Anatomy of a Hack
Originally posted by Zurich American Insurance Company.
Once hackers set their sights on a target with access to sensitive company information, attacks may ensue from multiple directions – in the office, at home or on the move. Anatomy of a Hack describes what you and your company can do to help limit exposures.
The risk of having sensitive company data lost and stolen has grown exponentially over the last few years, largely due to the increased use of the Internet and the interconnectedness of everything we do. As the likelihood of a data breach continually escalates, so does the cost.
Read more here.
Check out the “Anatomy of a Hack” infographic here.
Copyright © 2015 Zurich American Insurance Company
Industry Life Cycle
Originally posted on Inc.com.
Life cycle models are not just a phenomenon of the life sciences. Industries experience a similar cycle of life. Just as a person is born, grows, matures, and eventually experiences decline and ultimately death, so too do industries and product lines. The stages are the same for all industries, yet every industry will experience these stages differently, they will last longer for some and pass quickly for others. Even within the same industry, various firms may be at different life cycle stages. A firms strategic plan is likely to be greatly influenced by the stage in the life cycle at which the firm finds itself. Some companies or even industries find new uses for declining products, thus extending their life cycle.
The growth of an industry's sales over time is used to chart the life cycle. The distinct stages of an industry life cycle are: introduction, growth, maturity, and decline. Sales typically begin slowly at the introduction phase, then take off rapidly during the growth phase. After leveling out at maturity, sales then begin a gradual decline. In contrast, profits generally continue to increase throughout the life cycle, as companies in an industry take advantage of expertise and economies of scale and scope to reduce unit costs over time.
STAGES OF THE LIFE CYCLE
Introduction
In the introduction stage of the life cycle, an industry is in its infancy. Perhaps a new, unique product offering has been developed and patented, thus beginning a new industry. Some analysts even add an embryonic stage before introduction. At the introduction stage, the firm may be alone in the industry. It may be a small entrepreneurial company or a proven company which used research and development funds and expertise to develop something new. Marketing refers to new product offerings in a new industry as "question marks" because the success of the product and the life of the industry is unproven and unknown.
A firm will use a focused strategy at this stage to stress the uniqueness of the new product or service to a small group of customers. These customers are typically referred to in the marketing literature as the "innovators" and "early adopters." Marketing tactics during this stage are intended to explain the product and its uses to consumers and thus create awareness for the product and the industry. According to research by Hitt, Ireland, and Hoskisson, firms establish a niche for dominance within an industry during this phase. For example, they often attempt to establish early perceptions of product quality, technological superiority, or advantageous relationships with vendors within the supply chain to develop a competitive advantage.
Because it costs money to create a new product offering, develop and test prototypes, and market the product, the firm's and the industry's profits are usually negative at this stage. Any profits generated are typically reinvested into the company to solidify its position and help fund continued growth. Introduction requires a significant cash outlay to continue to promote and differentiate the offering and expand the production flow from a job shop to possibly a batch flow. Market demand will grow from the introduction, and as the life cycle curve experiences growth at an increasing rate, the industry is said to be entering the growth stage. Firms may also cluster together in close proximity during the early stages of the industry life cycle to have access to key materials or technological expertise, as in the case of the U.S. Silicon Valley computer chip manufacturers.
Growth
Like the introduction stage, the growth stage also requires a significant amount of capital. The goal of marketing efforts at this stage is to differentiate a firm's offerings from other competitors within the industry. Thus the growth stage requires funds to launch a newly focused marketing campaign as well as funds for continued investment in property, plant, and equipment to facilitate the growth required by the market demands. However, the industry is experiencing more product standardization at this stage, which may encourage economies of scale and facilitate development of a line-flow layout for production efficiency.
Research and development funds will be needed to make changes to the product or services to better reflect customers' needs and suggestions. In this stage, if the firm is successful in the market, growing demand will create sales growth. Earnings and accompanying assets will also grow and profits will be positive for the firms. Marketing often refers to products at the growth stage as "stars." These products have high growth and market share. The key issue in this stage is market rivalry. Because there is industry-wide acceptance of the product, more new entrants join the industry and more intense competition results.
