Monthly Archives: June 2012
Thursday, June 28, 2012

In a landmark 5-4 decision announced today, the United States Supreme Court upheld key provisions of the Patient Protection and Affordable Care Act (“PPACA”). Although the individual mandate – wherein individuals must obtain health insurance coverage or pay a penalty – was determined to be unconstitutional under the Commerce Clause, Chief Justice Roberts, writing for the majority, concluded that the individual mandate may be upheld as within Congress’s power under the Taxing Clause.

As the individual mandate was upheld, the Court did not need to reach the issue of severability from the myriad other market-reform mandates. The result for companies is that implementation of health care reform continues unabated. Dependents, if covered, must be covered until age 26. Annual and lifetime dollar limits are still subject to regulation and prohibition, as applicable. Group health plans must still provide a Summary of Benefits and Coverage (“SBC”) for open enrollments beginning on or after September 23, 2012. All of the other market-reform mandates continue to be law.

The Court did not leave PPACA untouched. PPACA provided that the Federal Government would pay 100% of the cost of Medicaid expansion through 2016, with a gradual decrease in the years following that would need to be picked up by the States. If a State did not agree to expansion, PPACA permitted the Secretary of Health and Human Services to revoke all federal Medicaid funding for that state. The Court found this provision of Medicaid expansion to be unconstitutional because it gave States no real choice but to accept the expansion. Accordingly, the expansion provision was narrowed, so that States may not have existing Medicaid funds withdrawn for their failure to comply.

Despite the Court’s ruling, PPACA will undoubtedly remain subject to political challenge. In the meantime, implementation for group health plans continues.

Find out more about PPACA here.

Do you think the Supreme Court got it right?

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Thursday, June 28, 2012

Please go here:

Or download it from our site!11-393c3a2

Analysis will be forthcoming!

Wednesday, June 27, 2012

Rick Ungar’s recent article in Forbes highlighted what he called “the ultimate in duplicitous behavior” by the insurance trade group, America’s Health Insurance Plans (AHIP). According to Ungar, it seems AHIP was spending $102M to defeat PPACA while simultaneously publicly supporting it (see also here for the article Ungar cites).

I have three thoughts about this: (1) I do not support duplicitous behavior; (2) I also do not think we should be surprised by it; (3) I’m not sure this is exactly as duplicitous as it appears.

First, look at this statement by AHIP president from March 18, 2010  It was issued 5 days before the first of two health reform bills was signed and it’s not exactly the equivalent of gushing PPACA fan fiction.  And lest you think that this was a last minute change in position, here and here are two more press releases from December 2009 that make substantially the same point: AHIP says, in effect, “we support universal coverage” (no surprise there) ”, but in our view this legislation doesn’t address cost issues.”     It suggests that perhaps the level of duplicity is not quite as severe as might otherwise be suggested.

That AHIP came to the table to try and influence the law is no surprise and the mere fact of AHIP representatives showing up to be in the room for talks about the law does not mean they were unreservedly waiving pom-poms in support of it.  The Rolling Stones remind us that you can’t always get what you want, but experience tells us that you’re sure to get nothing if you sit in the corner and cry while the legislation is being put together.

I’m not trying to defend AHIP here; I’m just interested in the facts.  I didn’t go back and look at every AHIP public statement so there may be others that were much more rosy (feel free to post a link below if you find one).  I appreciate Ungar’s point about consistency and truth in advocacy and I share his view on that point, but this may not be the best (worst?) example of the assault on that principle.

