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Love it, hate it, or none of the above, the Affordable Care Act took center stage in October. What does it mean to law firms as employers and lawyers as consumers? Here's a thumbnail sketch of the new law and how some lawyers are navigating it.
The rollout of Obamacare has been anything but a no-drama affair. Lawyers have been learning along with the rest of America about this massive and complex new law, both in their role as counselors and - perhaps more urgently - as employers and health-care consumers. That task has been complicated by the shaky launch of the public insurance marketplace in October.
Website meltdowns and policy cancellations aside, how does the Patient Protection and Affordable Care Act ("ACA") work? No single article can tell that story. But sometimes with a change this big, it helps to look at a an overview from 30,000 feet before delving into the details.
With that in mind, here's a look at key provisions of the ACA - both those in effect already and others that will take effect in 2015 - and how some Illinois lawyers are finding their way thus far through the new health care landscape.
For starters, and for better or worse, the repository of information about the new law is www.healthcare.gov, the much-maligned federal Health Insurance Marketplace website. (See sidebar for more ACA resources.) At presstime, experts brought in to improve the site after its inauspicious launch were still expressing optimism that it would be much improved by the time this article appears. Illinoisans, by the way, can begin their journey at www.getcoveredIllinois.gov, the state's ACA website.
On October 1, the public health insurance marketplaces known as "exchanges" were unveiled, offering individuals and families an array of private health plans, plus the possibility of federal subsidies to help pay for them. In addition, the marketplace for the Small Business Health Options Program (SHOP) began offering employers with fewer than 50 full-time employees health plans for their workers. Some states as well as the federal government administer the exchanges.
Individuals. The individual and family health plans come in four policy grades: bronze, silver, gold, and platinum. The more precious plans cost more in premiums and offer more in benefits, although there are new, more expansive baseline health benefits - like preventive care, discussed below - that all the plans must provide and a maximum out-of-pocket cost for the insured.
No one can be denied coverage. In fact, the law requires everyone to be insured or pay a penalty - the so-called "individual mandate." There can be no lifetime maximum coverage limits, and the out-of-pocket maximum a person can pay before benefits kick in is $6,350 for individuals and $12,700 for families.
Many of the insurance policies are somewhat pricey, and to qualify for a federal subsidy in 2014 an individual must earn less than $46,000 per year, a couple less that $62,000, and a family of four less than $94,000. Those earning more have the same plan options as everyone else, but they'll pay retail prices with no federal help.
Opting out in 2014 would result in penalties equal to 1 percent of a person's taxable income, or $95 per adult and $47.50 per child, whichever is greater. Those fines will rise significantly each year.
For the self-employed, part-timers, those with preexisting conditions, and employees who work for small businesses that do not offer health insurance, the exchanges lay out comparative analyses of all the private plans offered in a particular state, and, based on a detailed questionnaire, inform consumers if they are entitled to federal subsidies. Assuming it has not been extended by the time you read this, the enrollment period lasts until March 31, 2014. In subsequent years, the enrollment period will run from October to the end of December. (See the "The ACA and solo practitioners" sidebar for more about how the ACA affects lawyers as consumers.)
Small employers and the SHOP exchange. Small employers who provide no coverage to their workers were required to notify employees about the exchanges by Oct. 1. And they also became eligible to buy plans for their employees on the SHOP exchange.
Like the exchanges for those buying individual policies, the SHOP exchange provides side-by-side analyses of various plans. Employers are eligible for up to a 50 percent tax credit for their contribution to the cost of premiums for low and moderate-wage earners. (For more, see "The ACA and solo practitioners" sidebar.)
Large employers. Large employers will be required to provide health insurance to their full-time and full-time "equivalent" employees beginning in 2015, a deadline pushed back from the originally scheduled 2014 launch. If they fail to do so, they face stiff fines; in most cases $2,000 per employee.
A full-time employee is anyone who works 30 or more hours a week. Employers must cover at least 60 percent of the premiums, and the employee portion of the premium cannot exceed 9.5 percent of the employee's annual income.
The devilish details
Those are the skeletal basics, but various nuances in the Affordable Care Act, particularly those involving employers' obligations, are raising a number of questions. Insurance brokers, employment lawyers, and various business groups and associations are trying to parse the law to learn the ways employers can and must comply. Understandably, concerns about the costs and coverage of newly mandated insurance plans are on the minds of employers and employees alike as health care reform gets underway.
Promoting preventive care. The overarching goal of keeping health care accessible and affordable is keeping people healthy. Preventive care, which the ACA requires insurers to cover, and resulting employer wellness plans could reduce costs over time, an insurance expert says.
"One good thing about [the ACA] is wellness. It's very proactive. It says that employers [who promote wellness] can now make up to a 30 percent differential in premiums," explains Paul Shaheen, of The Horton Group, a company that, among other things, provides insurance brokerage services to businesses. "So that's one good thing where employers can take advantage of the Affordable Care Act and drive that message home for wellness."
