance coverage to its full-time employees, the employer must pay a penalty equal to: $2,000 x (# of full-time employees – 80).  Before this change, the employer only received a 30 full-time employee reduction to the “no coverage” penalty, instead of 80.  Starting in 2016, all large employers that fail to provide health insurance to their full-time employees will only receive a 30 full-time employee reduction to the “no coverage” penalty.

4)     Seasonal Employees Redefined: The definition of seasonal employees has been expanded to include workers in a position for which the customary annual employment period is 6 months or less.  Prior to this change, seasonal employees were those individuals that worked 120 days (roughly 4 months) or less during the year.

5)     Certain Hours of Service Performed by Members of Religious Orders are Exempt: In determining whether its members are full-time employees, a religious order is permitted to not count the hours of service related to any work performed by an individual who is subject to a vow of poverty as a member of that order when the work is in the performance of tasks usually required for active members of the order.

6)     Bona Fide Volunteers Do Not Count: Government entities and 501(c) organizations with tax-exempt volunteers do not need to count the hours of service provided by bona fide volunteers when determining their status as a large or small employer under the ACA.

7)     Work Study Program Student Employees Do Not Count:  Educational institutions do not need to count the hours worked by students that are employed in positions subsidized through the federal work study program or a substantially similar program at the State or local level in determining whether they are a large or small employer under the ACA.  However, the hours worked by students employed outside of these programs must be counted by the educational institution to determine whether it is subject to the shared responsibility requirements of the ACA.

8)     Approved Methodology for Determining Adjunct Faculty Hours:  Institutions that employ adjunct faculty are required to use a reasonable method to identify and track the hours of service for adjunct faculty.  The IRS has identified one method that it deems reasonable.  The institution must credit the adjunct faculty member with: (a) 2 ¼ hours of services per week for each hour of teaching or classroom time (this would add an addition 1 ¼ hours for activities such as class preparation and grading) and, separately (b) an hour of service per week for each additional hour outside of the classroom that the faculty member spends performing duties required to perform (office hours and faculty meetings).

To find out more about the Employer Shared Responsibility Requirements, “Pay or Play” Mandate, or how the final regulations impact employers and your business, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

© 2014 Michael P. James, J.D., M.B.A., CSSGB

Individual Mandate for Health Insurance Delayed

Last week, the Obama administration extended the deadline for individuals to sign up for health insurance before facing tax penalties under the Affordable Care Act (“ACA”) to March 31, 2014.  The announcement delays the tax provisions associated with the ACA and gives individuals extra time to purchase health insurance.  The delay is a welcomed reprieve for individuals who have struggled to purchase health insurance amidst the failed launch of HealthCare.gov earlier this month.

In practice, an individual must sign up by the 15th of a given month in order for health insurance to start the first day of the next month.  Therefore, to have health insurance in place by the March 31, 2014 Short Coverage Gap deadline, an individual would have to apply for insurance by February 15, 2014.  If an individual applied for and purchased health insurance coverage between February 16, 2014 and March 31, 2014, he or she would be subject to penalties under the ACA.

Under the ACA and accompanying tax regulations, individuals are required to have health insurance coverage in place starting in 2014.  After January 1, 2014, a penalty is imposed on any individual who does not have health insurance coverage for one or more months.  However, individuals are protected from the ACA penalties during  “Short Coverage Gaps”.  A Short Coverage Gap is a continuous period of less than three months wherein the individual does not have minimally acceptable health insurance coverage.  In effect, the Short Coverage Gaps allow individuals up to three months to obtain appropriate health insurance coverage under the ACA.

Open enrollment for health insurance coverage on the Health Insurance Marketplace / Exchange is from October 1, 2013 through March 31, 2014.  Before last week’s announcement, the Short Coverage Gaps allowed individuals to avoid ACA penalties in the first quarter of 2014.  However, it was possible for individuals to purchase insurance during the open enrollment period and still be subject to the ACA penalties.  If an individual purchased health insurance that did not go into effect until after March 2014, the individual would incur a penalty for exceeding the Short Coverage Gap protection.

On October 28, 2013, the Center for Consumer Information and Insurance Oversight (“CCIIO”) released a Q&A regarding the extension of the deadline for individuals to sign up for health insurance before facing tax penalties under the ACA.  In this release, CCIIO stated that “the duration of the initial open enrollment period implies that individuals have until the end of the initial open enrollment period to enroll in coverage through the new Marketplaces while avoiding liability for [tax penalties]”.  As such, the Department of Health and Human Services is exercising its authority to establish an additional hardship exemption to provide relief for individuals who enroll in health insurance after February 15, 2014 but before the close of initial open enrollment for the Marketplaces.  The hardship exemption can be claimed on an individual’s federal income tax return in 2015 without the need to request an exemption from the Marketplace.

