Sactoking's ACA Q&A Thread

[sactoking]

So today is August 1 and you may be hearing that certain preventive care and contraceptive services are now available for free; I know I have already seen lots of statements in the media and on social media to that effect. Unfortunately, like so many things, reality is not quite as nice. To that end there are two points of clarification I'd like to make on this topic:
1) The services in question are not "free", they are "with no co-payment or coinsurance". "Free" connotes "at no cost" but there is a cost, and that's increased premiums. That's right, while the ACA mandates that these services be offered "at no additional cost", with "no out of pocket", or with "no co-payment or coinsurance" there is absolutely nothing preventing the insurers from rolling the claims costs into normal premiums.
2) This change only affects plans issued or renewed on or after 8/1/12. This means that the benefit does not go into effect immediately, it only takes effect when your insurance renews. For example, my plan with my employer renewed on July 1, 2012; my family can't take advantage of this benefit until our plan renews again, or July 1, 2013.

 

[yllus]

Really neat thread, nice work sactoking.

 

[cybrsage]

And thus begins the government forcing the price of private insurance up until no one can afford it...

 

[cybrsage]

A comment came up in a thread and it raised an interesting question. Here is the comment:

If I own a franchise, it's likely under some sort of corporate/LLC banner, of which I can create as many as I want. So If I want another franchise, I create another business entity to "own" it. Both entities can maintain their headcount below the minimum to receive Obamacare breaks & benefits.

Would this work to get around the Obamacare rules? I would think it would not work, but it is an interesting point. Can one person own two 48 person businesses and not be subject to the Obamacare rules?

 

[highland145]

A comment came up in a thread and it raised an interesting question. Here is the comment:



Would this work to get around the Obamacare rules? I would think it would not work, but it is an interesting point. Can one person own two 48 person businesses and not be subject to the Obamacare rules?

My .02, would have to be a separate corp/llc. The DBA name doesn't mean anything.

 

[sactoking]

A comment came up in a thread and it raised an interesting question. Here is the comment:

If I own a franchise, it's likely under some sort of corporate/LLC banner, of which I can create as many as I want. So If I want another franchise, I create another business entity to "own" it. Both entities can maintain their headcount below the minimum to receive Obamacare breaks & benefits.

Would this work to get around the Obamacare rules? I would think it would not work, but it is an interesting point. Can one person own two 48 person businesses and not be subject to the Obamacare rules?

Most likely no. §1513 of the ACA amends Chapter 43 of the Internal Revenue Code (IRC) by adding §4980H. IRC 4980H(c)(2)(C)(i) provides a rule for aggregation of employees by an employer. Specifically, IRC 4980H(c)(2)(C)(i) states:

All persons treated as a single employer under subsection (b), (c), (m), or (o) of section 414 of the Internal Revenue Code of 1986 shall be treated as 1 employer.

The IRC 414 tests referenced are the ERISA tests for employer control regarding retirement liabilities. Employers have been trying to skirt those rules for decades, to no success. Given that, I would say it would be virtually impossible for an employer to avoid the employer's shared responsibility provisions by artificially breaking up the company. So long as one individual, or group of individuals, was still the controlling party it would be irrelevant if the entities were otherwise considered legally separate.

Edited: I forgot to add that this common control test does not care about the nature of businesses. In other words, not only can you not avoid the employer mandate by splitting a 90 person company into two 45 person companies but if you own two completely unrelated 45 person companies, say a florist and a piano showroom, then they are still considered one entity under common control for ACA mandate purposes.

 

[highland145]

you own two completely unrelated 45 person companies, say a florist and a piano showroom, then they are still considered one entity under common control for ACA mandate purposes.

Even if they are 2 separate corp sub s?

 

[sactoking]

Even if they are 2 separate corp sub s?

Yes, if "you" own both companies then "you" are a jointly controlling entity and both companies would be subject to ACA provisions even though they are separate legal entities and neither qualifies on its own.