The duration of the growth stage, as all the other stages, depends on the particular industry or product line under study. Some items—like fad clothing, for example—may experience a very short growth stage and move almost immediately into the next stages of maturity and decline. A hot toy this holiday season may be nonexistent or relegated to the back shelves of a deep-discounter the following year. Because many new product introductions fail, the growth stage may be short or nonexistent for some products. However, for other products the growth stage may be longer due to frequent product upgrades and enhancements that forestall movement into maturity. The computer industry today is an example of an industry with a long growth stage due to upgrades in hardware, services, and add-on products and features.
During the growth stage, the life cycle curve is very steep, indicating fast growth. Firms tend to spread out geographically during this stage of the life cycle and continue to disperse during the maturity and decline stages. As an example, the automobile industry in the United States was initially concentrated in the Detroit area and surrounding cities. Today, as the industry has matured, automobile manufacturers are spread throughout the country and internationally.
Maturity
As the industry approaches maturity, the industry life cycle curve becomes noticeably flatter, indicating slowing growth. Some experts have labeled an additional stage, called expansion, between growth and maturity. While sales are expanding and earnings are growing from these "cash cow" products, the rate has slowed from the growth stage. In fact, the rate of sales expansion is typically equal to the growth rate of the economy.
Some competition from late entrants will be apparent, and these new entrants will try to steal market share from existing products. Thus, the marketing effort must remain strong and must stress the unique features of the product or the firm to continue to differentiate a firm's offerings from industry competitors. Firms may compete on quality to separate their product from other lower-cost offerings, or conversely the firm may try a low-cost/low-price strategy to increase the volume of sales and make profits from inventory turnover. A firm at this stage may have excess cash to pay dividends to shareholders. But in mature industries, there are usually fewer firms, and those that survive will be larger and more dominant. While innovations continue they are not as radical as before and may be only a change in color or formulation to stress "new" or "improved" to consumers. Laundry detergents are examples of mature products.
Decline
Declines are almost inevitable in an industry. If product innovation has not kept pace with other competing products and/or service, or if new innovations or technological changes have caused the industry to become obsolete, sales suffer and the life cycle experiences a decline. In this phase, sales are decreasing at an accelerating rate. This is often accompanied by another, larger shake-out in the industry as competitors who did not leave during the maturity stage now exit the industry. Yet some firms will remain to compete in the smaller market. Mergers and consolidations will also be the norm as firms try other strategies to continue to be competitive or grow through acquisition and/or diversification.
PROLONGING THE LIFE CYCLE
Management efficiency can help to prolong the maturity stage of the life cycle. Production improvements, like just-in-time methods and lean manufacturing, can result in extra profits. Technology, automation, and linking suppliers and customers in a tight supply chain are also methods to improve efficiency.
New uses of a product can also revitalize an old brand. A prime example is Arm & Hammer baking soda. In 1969, sales were dropping due to the introduction of packaged foods with baking soda as an added ingredient and an overall decline in home baking. New uses for the product as a deodorizer for refrigerators and later as a laundry additive, toothpaste additive, and carpet freshener extended the life cycle of the baking soda industry. Promoting new uses for old brands can increase sales by increasing usage frequency. In some cases, this strategy is cheaper than trying to convert new users in a mature market.
To extend the growth phase as well as industry profits, firms approaching maturity can pursue expansion into other countries and new markets. Expansion into another geographic region is an effective response to declining demand. Because organizations have control over internal factors and can often influence external factors, the life cycle does not have to end.
An example is feminine hygiene products. Sales in the United States have reached maturity due to a number of external reasons, like the stable to declining population growth rate and the aging of the baby boomers, who may no longer be consumers for these products. But when makers of these products concentrated on foreign markets, sales grew and the maturity of the product was prolonged. Often so-called "dog" products can find new life in other parts of the world. However, once world saturation is reached, the eventual maturity and decline of the industry or product line will result.
LIFE CYCLES ARE EVERYWHERE
Just as industries experience life cycles, studies have documented life cycles in many other areas. Countries have life cycles, for example, and we traditionally classify them as ranging from the First World countries to Third World or developing countries, depending on their levels of capital, technological change, infrastructure, or stability. Products also experience life cycles. Even within an industry, various individual companies may be at different life cycle stages depending upon when they entered the industry. The life cycle phenomenon is an important and universally accepted concept to help managers better understand sales growth and change over time.