It remains to be seen how the continued technological complications surrounding the Marketplace will affect the individual mandate. It is possible that future delays will be announced.  In addition, it is likely that small businesses will see another delay later this week to the implementation of the SHOP.  Previously slated to open on October 1st, small business enrollment in insurance products through the SHOP was delayed until Friday, November 1, 2013.

To find out more about the Health Insurance Marketplace and the impact the Affordable Care Act has on health care and your business, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

Enrollment Delayed for Health Insurance Marketplace

The start of open enrollment on the Health Insurance Marketplace has been delayed by the federal government.  Millions of Americans expected to begin enrolling in health insurance products through the Marketplace on October 1st.  The delay will impact both individuals shopping for health insurance and small businesses looking to purchase insurance for their employees through the Small Business Health Option Programs (SHOP).

Sources in Washington have confirmed that October 1st will be a “soft launch” for the new Health Insurance Marketplace.  On October 1st, visitors to HealthCare.gov will experience the start of a “preview period,” during which individuals and small businesses will be able to browse insurance products but they not be able to enroll through the website.  The Health Insurance Marketplac website will initially only offer consumers information about the available plans and cost details.  Currently, HealthCare.gov contains a red flag on its main page that reads, “Plan & Cost Info Coming Oct 1”.  “Open enrollment” is noticeably missing from this message.

Sources indicate that small businesses will not be permitted to enroll in health plans through the SHOP Marketplace until November 1st.  Small businesses may still be able to purchase Marketplace products for their employees starting October 1st but will likely be forced to utilize paper applications or communicate directly with Federal Marketplace agents.  However, it remains unclear how this process will work.  Of significance, the government has not yet announced how long individuals will have to wait before they can start purchasing insurance products through the Marketplace.

Marketplace architects have encountered information technology complications that have caused the delay to open enrollment on the Marketplaces.  As a result of the data systems difficulties, key components of the Marketplace have been unable to operate without significant glitches.  It could be several weeks before the Marketplace is able work out all the kinks.

The impact of the delay to open enrollment in health insurance products through the federal Marketplace remains to be seen.  It will depend, in large part, on the duration and continued scope of the delay.  However, several immediate impacts are readily discernible.  First, unless the January 1st deadline to enroll in a health insurance plan is also delayed, consumers will have less time to evaluate their options, including the availability of tax subsidies, before making coverage decisions.  Second, the delay will likely enhance the confusion and anxiety already surrounding health care reform.  Finally, small employers will need to respond to inquiries and concerns from their employees who were expecting to be enrolled in a health plan in the coming month.

I will continue to update you as details related to the Health Insurance Marketplace unfold.

To find out more about the Health Insurance Marketplace and the impact the Affordable Care Act has on health care and your business, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

Blue Cross Blue Shield Seeks Partners for New Exclusive Provider Networks

Hospitals, health systems and group practices (“Providers”) have a new opportunity to create localized, exclusive provider networks by partnering with Blue Cross Blue Shield of Michigan (“BCBS”) for its new insurance products.  With the looming implementation of the of Patient Protection and Affordable Care Act (“ACA”), BCBS believes that many individuals will be willing to trade broad network access for a quality local network and a lower-cost insurance premium.  As such, BCBS has developed new insurance products that will only cover treatment within an individual’s designed provider network.  With the exception of emergency services, individuals will pay for out-of-network care.

Currently, BCBS seeks Provider partners for two insurance products.  The first product involves an exclusive provider contract through BCBS that will cover Providers in Lenawee, Livingston, Macomb, Monroe, Oakland, Washtenaw, Wayne and St. Clair counties.  The second product involves a contract through Blue Care Network that will cover Providers in Livingston, Macomb, Monroe, Oakland, Washtenaw, Wayne and St. Clair counties.  Providers must respond to BCBS’s request for proposal by October 7, 2013.  BCBS anticipates that both products will be available for enrollment through both conventional channels and the health insurance exchange starting in October 2014.  Coverage under these plans will be effective in 2015.

The introduction of these products for Southeast Michigan follows a partnership forged between BCBS and Mercy Health on the west side of the state.  In June 2013, BCBS partnered with Mercy Health to create an exclusive provider network for Kent, Muskegon and Oceana counties.  BCBS plans to have this product available when the health insurance exchange/marketplace begins open enrollment on October 1, 2013.

BCBS’s exclusive provider network contracts play an important role in the restructuring of Provider payments and the evolution of integrated health care.  Under the ACA, Providers are tasked with improving patient outcomes while reducing the costs of expenditures.  By keeping patient care localized within a network, BCBS hopes to reduce costs by eliminating unnecessary treatments and tests and improve the quality of care by encouraging Providers within the network to work together.  To accomplish these goals, BCBS has included a number of requirements for the two pending Provider contracts, including:

  • BCBS is allowed to audit a Provider’s utilization, quality and health management programs;
  • The Provider will not request or accept payment for services denied by BCBS;
  • The Provider agrees to include all employed doctors in the exclusive provider network;
  • The Provider agrees to coordinate benefits;
  • The Provider must agree to allow referrals to other Providers in BCBS’s network when a services is not available through the Provider; and
  • The Provider must demonstrate sound financial stability for the last five years.