 

[highland145]

Yes, if "you" own both companies then "you" are a jointly controlling entity and both companies would be subject to ACA provisions even though they are separate legal entities and neither qualifies on its own.

That sucks. Not that I'm in that situation anyway.

 

[Jhhnn]

Most likely no. §1513 of the ACA amends Chapter 43 of the Internal Revenue Code (IRC) by adding §4980H. IRC 4980H(c)(2)(C)(i) provides a rule for aggregation of employees by an employer. Specifically, IRC 4980H(c)(2)(C)(i) states:


The IRC 414 tests referenced are the ERISA tests for employer control regarding retirement liabilities. Employers have been trying to skirt those rules for decades, to no success. Given that, I would say it would be virtually impossible for an employer to avoid the employer's shared responsibility provisions by artificially breaking up the company. So long as one individual, or group of individuals, was still the controlling party it would be irrelevant if the entities were otherwise considered legally separate.

Edited: I forgot to add that this common control test does not care about the nature of businesses. In other words, not only can you not avoid the employer mandate by splitting a 90 person company into two 45 person companies but if you own two completely unrelated 45 person companies, say a florist and a piano showroom, then they are still considered one entity under common control for ACA mandate purposes.

What if both companies are partnerships, with me owning 49% of one & 51% of the other with a single partner in the reciprocal position?

How does all that apply to PE group ownership?

 

[sactoking]

What if both companies are partnerships, with me owning 49% of one & 51% of the other with a single partner in the reciprocal position?

How does all that apply to PE group ownership?

It wouldn't affect the calculation.

Let's break it down:

Company A- 49% Z, 51% X
Company B- 51% Z, 49% X

In both cases the general rule of thumb for an ERISA common control test (the test used by the ACA) would say that "Z and X, as partners, own 100% of Company A and 100% of Company B, so Companies A and B are under common control."

Private equity would be no different, if Venture Capital Firm A owned Company Q and Company G they would be under common control.

Of course, this is overly simplified, any real-world usage would require application of the proper IRC tests.

 

[sactoking]

Just a notice that I'm leaving for an industry conference in Atlanta. While I'm gone I will have limited ability to respond to questions. Please continue to post them but be forgiving if it takes a few days to get a response.

On the plus side I am scheduling some "office hours" with HHS/CCIIO, so when I return I might have new and exciting information.

 

[Jhhnn]

It wouldn't affect the calculation.

Let's break it down:

Company A- 49% Z, 51% X
Company B- 51% Z, 49% X

In both cases the general rule of thumb for an ERISA common control test (the test used by the ACA) would say that "Z and X, as partners, own 100% of Company A and 100% of Company B, so Companies A and B are under common control."

Private equity would be no different, if Venture Capital Firm A owned Company Q and Company G they would be under common control.

Of course, this is overly simplified, any real-world usage would require application of the proper IRC tests.

So what happens with offshore companies whose host governments observe very lax business rules & extreme banking secrecy?

 

[dank69]

It wouldn't affect the calculation.

Let's break it down:

Company A- 49% Z, 51% X
Company B- 51% Z, 49% X

In both cases the general rule of thumb for an ERISA common control test (the test used by the ACA) would say that "Z and X, as partners, own 100% of Company A and 100% of Company B, so Companies A and B are under common control."

Private equity would be no different, if Venture Capital Firm A owned Company Q and Company G they would be under common control.

Of course, this is overly simplified, any real-world usage would require application of the proper IRC tests.

What about this situation:

Company A- 49% Z, 51% X
Company B- 51% Z, 49% Y

Is Z now subject to ACA?

 

[sactoking]

So what happens with offshore companies whose host governments observe very lax business rules & extreme banking secrecy?

It'll be up to the IRS to unwind it, but they've been doing with ERISA for years so I doubt it will be too much of an issue.

What about this situation:

Company A- 49% Z, 51% X
Company B- 51% Z, 49% Y

Is Z now subject to ACA?