New HHS Regulations “Clarify” that Health Plans Covering Families Must Have “Embedded” Individual Cost-Sharing Limits
Originally posted by Stacy Barrow and Damian A. Myers on March 18, 2015 on www.erisapracticecenter.com.
On February 27, 2015, the Department of Health and Human Services (HHS) released its final HHS Notice of Benefit and Payment Parameters for 2016. The lengthy regulation covers a wide range of topics affecting group health plans, including minimum value, determination of the transitional reinsurance fee, and qualified health plan rates and other market reforms applicable to the group and individual insurance markets.
Within the portion of the regulation’s Preamble explaining insurance issuer standards under the Affordable Care Act (“ACA”), HHS formally adopted a “clarification” to the application of annual cost sharing limitations. By way of background, the ACA requires that all non-grandfathered group health plans adopt an annual cost sharing limit for covered, in-network essential health benefits for self-only coverage ($6,600 in 2015 and $6,850 in 2016) and other than self-only coverage ($13,200 in 2015 and $13,700 in 2016). Until HHS’s clarification, many group health plan administrators applied a single limitation depending on whether the employee enrolled in self-only or other than self-only coverage (e.g., “family” coverage). That is, if an employee enrolled in family coverage, the higher limit applied to the family as a whole, regardless of the amount applied to any single covered individual.
HHS, however, now requires group health plans to embed an individual cost sharing limit within the family limit. For example, suppose an employee and his or her spouse enroll in family coverage with an annual cost sharing limit of $13,000, and during the 2016 plan year, $10,000 of cost sharing payments are attributable to the spouse and $3,000 of cost sharing payments are attributable to the employee. Prior to the HHS’s clarification, the full $13,000 would be payable by the covered individuals because the $13,000 plan limit had not been reached on an aggregate basis. However, with the new embedded self-only limitation, the cost sharing payments attributable to the spouse must be capped at the self-only limit of $6,850, with the remaining $3,150 being covered 100% by the group health plan. The employee would still be subject to cost sharing, however, until the $13,000 plan limit is reached.
The HHS clarification is not effective until plan years beginning on or after January 1, 2016. It is important to note that, at the moment, it is unclear whether the HHS clarification is intended to apply to self-insured plans. The 2016 Benefit and Payment Parameters are rules related to the group and individual insured market, including the Marketplace, and the Preamble section under which the clarification is found is titled “Health Insurance Issuer Standards under the Affordable Care Act, Including Standards Related to Exchanges.” Additionally, all previous cost sharing guidance applicable to self-insured plans have been issued jointly by the HHS, Department of Treasury and Department of Labor. As of the date of this blog entry, the Departments of Treasury and Labor have not issued a similar clarification. Nevertheless, although the HHS clarification is potentially unenforceable with respect to self-insured plans, employers and plans sponsors with self-insured plans should be prepared to adopt an embedded cost sharing limit should the other two agencies follow suit.
Implementing Health Reform: Excepted Benefits, Employer Mandate, And Cost-Sharing Reduction Payments
Originally posted by Timothy Jost on February 15, 2015 on www.healthaffairs.org.
Three developments in the second week in February, 2015, remind us that implementation of the Affordable Care Act is a multi-department effort.
Supplemental Excepted Benefits
The first of these is a new guidance on “excepted benefits.” The Affordable Care Act does not regulate excepted benefits — various categories of health-related benefits that are not traditional medical coverage. Excepted benefits were excepted from the requirements of the 1996 Health Insurance Portability and Accountability under ERISA, the Internal Revenue Code, and the Public Health Services Act and continue to be excepted from the requirements of the Affordable Care Act. The agencies that administer these laws, however, must define the scope of excepted benefits to clarify the benefits not subject to the ACA. To that extent, therefore, they regulate those benefits.
On February 13, 2014, the IRS, Department of Labor, and HHS issued a frequently asked question guidance concerning a specific category of excepted benefits, supplemental excepted benefits. Supplemental excepted benefits are provided under a separate policy, certificate, or contract of insurance and supplement Medicare (so-called Medigap) or Tricare coverage, or provide “similar” supplemental coverage to a group health plan.
