July 21 - 25, 2014
The BreakPoint: Newly Issued Court Decisions and Agency Rules Bring Uncertainty to the ACA and Drug Subsidies
This week brought about several interesting developments in the healthcare landscape. Two federal appeals panels disagreed on the legality of billions of dollars' worth of premium tax credits awarded to 4.7 million enrollees who purchased health insurance through the federally-facilitated Affordable Care Act (ACA) Exchanges. On the executive front, the Internal Revenue Service announced a cap on financial penalties under the ACA's individual mandate and released draft versions of forms that businesses must complete to comply with the law's employer mandate. And, the Department of Health and Human Services (HHS) issued an interpretive rule that requires drug companies to provide discounts on orphan drugs sold through a federal program, only months after a judge struck down the agency's previous version of the rule.
Appeals Courts Issue Conflicting Rulings on ACA Premium Subsidies
On July 22, 2014, two U.S. Courts of Appeals issued conflicting rulings on whether the federal government can provide premium tax credits to individuals who enroll in health insurance coverage through either the state-based or federally-facilitated Exchanges under the ACA.
● The U.S. Court of Appeals for the D.C. Circuit ruled 2-1 in Halbig v. Burwell that the law allows the federal government to award premium tax credits only through the state-based Exchanges.
● The U.S. Court of Appeals for the Fourth Circuit, in Richmond, ruled 3-0 in King v. Burwell that the law allows the federal government to award premium tax credits through both the state-based and federally-facilitated Exchanges.
The Administration has stated that it will continue to issue federal premium subsidies to individuals in both the state-based and federally-facilitated Exchanges as the cases are appealed through the courts. The final decision on whether premium subsidies are available to individuals who enroll in coverage through the federally-facilitated Exchanges could have dramatic implications for the long-term viability of the ACA Exchanges. The success of the Exchanges largely depends on expanding coverage to individuals who could not previously afford it, which was to be achieved primarily by subsidizing coverage purchased through the Exchanges. If subsidies are not available to individuals enrolling in coverage through the federally-facilitated Exchanges, these Exchange pool populations could be reduced, threatening the financial stability of the Exchanges.
To read more about our analysis on what these cases may mean for the ACA as well as on what to expect next in the court appeals process, please see our Breakaway Court Rulings on ACA Premium Subsidies memo, available here.
ACA Mandates: IRS Releases Draft Forms for Employers and Caps Financial Penalties for Individuals
After an initial delay, on Thursday, the Obama Administration signaled that it will move forward in 2015 with the so-called employer mandate, which requires employers with 50 or more full-time workers to provide their employees with health insurance coverage.
On Thursday, July 24, the IRS posted draft forms that businesses must complete to comply with the mandate. The final rule affords employers time to extend coverage, requiring 70 percent of workers to be covered in 2015 and 95 percent of workers in 2016. Mid-sized businesses, those employing 50 to 99 full-time workers, must comply with the mandate in 2016. Businesses have expressed concern with the guidance they have received thus far, describing it as ambiguous and incomplete.
The IRS also announced a cap on the financial penalties to be imposed on U.S. residents who fail to comply with the ACA's individual mandate. The mandate specifies that individuals who make greater than $10,150 a year and are not otherwise exempt must purchase health insurance coverage or pay the greater of two penalties: 1 percent of yearly household income or $95 per person, per year. The new guidance caps the individual penalty for 2015 at $2,448 for an individual and $12,240 for a family with five or more members. The penalties will increase to $325 or 2 percent of household income in 2015 and $695 or 2.5 percent of household income in 2016. The federal government is scheduled to begin assessing penalties in 2015, after individuals file their 2014 tax returns. The Administration estimates that nearly four million people could face penalties during the first year.
HHS Issues 340B Interpretive Rule
On Monday, July 21, 2014, HHS issued an interpretive rule requiring pharmaceutical companies to provide discounts on high-priced drugs used to treat rare diseases, so-called orphan drugs, through the 340B program. The guidance comes just months after a District of Columbia district court judge ruled that HHS lacked authority under the ACA's 340B provisions to issue such guidance. HHS subsequently issued a statement indicating that it was standing by its interpretation of the statute. The interpretive rule requires drug companies to provide freestanding cancer hospitals, critical-access hospitals, rural referral centers and sole community hospitals discounts of between 20 percent and 50 percent on orphan drugs used for non-orphan conditions or diseases.
The Past Week in Health Policy
Federal Rules and Regulations
● The IRS posted drafts of the tax forms that employers will have to fill out to comply with the ACA's employer mandate.
● HRSA released an interpretive rule removing the discount exemption under 340B for orphan drugs sold for off-label usage.
● The IRS posted final regulation clarifying its premium tax credit policy for complicated family and household situations.
● The IRS released another final regulation regarding the implementation of the ACA's branded prescription drug fee.
● The Senate HELP committee approved seven bills addressing public health issues, including obesity and emergency medical care.
● Representatives Diane Black (R-TN) and Earl Blumenauer (D-OR) introduced a bill that would reduce out of pocket costs for Medicare Advantage beneficiaries with chronic conditions.
● Senator Edward Markey (D-MA) introduced a bill to expand treatment for individuals with opioid drug addiction.
Key Developments, News, and Research
Affordable Care Act
● The New England Journal of Medicine published a study estimating that the U.S. uninsured rate declined by 5.2 percent in the second quarter of 2014, corresponding with an estimated 10.3 million adults gaining coverage.
● HHS announced that health insurance consumers nationwide will be refunded $330 million this year as a result of the ACA's Medical Loss Ratio rule in 2013.
● The GAO issued a preliminary report on the results of undercover testing of the CMS internal controls for health care coverage eligibility determinations.
● The Kaiser Family Foundation released a study finding that in 2010, Medicare beneficiaries spent $4,734 in average out-of-pocket costs for their health care.
Next Week in Health Policy
July 28 - August 1, 2014
Alliance for Health Reform Briefing: "Disclosure and Apology: A Win-Win for Patient Safety and Medical Liability?"
Monday, July 28, 2014, 12:00 PM
325 Senate Russell Office Building
The American Enterprise Institute for Public Policy Research Discussion: "Is Medicare's Future Secure? The 2014 Trustees Report"
Tuesday, July 29, 2014, 10:00 AM
AEI, 1150 17th Street NW, Washington, D.C.
Senate Finance Committee
"Tobacco: Taxes Owed, Avoided, and Evaded"
Tuesday, July 29, 2014, 10:00 AM
215 Dirksen Senate Office Building
There are currently no D.C. area health care-related hearings scheduled.
Upcoming Key Deadlines
August 7, 2014: CMS deadline for insurers in federally-facilitated Exchanges to submit revised 2015 Qualified Health Plan applications.