To find out more about Blue Cross Blue Shield of Michigan’s exclusive provider networks or the RFP process for BCBS’s two new insurance products, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

Government Pushes Pause on Pay or Play Mandate

On July 2, 2013, the Obama Administration delayed the implementation of the employer shared responsibility requirements of the Affordable Care Act (“ACA”).  Commonly referred to as the “Pay or Play Mandate,” the ACA requires that large employers provide affordable and comprehensive health care coverage to their employees or pay penalties.  The Pay or Play Mandate was scheduled to take effect on January 1, 2014.  Now, the Pay or Play Mandate will not apply until 2015.

The Obama Administrative cited the complexity of the reporting requirements and the need for more time to implement them effectively as reasons for the 1 year delay.  As part of Pay or Play Mandate, applicable employers will be required to report information to the government related to the health coverage offered to their employees.  The government hopes to use the additional time to simplify the reporting requirements for applicable employers and adapt health coverage and reporting systems related to this process.

Although there has been a delay in the implementation of the Pay or Play Mandate, large employers should continue to develop and implement strategies related to health care reform for their businesses.  The additional time may allow some employers to consider options previously unavailable to them.  In addition, because the health insurance marketplaces/exchanges are still slated to begin open enrollment on October 1, 2013, large employers should consider the effect the individual and SHOP marketplaces will have on their ability to satisfy their human capital needs.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

To find out more about the impact of health care reform on your business, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.

Accounting for Accountable Care Organizations

My presentation to the Michigan Association of CPAs regarding Accounting for Accountable Care Organizations can be viewed on SlideShare at:

http://www.slideshare.net/FraserTrebilcockLawyers/accounting-for-accountable-care-organizations

Please do not hesitate to contact me to discuss the possibility of creating an ACO for your group practice, hospital or integrated delivery system.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

Michael James provides representation and counseling related to all facets of business enterprise and healthcare matters. For more information, you can contact Michael at mjames@michaeljameslaw.com, (810) 936-4040 or www.michaeljameslaw.com.

Health Insurance Exchanges: The Participation Paradox

As state and federal agencies work to create operational health exchanges, one critical question remains unanswered: How will the key stakeholders participate in the new health exchanges?  Health insurance exchanges are intended to be the vehicle through which millions of Americans will obtain health insurance as mandated by the Affordable Care Act (“ACA”).  The success of the health exchanges will largely rest on an equilibrium of participation by consumers, insurers and health care providers.  A lack of involvement by any one group could have a dramatic effect on the other stakeholders, and ultimately, the success of the health exchange.

For example, hundreds of thousands of Michigan residents are expected to utilize the exchange to obtain insurance.  However, an individual who does not maintain health insurance must make an additional payment to the IRS.  The difference between the IRS payment and the cost of a qualifying insurance policy is significant.  In its decision upholding the constitutionality of the ACA, the Supreme Court noted that, in 2016, the expected amount owed to the IRS is 50% to 85% less than the projected expense to purchase a qualifying insurance policy.  Therefore, it is possible that healthy, low-risk individuals will choose to pay the IRS rather than buying insurance.  This is especially true in light of the ACA’s elimination of pre-existing conditions from the coverage equation.

It is likely that such departure of the low-risk demographic from the market will have an impact on insurers.  Without a healthy population to equalize the risk on the exchange, insurers may attempt to increase insurance premiums for the remaining population.  However, given the regulatory environment, insurers will not be able to rely solely on premiums.  Instead, insurers may also seek to reduce reimbursements to providers who deliver care under plans offered on the exchange.  Ultimately, some insurers may simply choose not to participate in the exchange after evaluating the perceived risks associated with its population.  Less competition amongst insurers could also lead to increased insurance premiums.

Although the health exchange will increase the number of insured potential patients, not all health care providers will be interested in participating in the exchange.  Decreasing reimbursements may eliminate any incentive a provider has to increase the scope of health insurance plans he is willing to accept.  This is especially true if the new plans are associated with a higher-risk population.  In addition, the administrative costs associated with collecting patient contributions under these plans may be prohibitive.  Providers have historically opted in and out of various governmental programs for similar reasons.

Ultimately, the question remains how will consumers, insurers and health care providers participate in the health exchanges, and whether it will be in a way that creates a sustainable equilibrium.

© 2013 Michael P. James, J.D., M.B.A., CSSGB

To find out more about the Michigan health exchange and the impact the Affordable Care Act has on health care, contact attorney Michael James at mjames@michaeljameslaw.com, 810-936-4040 or www.michaeljameslaw.com. Michael James provides representation and counseling related to all facets of business enterprise and health care matters.