Short answer: Maybe

Long answer:
26 USC §414(c) stipulates that

For purposes of sections 401, 408 (k), 408 (p), 410, 411, 415, and 416, under regulations prescribed by the Secretary, all employees of trades or businesses (whether or not incorporated) which are under common control shall be treated as employed by a single employer. The regulations prescribed under this subsection shall be based on principles similar to the principles which apply in the case of subsection (b).

In other words, it refers to 26 USC §414(b). 26 USC §414(b) stipulates that

For purposes of sections 401, 408 (k), 408 (p), 410, 411, 415, and 416, all employees of all corporations which are members of a controlled group of corporations (within the meaning of section 1563 (a), determined without regard to section 1563 (a)(4) and (e)(3)(C)) shall be treated as employed by a single employer. With respect to a plan adopted by more than one such corporation, the applicable limitations provided by section 404 (a) shall be determined as if all such employers were a single employer, and allocated to each employer in accordance with regulations prescribed by the Secretary.

In other words, you have to look to 26 USC §1563 to find the definition of "controlled group of corporations" (common control). For a brother-sister group, which is what you've described, 26 USC §1563(a)(2) stipulates

Two or more corporations if 5 or fewer persons who are individuals, estates, or trusts own (within the meaning of subsection (d)(2)) stock possessing more than 50 percent of the total combined voting power of all classes of stock entitled to vote or more than 50 percent of the total value of shares of all classes of stock of each corporation, taking into account the stock ownership of each such person only to the extent such stock ownership is identical with respect to each such corporation.

In other words, it looks like the common owners would have to own 50% or more in order for it to be determined common control. In your example the only common owner is Z, and Z only owns 49% of Company A, so there would be no common control. But...

26 USC §1563(e) defines constructive ownership, which can change things. Under the principle of constructive ownership if someone does not have direct control but does have certain types of indirect control, then they are deemed to have direct control. For example, 26 USC §1563(e)(5) grants constructive ownership through a spouse; if your spouse has ownership of an entity you are deemed to have ownership as well (regardless of state marital property laws). 26 USC §1563(e)(2) grants constructive ownership through a partnership such that if you own at least 5% of the capital or profits of a partnership, you are deemed to own everything the partnership owns.

So, in your example it would actually depend on the nature of the three entities, X, Y, and Z. If all three were individuals with absolutely no common links the Company A and Company B would not be considered under common control since Z is the common entity and neither X nor Y have any relationship with Z. However, if X and Z were married then Z would own 51% of Company B and Z would be deemed to own 100% of Company A through constructive ownership, so then Companies A and B would be under common control.

 

[sactoking]

Well, I'm back from Atlanta and the trimesterly NAIC meeting. There's not much new to report; there was surprisingly little discussion on the ACA and what discussion did occur was rather bland.

I did hear one (inflammatory) statement recently that got everyone atwitter, but I'm not sure how much of an actual effect it will have. The statement was in relation to the advance premium tax credits (subsidies) in light of the USSC decision that Medicaid expansion was optional. Apparently there's a hubbub now because if a state does not choose to expand Medicaid eligibility then any citizen earning less than 100% of the FPL that was not eligible for Medicaid would also lode their eligibility for the subsidy; non-citizens would retain their subsidy.

On the surface this statement appears controversial but after I broke it down I'm not sure it is. First off, "non-citizen" does not refer to undocumented immigrants, since they are already exempt from qualifying for subsidies and from complying with the mandate. That means that only "legal" non-citizens keep the subsidy (e.g., students on visas). When the ACA was written it wasn't contemplated that Medicaid would not be expanded. Since legal non-citizens are not eligible for Medicaid in many (most?) states then the law had to explicitly extend the subsidy to below 100% FPL for them, while it was not extended for citizens since they were presumed to be Medicaid-eligible. Also a factor is the affordability calculation I described in post #67; any citizen earning less than 100% FPL and who is not Medicaid eligible should pass the affordability test and thus be exempt from the mandate. The person won't have insurance, but at least they won't be punitively punished either.