The excepted benefits regulations provide that coverage supplemental to a group health plans “must be specifically designed to fill gaps in primary coverage, such as coinsurance or deductibles.” Under earlier guidance coverage supplemental to a group plan will qualify as excepted benefits if:
- The policy, certificate, or contract is issued by an entity that does not provide the primary coverage under the plan;
- The supplemental coverage is designed specifically to fill gaps in primary coverage, such as coinsurance or deductibles;
- The cost of the supplemental coverage is not more than 15 percent of the cost of primary coverage; and
- Supplemental coverage in the group insurance market does not differentiate among individuals in eligibility, benefits, or premiums based upon a health factor of the individual or a dependent.
The FAQ notes that at least one insurer is currently selling supplemental coverage that covers a single benefit rather than cost-sharing. The FAQ states that coverage of particular benefits, rather than coverage of cost-sharing, can qualify as supplemental excepted benefit coverage only if it covers benefits that are not essential health benefits (EHB) in the state where it is being marketed and has been filed and approved by the state (as may be required under state law). Such a policy could, for example, cover complementary and alternative medicine modalities, bariatric surgery, or abortion benefits that were not part of a state’s EHB. The guidance states that the agencies intend to issue regulations addressing this but in the interim will exercise their regulatory discretion in accordance with this guidance and urge the states to do so as well.
Employer Mandate Compliance
In another development, the IRS on February 11 issued an updated information sheet on employer mandate compliance. This guidance does not offer any new information as far as I can tell, but it is a useful and concise summary of the employer mandate and its enforcement.
Reconciling Cost-Sharing Reduction Payments
Finally, on February 13 the Centers for Medicare and Medicaid Services of HHS released at its REGTAP website a guidance on the timing of reconciliation of cost-sharing reduction payments for the 2014 benefit year. Cost-sharing reduction payments are payments made to health insurers to reimburse them for reducing the out-of-pocket costs of enrollees in marketplace qualified health plans (QHPs) with incomes below 250 percent of poverty to make health care affordable to those enrollees. Cost sharing reductions are also offered American Indians and Alaska natives.
The total amount of cost-sharing that an enrollee will incur cannot be known until the end of a benefit year, but insurers must cover reduced cost sharing in their payments to providers on a continual basis. Cost-sharing reduction payments are made, therefore, to insurers monthly on an actuarially estimated basis. At the end of the benefit year, however, estimated payments must be reconciled with actual payments due. Reconciliation for 2014 was to be performed in April of 2015, as it takes some time for claims for a benefit year to finally “run out.”
Reconciliation was to have been accomplished by comparing the cost-sharing that actual enrollees paid under the cost-sharing reduction variation that applies to their category with what they would have paid under the standard variation of their plan. This involves a “double adjudication” of claims applying both variations, and apparently some insurers were not able to do this. On a transitional basis, CMS allowed insurers to use a simplified methodology based on actuarial estimates of certain key cost-sharing parameters.
When enrollment in a QHP standard plan is insufficient to derive statistically credible estimates of actuarially derived cost-sharing (12,000 member months are required as a minimum), insurers must use a formula based on the plan variation’s actuarial value (the “AV methodology”) to estimate payments. But this approach does not produce accurate results. CMS has concluded many insurers have been unable to upgrade their systems in time for reconciliation using double adjudication, and that many of those using the AV methodology are not achieving accurate results.
To improve accuracy, CMS has decided to delay reconciliation for 2014 until April 30, 2016 and to allow plans that had selected the simplified methodology to switch to the more accurate standard methodology. Insurers may not switch from the standard to the simplified methodology. Because the delay is expected to result in more accurate payments, it should not disadvantage either the government or insurers. The guidance announces this delay.
Download the full article here.
Copyright 1995 - 2015 by Project HOPE: The People-to-People Health Foundation, Inc.
IRS Clarifies Prior Guidance on Premium Reimbursement Arrangements; Provides Limited Relief
Originally posted February 24, 2015 by Daimon Myers, Proskauer - ERISA Practice Center on www.jdsupra.com.
Continuing its focus on so-called “premium reimbursement” or “employer payment plans”, the Internal Revenue Service (IRS) released IRS Notice 2015-17 on February 18, 2015. In this Notice, which was previewed and approved by both the Department of Labor (DOL) and Department of Health and Human Services (collectively with the IRS, the “Agencies”) clarifies the Agencies’ perspective on the limits of certain employer payment plans and offers some limited relief for small employers.
