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

Please go here: http://www.supremecourt.gov/opinions/slipopinions.aspx

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Analysis will be forthcoming!

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

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.

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

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

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
  

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:

2012

2013

Ordinary Income Tax Rates andShort-Term Capital Gains Rates

35%

33%

28%

25%

15%

10%

39.6%

36.0%

31.0%

28.0%

15%

15%

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

15%

0%

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
  

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

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