 

[soccerballtux]

thanks keep this stuff coming. I'm going to read the whole thread one day and ask more questions of my own, but for now, video games...

 

[sactoking]

No updates recently, I've been too busy making sure that our state's autism spectrum disorder mandate for applied behavioral analysis in the small group market doesn't end up blowing up our individual market economy, but I encourage anyone with a question, idea, or concern to continue posting and I will continue answering!

 

[soccerballtux]

could you condense the bill into the top attributes (perhaps provide the applicable references/quotes of the notable provision so if one interests or is applicable to one of us we can go look that section up) that you think will
a) improve, hinder number and quality of treatments provided or covered by any given insurance plan (no lifetime limits good for few people, bad for most money wise)
b) be of benefit/detriment/make easier/harder to/on hospitals and other care providers
c). be of benefit/detriment to the insurance company shareholders

I have to think of more of these later, but basically I'm trying to get a non-CNN and non-Fox version of what the bill actually contains, and if it's generally going to improve things, is a sideways step, or is a step backwards, and for who. For example, it doesn't exactly make sense that health insurance should run for profit, but it certainly shouldn't run not-for-profit either because there would be no reason to keep costs under control. So the 85% provision sounds good, on the surface, but there are probably downsides to it as well.

Also, could you rank the insurance providers in order of, I suppose, "ethicalness"?

I have run into several doctors that I am pretty sure are scamming, because when I look at the "agreed" rate they get from the insurance company for coverage, it's a pittance like $10 for blood work thing 1, and $4 for blood work thing 2, and $30 for the doctor's time; and then they decide "that wasn't covered, and you the provider should have known that and not provided it so no money for you". You can't run a business on such paltry sums of cash, so I'm not surprised if they are scamming. Who pays the doctors the best? Which provider would doctors prefer patients to have? They can't just turn down 15% of the population, so they take whatever the insurance co negotiates (tells the provider they will give them). E.g. I look at the "better" parts of town and there aren't any doctors there that will accept ACEC's UHC, and all the doctors in other parts of town that do take it have poor ratings on google maps...which I plan to bring up in my review...but until then, trying to find the man/men behind the curtain pulling the strings...

 

[sactoking]

That's a very complicated question you've asked. I'm humbled that you trust me to give such an analysis, but I'm afraid I probably can't. Not only would it likely require a novel to fully cover but I doubt my ability to offer such an unbiased viewpoint of that magnitude. I will do my best to offer some unbiased thoughts on the topics and may come back with edits as time allows.

Let's start with some of the notable provisions of the bill:

Individual mandate- Pretty much everyone will need to have some minimal essential coverage. This is good because it "encourages" participation and health maintenance. It also broadens the risk pool to more closely resemble to population. It's bad because while it will bring in many young, healthy people, lowering costs, it will also bring in many unhealthy people. Empirically, it takes a lot of young healthy people to pay for just one unhealthy person. The effect then is that the young "subsidize" the old and infirm, which is an equity issue. You also face the fact that the unhealthy are going to raise premium costs anyway, so the young really get it stuck to them. It's also bad that the mandate effectively has no teeth. It had been speculated that the IRS wouldn't enforce it based on the enabling legislation and they issued a statement last week that basically confirmed the fact that all they will do is withhold the penalty from your refund.

Kids covered to Age 26- I think this is generally good; it increases coverage for many (especially in this economy) and has an effectively nonexistent impact on cost.

No Preexisting Conditions- This is great policy but horrible to implement. This, along, with guaranteed issue, will cause all sorts of adverse selection impacts to the marketplace.

Self-insured/Large Group- Self insured employers and employers with large group plans are exempt. In my state, that's about 75% of the marketplace. Many people won't actually benefit from the ACA reforms (but they still will pay for them).