Prior guidance, released as DOL FAQs Part XXII and described in our November 7, 2014 Practice Center Blog entry, established that premium reimbursement arrangements are group health plans subject to the Affordable Care Act’s (ACA’s) market reforms. Because these premium reimbursement arrangements are unlikely to satisfy the market reform requirements, particularly with respect to preventive services and annual dollar limits, employers using these arrangements would be required to self-report their use and then be subject to ACA penalties, including an excise tax of $100 per employee per day.
Since DOL FAQs Part XXII was released, the Agencies’ stance has been the subject of frequent commentary and requests for clarification. With Notice 2015-17, it appears that the Agencies have elected to expand on the prior guidance on a piecemeal basis, with IRS Notice 2015-17 being the first in what may be a series of guidance. The following are the key aspects of Notice 2015-17:
- Wage Increases In Lieu of Health Coverage. The IRS confirmed the widely-held understanding that providing increased wages in lieu of employer-sponsored health benefits does not create a group health plan subject to market reforms, provided that receipt of the additional wages is not conditioned on the purchase of health coverage. Quelling concerns that any communication regarding individual insurance options could create a group health plan, the IRS stated that merely providing employees with information regarding the health exchange marketplaces and availability of premium credits is not an endorsement of a particular insurance policy. Although this practice may be attractive for a small employer, an employer with more than 50 full-time employees (i.e., an “applicable large employer” or “ALE”) should be mindful of the ACA’s employer shared responsibility requirements if it adopts this approach. ALEs are required to offer group health coverage meeting certain requirements to at least 95% (70% in 2015) of its full-time employees or potentially pay penalties under the ACA. Increasing wages in lieu of benefits will not shield ALEs from those penalties.
- Treatment of Employer Payment Plans as Taxable Compensation. Some employers and commentators have tried to argue that “after-tax” premium reimbursement arrangements should not be treated as group health plans. In Notice 2015-17, the IRS confirmed its disagreement. In the Notice, the IRS acknowledges that its long-standing guidance excluded from an employee’s gross income premium payment reimbursements for non-employer provided medical coverage, regardless of whether an employer treated the premium reimbursements as taxable wage payments. However, in Notice 2015-17, the IRS provides a reminder that the ACA, in the Agencies’ view, has significantly changed the law, including, among other things, by implementing substantial market reforms that were not in place when prior guidance had been released. The result: the Agencies have reiterated and clarified their view that premium reimbursement arrangements tied directly to the purchase of individual insurance policies are employer group health plans that are subject to, and fail to meet, the ACA’s market reforms (such as the preventive services and annual limits requirements). This is the case whether or not the reimbursements or payments are treated by an employer as pre-tax or after-tax to employees. (This is in contrast to simply providing employees with additional taxable compensation not tied to the purchase of insurance coverage, as described above.)
- Integration of Medicare and TRICARE Premium Reimbursement Arrangements. On the other hand, although the Notice confirms that arrangements that reimburse employees for Medicare or TRICARE premiums may be group health plans subject to market place reforms, the Agencies also provide for a bit of a safe harbor relief from that result. As long as those employees enrolled in Medicare Part B or Part D or TRICARE coverage are offered coverage that is minimum value and not solely excepted benefits, they can also be offered a premium reimbursement arrangement to assist them with the payment of the Medicare or TRICARE premiums. (The IRS appropriately cautions employers to consider restrictions on financial incentives for employees to obtain Medicare or TRICARE coverage.)
- Transition Relief for Small Employers and S Corporations. Although many comments on the prior guidance concerning employer payment plans requested an exclusion for small employers (those with fewer than 50 full-time equivalent employees), the IRS refused to provide blanket relief. The IRS notes that the SHOP Marketplace should address the small employers’ concerns. However, because the SHOP Marketplace has not been fully implemented, no excise tax will be incurred by a small employer offering an employer payment plan for 2014 or for the first half of 2015 (i.e., until June 30, 2015). (This relief does not cover stand-alone health reimbursement arrangements or other arrangements to reimburse employees for expenses other than insurance premiums.) This is welcome relief to small employers who adopted these arrangements notwithstanding the Agencies’ prior guidance that they violated certain ACA marketplace provisions.