Monday, June 25, 2012

With the benefits community waiting with baited breath to hear how the Supreme Court will rule on health care reform, it is easy to get behind on IRS guidance. Since the IRS has not stopped issuing guidance, we wanted to alert you to a few minor changes that may have flown under the radar:

  • IRS issued a revised Form 2848 in March 2012. The March 2012 version of Form 2848, Power of Attorney and Declaration of Representative,  can only cover one taxpayer; thus, separate Form 2848s should be completed for joint or multiple taxpayers. According to an Employee News Release dated June 8, 2012, beginning March 1, 2012, the IRS’s three Centralized Authorization File processing sites:
    • Discontinued processing all powers of attorney that are not submitted on either the October 2011 or March 2012 versions of the Form 2848 (unless a completed Form 2848 on one of these versions is attached); and
    • Will continue processing powers of attorney submitted on either October 2011 or March 2012 versions of the Form 2848 until further guidance is issued.
  •  Form 8955-SSA and Extension Requests.  New proposed regulations published in the Federal Register June 21, 2012, remove the signature requirement for Form 8955-SSA, Annual Registration Statement Identifying Separated Participants with Deferred Vested Benefits, extension requests on Form 5558, Application for Extension of Time to File Certain Employee Plan Returns . These proposed regulations also designate the Form 8955-SSA as the replacement for the Schedule SSA to the Form 5500.
  • Delay in Amendment Deadline for New Health FSA Limit.  Pursuant to Notice 2012-40, the $2,500 health FSA limit does not apply for plan years that begin before 2013. Thus, non-calendar year plans do not have to implement this limit for any calendar year beginning in 2012. In addition, all impacted plans may adopt the required amendments to reflect the new $2,500 limit at any time through the end of calendar year 2014.
  • Informal Guidance on Church and other Religious Organization Plans.  On July 25, 2012, the IRS plans to sponsor a webinar which will cover, among other things,  
    • How to apply for tax-exempt status
    • The do’s and don’ts of maintaining your tax-exempt status
    • Special rules for compensation of ministers
    • Recordkeeping and filing
    • Rules limiting an IRS church audit


Monday, June 25, 2012

This is our third of three “What if” posts discussing the likely outcomes of the Supreme Court hearings on the health care reform law.  Our first two posts are available here and here.

What if the Supreme Court invalidates the Patient Protection and Affordable Care Act (aka health reform)?  To do that, the Court would have to conclude that the individual mandate requiring all U.S. citizens to buy health insurance or pay a penalty was not a permitted exercise of Congress’s power under the Constitution.

A lot of people (including Chris) never thought this would even be a serious debate. However, once Justice Kennedy asked the U.S. Solicitor General if he had a “heavy burden” to demonstrate that the mandate was constitutional, everyone’s thoughts about the possible outcomes changed.

The Court could take any of a variety of routes if it strikes the law down.  The Court could conclude that actions taken to date should not be disturbed, thus preventing a retroactive undoing of the law.  For example, the Court could conclude that because the mandate is not scheduled to be effective until 2014, there is not a need to undo actions taken between 2010 and the issuance of its opinion.  In taking such a position, the Court would be taking a practical approach.

However, the Court could also conclude that the law was essentially void from the start.  What then? Some dependent coverage that was not taxable would become so.  Employers who took advantage of the small business tax credit might need to adjust prior tax returns.  However, because many group health plans and service provider contracts were amended to comply with PPACA, those plan provisions and service provider contracts arguably create rights that could not be undone retroactively.  Thus, any plan changes will likely be prospective only.

Regardless of whether PPACA is struck down prospectively or retroactively, here are a few items to consider:

  • Coverage of children after 19 (23 if not a full-time student) will become taxable.  Employers will technically need to impute income to employees for the cost of the premiums (or charge after-tax premiums) to avoid treating the benefits as taxable.  However, because of the disruption this will cause, we would not be surprised if the IRS issues transition relief through the end of 2012.
  • Employers who have already worked to prepare Summaries of Benefits and Coverage will need to decide whether to proceed with providing them.  In making that decision, employers should be mindful that group health plan benefits do not always fit neatly within the SBC template and the presence of the mandated uniform glossary
  • Employers consider modifications to their health plans may need to give notice to participants 60 days after the change.  ERISA (even before health reform) requires a notice 60 days after the adoption of any material reduction in covered benefits or services under a group health plan (unless notices are provided at regular intervals every 90 days).
  • Employers who adopted amendments to their health FSAs for the $2,500 limit for 2013 plan years will need to amend to remove that cap (assuming they want to remove it).  Additionally, employers will be able to amend their health FSAs to allow for the reimbursement of over-the-counter drugs without a prescription.
  • Since W-2 reporting of health coverage is no longer required, employers will need to consider whether to continue to report it (for so long as the form has a box for it).
  • The comparative effectiveness fee (discussed here) will no longer be due.
  • Limited benefit, or “mini-med,” plans will continue to be viable and will no longer need to submit information to maintain their waivers from the annual limit requirements.
  • Employers who received Early Retiree Reimbursement Program funds (remember that?) should be on the lookout to see if the government will pursue collection of those funds.  This is not likely to happen, but it is possible.
  • Some insured plans may not be able to completely roll back health reform mandates, to the extent those mandates or ones like them are required by applicable state law.  Even if not required, insurers will be prohibited from changing the terms of policies without making new rate filings with the governing state insurance agencies, which will take time.  Additionally, some insurers have indicated they are willing to keep some of the PPACA provisions.

Even though the list above assumes that all the provisions will be treated as invalid, employers should also bear in mind that the agencies may attempt to find authority in existing law for some PPACA provisions.  To the extent they do, some of these rules may not be going away after all.
The bottom line: regardless of how the Court rules, it will be far from the last word on health reform.

How do YOU think the Supreme Court will rule?  Tell us!

Other Health Reform Related Posts

Disclaimer/IRS Circular 230 Notice

Friday, June 22, 2012

This is our second of three “What if” posts discussing the likely outcomes of the Supreme Court hearings on the health care reform law.  Our first post is available here.

In our prior post, we discussed what would be left to do if the Supreme Court left the health reform law alone.  Recall, however, that one issue the Court has to grapple with is whether the mandate is fully or partially severable from the statute.  What if the Court takes a more Solomonic view and excises the mandate alone or the mandate plus the community rating and guarantee issue provisions (we’ll call that the “mandate plus” option)?

Well, first of all, almost everything we said in Part 1 is still true.  We say “almost” because it is unclear whether the elimination of the guarantee issue provisions would include both individual and group plans.  It likely would and, if it does, that means there would be no more elimination of pre-existing condition exclusions.  However, due to HIPAA portability and creditable coverage rules, most group health plans have already eliminated, or substantially eliminated, preexisting condition exclusions, so it is unlikely that this will have much practical effect.

However, the elimination of the mandate alone, or the mandate plus option, has implications for employers who are considering eliminating coverage and allowing their employees to purchase coverage on the exchange.  Even though a recent widely-reported study said that most employers plan to keep coverage, for some employers, paying the penalties rather than paying for coverage makes economic sense.  But the analysis is different if there is no mandate.  Without the mandate, insurance companies have argued that the individual market will become prohibitively expensive because healthy individuals will have no incentive to buy insurance.  If they can receive the insurance on a guarantee issue, community-rated basis at any time, and not pay a penalty for not having coverage, they can take a wait and see approach.  This could create prohibitively expensive insurance that is not a viable alternative to employment-based group insurance.

If the Court takes the mandate plus option, some of these concerns are mitigated.  Without the guarantee issue and community rating provisions, healthy individuals will have a harder time taking a wait and see approach because insurance companies would be able to impose preexisting condition exclusions and medical underwriting requirements.  However, if that all sounds strangely familiar that’s because it is essentially a system we have without health care reform and under that system, individual insurance is largely not a viable alternative to employment-based group insurance.

Therefore, if the Court takes either the “mandate only” or “mandate plus” options, there will be some short-term concerns about the viability of the exchanges and the individual insurance market may not be a viable alternative to employment-based coverage.  However, it would not be surprising to see Congress try to refashion the mandate to make it Constitutional to rectify these problems.