Essential Health Benefits- These will likely have a positive impact. Most plans that I've seen cover the majority of EHBs with few or no restrictions. This becomes a floor that has already been met, which is to say a nice failsafe.

Subsidy- Both good and bad. Technically not a subsidy, it can be funded through reduced tax revenue. It encourages participation by those who would otherwise not afford it, but there are disincentives built in. Make 400% + $1 FPL and you're screwed. Make 250% + $1 FPL and your coverage is significantly worse than at 250% FPL.

There is much more to write and I don't have the ability right now.

I can't really comment on individual insurers; not only would it be a likely breach of ethics but I just don't have enough experience with the regional carriers outside of my state to give a good breakdown.

The doctor billing issue really becomes one of contracting. Insurers negotiate their chargemaster with doctors and a doctor can agree to it and get access to the patients or pass and have to worry about caseload.

 

[sactoking]

A Q&A we did on Essential Health Benefits:

What are Essential Health Benefits?
They are specific categories of health insurance benefits.

How many Essential Health Benefit categories are there?
There are ten Essential Health Benefits mentioned in the Affordable Care Act.

What are the Essential Health Benefit categories?
• Ambulatory patient services;
• Emergency services;
• Hospitalization;
• Maternity and newborn care;
• Mental health and substance abuse disorder services;
• Prescription drugs;
• Rehabilitation and Habilitation;
• Laboratory services;
• Preventive and wellness services; and
• Pediatric services

What are ambulatory patient services?
Ambulatory patient services are probably better known as “outpatient” services.

I understand what rehabilitation is, but what is habilitation?
If you think of rehabilitation as re-learning how to do something, such as re-learning to walk after knee surgery, then habilitation is learning how to do something for the first time, such as overcoming a speech impediment.

Why are Essential Health Benefits important?
There are two main reasons:
1. The Affordable Care Act requires most individual health insurance policies and most health insurance policies offered by small employers to cover the Essential Health Benefits; and
2. The Essential Health Benefits cannot have annual or lifetime dollar limits attached to them.

How are the Essential Health Benefits chosen?
Your state will choose one “benchmark” insurance plan from ten choices and that benchmark plan will set the Essential Health Benefits for the State.

What about all of the benefits that are not Essential Health Benefits, like chiropractic care?
If the benchmark plan selected has other benefits on top of the Essential Health Benefits, those additional benefits will become Essential and must be included by many plans.

Wait, so you’re going to dictate what insurance plan I have to have?
No. The benchmark plan will set the minimum insurance benefits that many insurance plans will have to offer but you will still be free to shop for insurance from any licensed insurance company you wish.

But you’re going to set my deductible, copayment, and coinsurance, right?
No. Your deductible, copayment, and coinsurance (collectively called “cost sharing”) are actually not directly related to the Essential Health Benefits.

You said there are no annual or lifetime dollar limits for Essential Health Benefits but you did not say anything about visit limits. What’s the deal?
Insurance plans will be able to have visit limits on Essential Health Benefits but the limit cannot be lower than the limit in the benchmark plan.

So what insurance plans will have to offer the Essential Health Benefits?
All non-grandfathered individual and small group insurance plans must offer the Essential Health Benefits.

A small group insurance plan is typically offered through an employer and covers 2-50 people. A grandfathered plan is an insurance plan that existed on or before March 23, 2010 and that has not significantly cut benefits or increased costs.

I have insurance through my employer, which has more than 50 employees. Does this mean that I’m not eligible for the Essential Health Benefits?
No. If you have insurance through a plan with more than 50 participants or a plan which is self-funded then your insurance does not have to provide all 10 Essential Health Benefit categories. However, if your insurance does provide an Essential Health Benefit category, the benefits in that category cannot have annual or lifetime dollar limits.