- In addition to granting temporary relief to small employers, the IRS also provided relief through 2015 for S corporations with premium reimbursement arrangements benefiting 2% shareholders. In general, reimbursements paid to 2% shareholders must be included in income, but the underlying premiums are deductible by the 2% shareholder. The IRS indicated that additional guidance for S corporations is likely forthcoming.
The circumstances under which premium reimbursement arrangements are permitted appears to be rapidly dwindling, and the IRS indicated that more guidance will be released in the near future. Employers offering these arrangements should consult with qualified counsel to ensure continuing compliance with applicable laws.
Supreme Court Hears Oral Argument in ACA Subsidies Challenge
Originally posted By:
Yesterday morning, the U.S. Supreme Court heard oral arguments in King v. Burwell, the second challenge to the Affordable Care Act (ACA) to reach the Court. This challenge targets the availability of subsidies on the Exchanges that were established by the Department of Health and Human Services (HHS) for the 34 states with HHS-established Exchanges.
The challengers contend that the tax code restricts subsidies to individuals who enroll in coverage through a state run Exchange when it provides that the amount of the subsidy is based on premiums on an Exchange “established by the State.” 26 U.S.C. § 36B(b)(2)(A). The Administration, however, defends an Internal Revenue Service (IRS) rule that makes subsidies available on state-run and HHS-established Exchanges alike, contending that section 1321 of the ACA makes HHS-established Exchanges equivalent to state-run Exchanges.
It is notoriously difficult to ascertain the likely outcome of a case based on oral arguments. Rather, oral arguments merely suggest at the leanings of particular Justices as they prepare to discuss the case and to assign drafting of the opinion(s) in private conference. Nonetheless, oral arguments provide the only public hints of the Justices’ views before the Court issues its decision this summer.
The Likely Swing Votes. As many expected, the tenor of oral arguments suggested that Chief Justice Roberts and Justice Kennedy are the likely swing votes in this case. It appeared that the so-called liberal block of the Court—Justices Ginsburg, Breyer, Kagan, and Sotomayor—are critical of the challengers’ interpretation of the statute. Rather, they seem inclined to conclude that the IRS rule is a permissible interpretation of the statute or that the rule reflects the only viable interpretation of the statute. On the other hand, Justices Scalia and Alito appeared to be highly critical of the Administration’s position. As is his typical practice, Justice Thomas did not ask any questions during oral argument, but most Court watchers expect that his views likely align with those of Justice Scalia and Alito. Some Court watchers had suggested that Justice Scalia might look to context to conclude that the subsidy provision is ambiguous, but his questions appeared to reflect a view that Congress enacted a statute that clearly restricts the availability of subsidies, despite the potential practical consequences of such an enactment.
Federalism and Constitutional Avoidance. One surprise yesterday was Justice Kennedy’s expression of constitutional concerns and potential inclination to avoid a constitutional problem by considering the Administration’s interpretation of the statute. In short, his questions echoed federalism concerns raised in an amicus brief drafted by a number of states. While Justice Kennedy aligned with the conservative block of the Court in NFIB v. Sebelius, he may be amenable to upholding the IRS rule here to the extent that the Administration’s interpretation is viable.
Justice Kennedy’s concerns regarding federalism do not flow from the impact that an adverse decision against the government will have on the newly insured public in states without state operated Exchanges. Rather, his concerns stem from his deeply held belief that the Court owes the utmost respect under the structure of the Constitution to the semi-sovereign states. In his view, Congress is not allowed to coerce states into doing something it wants. Those federalism concerns came to the fore when Justice Kennedy asked challenger’s counsel: “If your argument is accepted, the states were told to establish exchanges in order to receive money [for their citizens] or send the insurance market into a death spiral; isn’t that coercion? Under your argument, there would be a serious constitutional problem.” While the government had not raised the federalism argument, it had been raised by state amici. Citing South Dakota v. Dole, he noted that Congress is required to advise states about the conditions attached to the acceptance of federal grants. Here, clearly, Kennedy views the loss of subsidies for a state’s residents as such an unknown condition. The thinking seems to be that when interpreting a statute, given the warning by the Court about such coercion, Congress could not have intended such result. He hinted as much when later he suggested to government’s counsel that he should argue for the government’s view of the statute to avoid the constitutional concern. If Justice Kennedy is the swing-vote here, it is because he does not believe that Congress intended a reading of the statute that creates an unconstitutional coercion, similar to the Court’s reasoning in striking down the Medicaid provision in NFIB v. Sebelius.