How do YOU think the Supreme Court will rule?  Tell us!

Thursday, June 21, 2012

This is the first in our series of “What if” posts on the possible outcomes of the Supreme Court hearings on the health from law.  Please come back for parts 2 and 3!

The Supreme Court is likely to release its decision on the Patient Protection and Affordable Care Act (aka health reform) in the very near future (likely no later than the 28th).  Reading the proverbial tea leaves, it seems likely that the Court will not kick the can down the road by saying the Anti-Injunction Act applies, so we will probably get a decision upholding some, all or none of the law.

If the Supreme Court upholds the law in its entirety, then there is good news and bad news.  The good news is that all that work you did to prepare for PPACA was not in vain.  The bad news is that the work is far from over.  While this is the result that Chris predicted in October, it became much less of a certainty after Justice Kennedy asked the U.S. Solicitor General if he had a “heavy burden” to demonstrate that the individual mandate was constitutional.

So what if PPACA survives?  The short immediate list of “to dos” includes:

  • Summaries of benefits and coverage are due for the first open enrollment beginning on or after September 23.
  • Form W-2 reporting of the cost of health coverage will be required for most employers for 2012.
  • Employers will need to amend their health FSAs by the end of 2014 plan year to comply with the $2,500 limit on employee contributions.
  • The comparative effectiveness fee (discussed here) will be due this year.
  • The first medical loss ratio rebates will be due this year.
  • Prepare for the 2013 increase in Medicare tax

Additionally, for 2014, employers will need to prepare for:

  • 90-day limitations on waiting periods.
  • The complete elimination of pre-existing conditions (to the extent group health plans have those).
  • The “shared responsibility” (aka “play or pay”) penalties for employers who either (a) fail to offer health coverage or (b) offer health coverage that is either “unaffordable” (as defined by PPACA) or does not provide “minimum value” (as to be defined by the agencies).
  • The filing of new information returns to the IRS and their delivery to certain full time employees.
  • Increased incentives for wellness programs of 30% of the cost of coverage (and up to 50%, if HHS increases the incentive, as the statute allows).

And at some yet-to-be determined date(s), employers will need to prepare for:

  • Non-discrimination rules for insured health plans.
  • Automatic enrollment in health plans for employers with at least 200 employees.

And last, but not least, the “Cadillac Tax” on high-cost health plans, to come into effect in 2018.

We will keep updating the blog and provide client alerts on developments as they arise, so stay tuned!

How do YOU think the Supreme Court will rule?  Tell us!

Other Health Reform Related Posts

Disclaimer/IRS Circular 230 Notice

Wednesday, June 20, 2012

In the event the U.S. Supreme Court strikes down the entire 2010 health care reform bill, individual and married taxpayers with income in excess of $200,000 and $250,000 respectively will dodge the 0.9% Medicare surtax on earned income and 3.8% Medicare surtax on most investment income scheduled to take effect January 1, 2013.  But that’s not the end of the scheduled tax increases for 2013.

Assuming Congress takes no action and the Bush-era tax cuts expire at the end of 2012, the individual tax rates for 2013 will be as follows:




Ordinary Income Tax Rates andShort-Term Capital Gains Rates













Long-Term Capital Gains Rates

15% (35% income tax bracket)

15% (33% income tax bracket)

15% (28% income tax bracket)

15% (25% income tax bracket)

0% (15% income tax bracket)

0% (10% income tax bracket)

20% (39.6% income tax bracket)

20% (36% income tax bracket)

20% (31% income tax bracket)

20% (28% income tax bracket)

10% (15% income tax bracket)

Dividend Rates



Dividends will be taxed at ordinary income rates.