So what does this all mean?
Let’s use an example. Pretend that we have three health insurance plans, Plan 1, Plan 2, and Plan 3. All three plans cover physical therapy after a knee surgery. Plan 1 offers 20 physical therapy visits per year, Plan 2 offers 60 physical therapy visits per year, and Plan 3 offers unlimited physical therapy visits per year.

If Plan 1 is selected as the benchmark then physical therapy with a 20 visit maximum becomes an Essential Health Benefit. Plan 2 and Plan 3 do not have to change since their visit maximums are both greater than 20.

If Plan 2 is selected as the benchmark then physical therapy with a 60 visit maximum becomes an Essential health Benefit. Plan 1 will have to increase its visit limit from 20 to 60 and Plan 3 will not have to change.

If Plan 3 is selected as the benchmark then physical therapy with no visit limit becomes an Essential Health Benefit. Both Plan 1 and Plan 2 will have to eliminate their visit limits.

Why doesn’t my state just choose the plan with the best benefits as the benchmark?
Better insurance coverage is more expensive; we must balance the benefits chosen against the cost to you. Also, not every plan may cover the same items. One plan may have the best benefit in one category and the worst benefit in another category, so the selection must be carefully weighed.

 

[sactoking]

Just a note that, for those states submitting an Essential Health Benefits selection, the deadline date is this Sunday, September 30.

 

[chucky2]

Without refreshing my memory by re-reading this thread, I have another question for you:

You've said that the Fed for whoever qualifies will grant them a subsidy or voucher or tax credit, whatever, to be able to purchase insurance if they meet criteria for such.

To me it sounds like a good amount of people are going to qualify for that, and be getting multiple thousands of dollars either from the Fed, or, not have to pay the Fed those dollars. Either way, to me, it sounds like the Fed is going to be out a heck of a lot of money depending on how many people take advantage of these subsidies.

Has there been any estimation that you know of on what that amount is estimated to be? Also, the Fed should be trying to come in at budget, not be Trillion or so over. Has there been any legislation or talk put in place on exactly how the Fed is going to cover having to provide these subsidies?

Thanks for any info on this (and sorry for the vagueness of it)!

Chuck

 

[sactoking]

Without refreshing my memory by re-reading this thread, I have another question for you:

You've said that the Fed for whoever qualifies will grant them a subsidy or voucher or tax credit, whatever, to be able to purchase insurance if they meet criteria for such.

To me it sounds like a good amount of people are going to qualify for that, and be getting multiple thousands of dollars either from the Fed, or, not have to pay the Fed those dollars. Either way, to me, it sounds like the Fed is going to be out a heck of a lot of money depending on how many people take advantage of these subsidies.

Has there been any estimation that you know of on what that amount is estimated to be? Also, the Fed should be trying to come in at budget, not be Trillion or so over. Has there been any legislation or talk put in place on exactly how the Fed is going to cover having to provide these subsidies?

Thanks for any info on this (and sorry for the vagueness of it)!

Chuck

Unfortunately I can't give an answer terribly more specific than your question.

The CBO released new estimates after the USSC decision in June (http://www.cbo.gov/sites/default/files/cbofiles/attachments/43472-07-24-2012-CoverageEstimates.pdf) which indicate that the ACA will cost approximately $1,017 billion for the exchange subsidies and employer tax credits from 2012 through 2022. These costs will be offset by $515 billion in cadillac taxes and individual penalty payments.

Using those numbers the total cost for the exchange subsidies is $502 billion over ten years. That doesn't take into account other revenue provisions of the ACA like the health insurer and pharmaceutical excise taxes ($250 billion over ten years) and the fact that some of the exchange subsidies will be charged back to the states or employers depending on specific circumstances. It also doesn't account for the fact that Medicaid expansion and CHIP eligibility expansion will cost $642 billion over ten years.

All told the CBO estimates the ACA will cost $1,182 billion over the first ten years.

 

[chucky2]

sactoking thanks for the reply!

Unfortunately that's about what I feared. Now we can take those numbers and multiply them by 2.5-4.5x to get the true numbers. Yikes....