Chevron Deference. Although the decisions of the lower courts in this and similar challenges have focused onChevron v. National Resources Defense Council, the Supreme Court spent little time discussing the potential application of Chevron deference in this case. Instead, it appeared that some members of the Court were more inclined to conclude that there is only one permissible interpretation of the statute—whether that interpretation is the one advanced by the challengers or the Administration.
A brief exchange between Solicitor General Verilli, Justice Kennedy, and Chief Justice Roberts, however, suggests that some members of the Court may be skeptical of the applicability of Chevron deference to tax credits. During this exchange, Justice Kennedy expressed skepticism that a question of this economic magnitude could be left to the Internal Revenue Service. He said, “It seems to me a drastic step for us to say that the [Internal Revenue Service] can make this call one way or the other when there are . . . billions of dollars of subsidies involved . . . . It seems to me our cases say that if the Internal Revenue Service is going to allow deductions using these, that it has to be very, very clear.” Solicitor General Verrilli responded citing to the Court’s 2011 decision in Mayo Foundation for Medical Education & Research v. United States for the notion that “Chevron [deference] applies to the tax code like anything else.” Chief Justice Roberts, however, appeared concerned that, under this approach “a subsequent administration could change” course and adopt a contrary interpretation concerning the availability of tax credits. The Chief Justice asked very few questions during oral argument, but this exchange suggests he may be inclined to interpret the statute as unambiguous and not implicating Chevron deference, whether in favor of the Administration or the challengers.
Standing. The U.S. Constitution establishes that federal court jurisdiction extends only to cases involving an actual injury, economic or otherwise. While media coverage in recent weeks has focused on the standing of the four individual plaintiffs challenging the individual mandate, it does not appear that the Court will avoid reaching the merits of the case based on standing concerns. No fact-finding has taken place in this case because the appeal stems from a motion to dismiss filed by the Government. Therefore, Solicitor General Verrilli indicated that he believes it’s appropriate to take the plaintiffs’ attorney’s word that one or more of the plaintiffs has standing and that the dispute is not moot. While Justice Ginsburg asked early questions indicating a concern with standing, it did not appear that other members of the Court were inclined to take up the issue.
Practical Consequences. Over 85 percent of individuals who enroll in coverage on an Exchange receive subsidies to help pay for the cost of premiums and/or to reduce cost-sharing on the Exchange plan. Most of these individuals reside in the 34 states that have HHS-established Exchanges. Absent these subsidies, some individuals would be unable to afford coverage and would therefore be exempt from the individual mandate. Others may have affordable coverage options but may decline to purchase coverage given the cost. The resulting reduced enrollment would both increase the number of uninsured in states without state-run Exchanges and constrict the risk pool on those Exchanges. As the risk pool trends toward a smaller group of less healthy individuals, premiums would increase, which some believe would threaten a death spiral on the individual market.
In addition, the employer mandate’s operation depends on whether employees can purchase subsidized Exchange coverage absent affordable and sufficient employer coverage. Without subsidies, employers in states with HHS-established Exchanges would not be subject to the employer mandate unless 30 or more of its employees actually reside in a neighboring state with a state-run Exchange. While many observers believe that large employers would continue to offer coverage without the employer mandate, there is some concern that such employer-sponsored coverage might not be affordable among lower income workers, resulting in greater numbers of uninsured individuals.
During oral argument, the challenger’s counsel, Mr. Carvin, contended that there was no evidence that limitations on the subsidies would produce such disastrous consequences. But, it appeared that most of the Justices were concerned about the market consequences if subsidies were eliminated in some markets. Justice Alito, acknowledging these concerns, suggested that the Court might stay the mandate to provide states with an opportunity to establish state-run Exchanges before subsidies on HHS-established Exchanges are eliminated. On the other hand, Justice Scalia expressed confidence that Congress would act to address and mitigate destabilization of the individual market. Thus, at this stage, it is unclear how a reversal of the IRS rule might be implemented and what, if anything, the Court might do to mitigate the impact of the judgment. But certainly the potential market consequences of the elimination of subsidies on HHS-established Exchanges would be significant for plans, providers, and patients alike. Last Tuesday, HHS Secretary Burwell stated in aletter to Congress that the Administration “know[s] of no administrative actions that could . . . undo the massive damage to our health care system that would be caused by an adverse decision.”