In addition, the following individual income tax limitations/phase-outs are scheduled to be reinstated in 2013:

  • The “Pease” limitations on certain itemized deductions for higher income taxpayers were temporarily repealed through 2012. The limitation reduces the total amount of certain otherwise allowable deductions by 3% of the amount by which the taxpayer’s adjusted gross income exceeds a specified inflation-indexed income threshold, but not by more than 80%. The income threshold for 2013 is projected to be $177,550 for single taxpayers and married taxpayers filing jointly.
  • Personal exemption phase-outs did not apply for 2010, 2011 and 2012. Under the phase-out, personal exemptions are reduced by 2% for each $2,500 by which the taxpayer’s adjusted gross income exceeds a specified income threshold.  The income threshold for 2012 is projected to be $266,300 for married taxpayers filing jointly and $177,550 for single taxpayers.
  • For 2011 and 2012, the employee portion of Social Security (FICA taxes) was reduced to 4.2% instead of 6.2%. Starting 2013, the employee-portion of Social Security will revert back to the full 6.2%.

The marriage penalty will also return in 2013 when the standard deduction for married taxpayers will cease to be calculated as 200% of the standard deduction amount for single taxpayers and revert to approximately 167% of the standard deduction amount for single taxpayers.

While the resolution of the constitutionality of health care reform will be decided this month, any Congressional action to extend the Bush-era tax cuts or provide other relief is unlikely to occur before December 2012 and can occur as late as February 2013.

Tuesday, June 19, 2012

In its June 8, 2012 edition of the Employee Plans News, the Internal Revenue Service (“IRS”) gave interesting insight into areas of non-compliance revealed in a targeted audit of defined benefit pension plans. These audit findings create a helpful checklist for defined benefit plan sponsors to review the status of plan compliance efforts. Borrowing from the list of areas of non-compliance discovered by agents in these recent audits, here is a list of topics you may want to review for your company’s defined benefit pension plan:

  • Date annual funding notices and distribute timely
  • Date elections to use/reduce prefunding and/or carryover balances and make the election timely
  • Require actuaries to give AFTAP certifications timely
  • Actuarially increase late retirement payments
  • Value assets consistently for purposes of Sections 430 and 436 of the Internal Revenue Code
  • Issue relative value disclosures in distribution election packets that comply with all the IRS regulatory requirements
  • Define compensation for benefit accrual purposes and use that definition for actuarial valuation purposes
  • Calculate benefit accrual service in accordance with plan terms
  • Use correct interest rate to calculate optional payment forms


Monday, June 11, 2012

The IRS has released proposed regulations under Section 83 of the Internal Revenue Code to refine the concept of what constitutes a substantial risk of forfeiture for the purpose of narrowing the scope of the concept.

The proposed regulations are in response to case law, tracing back as far as 1986, which the IRS claims has created confusion over the appropriate elements of what may constitute a substantial risk of forfeiture.

In the proposed regulations, the IRS clarifies that a substantial risk of forfeiture may be established only through (1) a service condition or (2) a condition related to the purpose of the transfer, such as a performance condition relating to the services provided by a service provider. In addition, the proposed regulations further clarify that in determining whether a substantial forfeiture exists based on a condition is related to the purpose of the transfer, both the likelihood that the forfeiture event will occur and the likelihood that the forfeiture will be enforced must be considered.

The IRS emphasizes in the proposed regulations that transfer restrictions do not create a substantial risk of forfeiture, such as lock-up agreements or restrictions related to insider trading. However, the IRS acknowledges that the statutory exception related to potential short-swing profits liability under Section 16(b) of the Securities Exchange Act does delay taxation under Section 83.

The IRS appears to be laying the groundwork for the anticipated issuance of new regulations under Section 457 of the Internal Revenue Code, which incorporates the same concept of a substantial risk of forfeiture. While we are not aware of any statements by IRS officials to that effect, it is one possible explanation why the IRS did not address an issue from 1986 until now.

The proposed regulations, if finalized, will apply to transfers of property occurring on and after January 1, 2013.

Other Executive Compensation Related Posts

Disclaimer/IRS Circular 230 Notice