Legal Alert: Supreme Court Upholds Health Care Reform Law

Executive Summary:  Today, in a 5-4 decision, the U.S. Supreme Court upheld the individual mandate provision of the 2010 Patient Protection and Affordable Care Act (PPACA) as a valid tax, imposed within Congress' taxing power.  See Nat'l Federation of Independent Businesses v. Sebelius (No. 11-393, June 28, 2012)[1].  The Court held that the individual mandate (which requires most Americans to purchase insurance or face an IRS tax) is not a penalty because the only consequence of not complying with the mandate is the requirement to pay the tax.  Although the Court also held that Congress exceeded the power granted to it under the Commerce Clause when it enacted the individual mandate, the provision is nevertheless valid under Congress' taxing authority.  The Court also held that the Anti-Injunction Act does not preclude the Court from ruling on the issue because the PPACA does not require that the penalty for failing to comply with the individual mandate be treated as a tax for the purposes of the Anti-Injunction Act.  Chief Justice Roberts authored the majority opinion.  Justices Kennedy, Scalia, Thomas and Alito dissented.

Impact of the Decision

The Court's decision means employers and plan sponsors need to be prepared to comply with the requirements of the PPACA that will take effect in 2012 and 2013.  The more significant requirements include:

• Summary of Benefits and Coverage Explanation.  Employers are required to provide employees with an HHS approved "easy to understand" summary of benefits and coverage explanation (SBC) prior to enrollment, re-enrollment upon request, or upon a mid-year material modification.  The SBC requirement applies to insured and self-funded group health plans, regardless of grandfathered status, and health insurance issuers offering group or individual health insurance coverage.  The SBC requirements become effective for participants who enroll or re-enroll during open enrollment as of the first day of the first annual enrollment period that begins on or after September 23, 2012.  For participants or beneficiaries who enroll in the plan outside of open enrollment (for example, newly eligible employees or special enrollees), the effective date is the first day of the first plan year that begins on or after September 23, 2012.  For more information on the SBC requirements, please see our May 30, 2012, Legal Alert, FAQs Issued on SBC Requirement, available at: http://www.fordharrison.com/8432.
• Material Modification For Mid-Year Changes.  Group health plans or  health insurance issuers who make material modifications to the terms of the plan or coverage during the year, which are not reflected in the most recently provided SBC, must provide notice of such modification not later than 60 days prior to the date on which such modification becomes effective. 
• Health Plan Cost Reporting.  PPACA added Section 6051(a)(14) to the Internal Revenue Code, requiring that the aggregate cost incurred by an employer for employer-sponsored health coverage provided to an employee be reported on the employee's Form W-2, for informational purposes, for taxable years beginning on or after January 1, 2011.  On January 3, 2012, the IRS issued Notice 2012-9, clarifying that in the case of the 2012 W-2 Forms (i.e., to be filed in early 2013), and W-2 Forms for later years unless and until further guidance is issued, an employer is not subject to the reporting requirement for any calendar year unless it was required to file 250 or more W-2 Forms for the preceding calendar year. For a discussion of this Notice, please see our January 11, 2012 Legal Alert, IRS Issues Interim Guidance on Health Plan Cost Reporting Requirement, available at: http://www.fordharrison.com/shownews.aspx?Show=7907.
• Comparative Clinical Effectiveness Fee.  For plan years after September 30, 2012, PPACA imposes a fee on insured plans (other than those that cover only excepted benefits) and self-insured plans. 
• Medical Loss Ratios and Rebates.  PPACA requires insurers to report plan costs for the purpose of calculating the insurers' medical loss ratio (MLR) (the percentage of insurance premium dollars spent on reimbursement for clinical services and activities to improve health care quality).  Large group insurers must spend at least 85 percent of premium dollars on claims and activities to improve health care quality.  Individual and small group insurers must spend at least 80 percent of premium dollars on claims and activities to improve health care quality.  Beginning in 2012, insurers must provide rebates to enrollees if their medical loss ratio does not meet the minimum standards for a given plan year. 
• Cap on Employee Contributions to Flexible Spending Accounts.  Beginning January 1, 2013, employees' contributions to Flexible Spending Accounts (FSA) will be limited to $2,500 per tax year with annual inflation increases.

FordHarrison will be conducting a complementary webinar on June 29, 2012 from 1:00-2:00 pm EST discussing the impact of the Court's decision.  If you have any questions regarding the decision or other employee benefits issues, please contact Tiffany Downs, tdowns@fordharrison.com or any member of FordHarrison's Employee Benefits Practice Group.