Workplace sponsored wellness programs - and incentives to employees who take care of themselves by getting annual check-ups, exercising, and not smoking, for example - have been offered in the past and are encouraged under the new law. Under the ACA, insurance companies must cover many basic preventive health services. And employers, by making some services available onsite, or by offering things like contributions toward fitness centers or smoking cessation classes, can often save on the costs of providing health care.
Chapters in the reform story. "This is not just one piece of legislation. It's almost a storybook on health reform, said Larry S. Boress, President and CEO of Midwest Business Group on Health, a Chicago-based nonprofit comprised of public and private health care and human resources professionals. "The first chapter was reforming how we cover people. The second chapter was expanding coverage," he said. Young adults can remain on their parents' policy longer, those with pre-existing conditions can no longer be denied coverage, and, in some states, Medicaid has been expanded.
"The third chapter," Boress continued, "is going to be about how do we change the way we deliver health care." Avoiding fragmented care, helping people pick the right doctors, and developing a unified method for maintaining electronic medical records are among the improvements that reform proponents hope are on the way. "It forces the health care system from being one based on volume to one based on value," Boress said.
Law firms are employers, too
Law firms, like employers in any type of business, are subject to ACA requirements, which include a mandate for businesses with 50 full-time "equivalent" employees to provide a health insurance benefit that offers quality at affordable costs.
Charles Y. Davis, a partner at Brown, Hay & Stephens, LLP in Springfield, a firm with just about 50 full-time employees, said his firm shopped carefully this year for insurance, but ended up staying with its existing carrier after careful research. Davis, a member of the firm's management committee and of the ISBA's Board of Governors, said insurance costs have risen significantly over the years.
Cadillac tax. "We want to keep our costs as low as we can and we don't want to pass too much cost to our employees. We don't want them to pay more than they have to," Davis said.
Moreover, beginning in 2018, employers offering so-called "Cadillac plans," those that cost in excess of $10,500 for individuals or $24,000 for a family, will have to pay a 40 percent excise tax.
'Insurance…is the highest expense.' One provision already in effect is that employers and insurers must pay a $63 fee to the government for each covered employee. "I just left a law firm that has 250 employees," Paul Shaheen of the Horton Group said. "Their fee for 2014 is going to be $15,000." The fee will drop by 66 percent in 2015 and again by 33 percent in subsequent years.
"Our experience is that you've got to have a good relationship with your insurance broker," Davis said. "They deal with the nitty-gritty of this every day. They understand what's coming and we've been investigating this on the legal side as they have on the business side."
"If you're a private firm, especially a smaller firm, insurance is going to be the highest expense. We're going to keep reviewing it. Annually it's going to be a serious conversation, particularly for the next few years."
Who's a full-time employee under the ACA?
Questions are being raised about a plethora of ACA issues, including whether an employer is mandated to offer health benefits, how much it will cost both employers and employees, and what constitutes minimum health benefits. This is one of the reasons implementation of the employer mandates was delayed a year. One big question for employers is what constitutes the sort of full-time employment that triggers coverage requirements.
Traditionally, many companies have considered full-time employment, for the purposes of providing benefits, to mean working 40 hours a week. Under the Affordable Care Act, someone working 30 hours a week must receive health care benefits from large employers.
Shaheen and others say some employers have threatened to cut hours to 29 or fewer. But that won't be a simple unilateral decision on the employer's part. Under the law, a precise formula is used to calculate the average hours a person works over a long period to determine whether that employee is entitled to health insurance coverage.
"The employer has to measure how many hours a part-time employee is working and they have to do it over 12 months," said Saghi Fattahian, an employment lawyer at Morgan, Lewis & Bockius, LLP, in Chicago. "So if that employee ends up working more than 30 hours a week, then you have to offer that employee coverage. This is called the stability period."
Fattahian acknowledged that there has been some buzz about the so-called "twenty-niners," employers who will cut hours to 29 simply to avoid the law, but she added that she does not believe that will happen on a large scale. First, doing so might be challenged under federal labor laws. In addition, "most employers want to provide the best benefits they can for their employees."
The most affected businesses under this rule are retailers, restaurants, and other employers who hire seasonal workers. True, costs may increase with the new 30-hour requirement, but hiring and training new employees is a major expense, too, experts said. "That's your human capital," Boress said. "It costs money in the long run to pay for or replace sick employees."
If a larger employer does not offer an eligible employee benefits and that person receives coverage by purchasing a health plan under the public exchange, the employer is subject to a $2,000 fine per employee. Meanwhile, if an employer provides inadequate coverage - for example it doesn't cover basic preventive services or it will cost the employee in excess of 9.5 percent of her salary - the employer can be fined $3,000 per employee.
Controlling costs: self-insurance and private exchanges
The cost of providing health insurance has been increasing steadily for years for the most part; both the employer and employee price tag for premiums has been rising. So insurance companies, brokers, and lawyers have been trying to come up with creative ideas to keep costs down.
Will costs go down under the Affordable Care Act? Will better preventive care create a healthier community and less risk for insurers, thereby allowing them to reduce costs? "That's the hope," Shaheen said, "but the proof will be in the pudding. [The law] has brought out a lot of creative ideas."
Many large employers are opting to be self insured, meaning they collect premiums from employees and pay for their health-care costs, up to the point that the employer's reinsurance policy benefits kick in. Self-insured companies are subject only to federal laws, which is convenient for employers who have offices in multiple states.
Private exchanges - as distinguished from the ACA's government-run exchanges - are also becoming more popular. Private exchanges are, essentially, a group of employers who contract with a number of insurers, offering their employees a defined benefit. The employee may then choose from any number of plans, knowing that their employer will kick in a certain percentage of the premium cost. Being self insured or buying through a private exchange are not new arrangements, but they may be more appealing under the mandates, Shaheen said.
Thanks in part to political fallout from the troubled website debut and cancelled policies, the Affordable Care Act has become something of a moving target. Will enrollment deadlines and coverage options be extended beyond the dictates of the original law? Are other changes forthcoming? Stay tuned.
Janan Hanna is a Chicago freelance writer and a licensed attorney. A former staff writer for the Chicago Tribune, she writes for numerous news organizations.
For solo practitioners and heads of very small firms, shopping for insurance involves a variety of options. Some said they would get coverage through a spouse's employer. Some have undoubtedly seen little change in premium cost, and perhaps are now able to get insurance formerly denied them because of a preexisting condition. But some have had their old policies canceled. They are shopping for individual and family plans and are seeing higher prices.
Sticker shock. "I am looking at my options but everything is significantly more expensive," said one Chicago attorney who practices at a two-person firm. "I'm looking at deductibles quadrupling to get similar coverage." She has not yet looked into the exchanges for a policy that would cover herself and one child, although it's likely she would not qualify for federal subsidies if she purchased her insurance that way.
Paul Shaheen, a consultant with the Horton Group, explained why. He works with small business owners and solo practitioners and his goal is to get them early renewal policies, those that would take effect in December so as to avoid rate increases. In 2014 and 2015, the market will change dramatically, he said.
"Contrary to what the President said about being able to keep your plan if you like it, carriers now have to offer a select menu of plans, either bronze, silver, gold, or platinum," Shaheen said. And each of these plans must offer a minimum of benefits and many carry high deductibles. Because plan policy criteria has changed based on the law, insurers are under no mandate to keep costs level. (See For Consumers Whose Health Premiums Will Go Up Under New Law, Sticker Shock Leads to Anger, Washington Post (Nov. 3, 2013).)
"What carriers have opted to do is eliminate most of the plans they offered before. So people are seeing their rates go up." In addition, the plans must offer pediatric dental coverage, a costly benefit.
Ironically, Shaheen explained, healthier individuals deemed to be at lower risk for illness are seeing premium increases while the elderly and those with preexisting conditions are seeing costs at about the same rate as they were last year.
Just before this article went to press, President Obama allowed insurers to "extend current plans that would have been canceled in 2014" because of ACA requirements, in the President's words. How, and whether, this "fix" works has yet to be determined.
'We're sticking with what we have.' Ken Levinson, a partner at Joseph, Lichtenstein & Levinson in Chicago, a firm of five, said his firm will continue to provide insurance to employees, even though the ACA does not require such small businesses to provide coverage. Levinson's firm will likely keep its existing insurance policy with Blue Cross Blue Shield, although he is waiting to hear back from a broker about any cost increases.
"We're in a waiting period," Levinson said. "Generally, our plan is to stick with what we have. Our hope is that we can provide great health insurance for our staff. It's an important benefit and every employer should do it if they can. We can, and so we're doing it."
Mario A. Sullivan, a partner at Johnson & Sullivan, Ltd., a small Chicago firm, said although it's costly, his firm will continue to provide insurance for all the firm's members. "We're staying with what we have," he said, adding that the firm has two partners and two support staff members. "We've been with Blue Cross Blue Shield so we've stayed with it. It's part of employee compensation; it's an important benefit for you to provide and our firm is successful enough that we can afford this benefit."
In addition to taking care of trusted employees, small firms that offer insurance may be able to take advantage of the Federal Small Business Health Care Tax Credit worth up to half of their contribution toward employees' premiums.
Small firms in Illinois can use the SHOP Marketplace to compare plans. Beginning in January, the tax credit will be available only to small employers who buy insurance through the SHOP Marketplace (see the "Resources" sidebar for links).
- Janan Hanna
You'll find an array of ACA-related resources online. Here are a few, including several that address specific topics discussed in the article.
In addition to being the place to find health coverage under the Affordable Care Act (and use the SHOP Marketplace if you're a small business), the website has information about the ACA and health insurance more generally.
The state's ACA website, which is designed for Illinois individuals and small businesses.
The Kaiser Family Foundation
A widely quoted independent source of information about the ACA.
Webinars for small business owners
Affordable Care Act 101 Webinars for Small Business. Quoting the official description from the U.S. Small Business Administration website: "SBA and Small Business Majority have teamed up for a free webinar series where small business owners can learn the basics of the Affordable Care Act and what it means for their business and employees."
What is the SHOP Marketplace?
Private health exchanges
"Your boss may send you to a health exchange" from the Wall Street Journal's Marketwatch
The official wellness-plan rules from the Federal Register