Furthermore, if the Court concludes that the challengers’ interpretation is the only viable interpretation of the statute, the decision may prompt further litigation concerning the constitutionality of linking the availability of subsidies to a state’s establishment of a state-run Exchange. Justice Kennedy’s comments and questions during oral argument focused largely on the 10th Amendment and the concern that restricting subsidies to state-run Exchanges may constitute impermissible coercion of the states by the federal government. Judicial resolution of these issues may require a new case challenging to the statute’s constitutionality and addressing the severability of the various subsidy and market reform provisions of the ACA.
But, if the Court upholds the IRS rule and concludes that the Administration’s interpretation is the only viable interpretation of the statute—whether based on the plain text and context of the provision or because of the doctrine of constitutional avoidance—the implementation of the ACA will continue without significant change and stakeholders would have the security of knowing that a future administration would be unable to reverse the IRS rule and restrict subsidies to state-run Exchanges. On the other hand, if the Court upholds the IRS rule based on Chevron deference, a future administration could reverse course and eliminate subsidies on HHS-established Exchanges.
Copyright © 2015 Hooper Lundy & Bookman PC | www.health-law.com
St. Patrick's Day Dinner Recipe
Originally posted on March 15, 2015 on www.firsthomelovelife.com.
Today is the day of the luck o' the Irish, the day that everybody dons their green apparel and the day that putting potatoes and meat together for a meal is smiled upon. If you are having a hard time trying to find a recipe that is festive enough for the green infused holiday look no further!
For the Potatoes
- 2 pounds potatoes
- 2 tablespoons sour cream
- 1 large egg
- 1/2 cup cream
- shredded sharp cheddar cheese (to top)
- salt and pepper
For the Mixture
- 1 tablespoon olive oil
- 2 pounds ground beef or ground turkey
- 5 large carrots, peeled and chopped
- 1 medium yellow onion, chopped
- 2 tablespoons butter
- 2 tablespoons all-purpose flour
- 1 cup beef stock
- 4 teaspoons Worcestershire sauce
- 1 cup ketchup
- 2 cups frozen peas
- 2 cups frozen sweet corn
- 2 cups frozen green beans
- 2 cups sliced white mushrooms
- salt, pepper and paprika
Directions
- In a large pot, boil the potatoes in salted water until tender, about 10-12 minutes. While the potatoes cook combine the sour cream, egg and cream into a measuring cup and mix. Drain the potatoes and pour them into a large bowl. Add the cream mixture into potatoes and mash until potatoes are to the consistency you like (I leave them a bit chunky). Set aside.
- Preheat a large sauté pan or skillet over medium high heat. Add oil to hot pan with beef or turkey. Season meat with salt and pepper. Brown and break apart meat for 5 minutes. Add the chopped carrots and onion to the meat. Continue to cook for another 5 or so minutes…
- In another small skillet over medium heat cook butter and flour together until it makes a dough like consistency. Whisk in broth, ketchup, and Worcestershire slowly, working out all the lumps.
- Add frozen veggies into the skillet with the meat.
- Add sauce to the pot and mix everything together well.
- In a large lasagna dish or something similar add the meat mixture.
- Spread potatoes evenly all over the top, sprinkle cheddar cheese on top of potatoes and garnish with paprika (optional)
- Put the shepherds pie under the broiler until the cheese has melted and bubbled, and potatoes have browned a bit.
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IRS Begins Preparing Cadillac Tax Regulations; Public Input Requested
Originally posted February 24, 2015 on www.ifebp.org.
In Notice 2015-16, the Internal Revenue Service (IRS) outlines potential approaches for future proposed regulations regarding the excise tax on high cost employer-sponsored health coverage under section 4980I, also known as the Cadillac tax.
The notice is intended to initiate and inform the process of developing regulatory guidance regarding the excise tax on high cost employer-sponsored health coverage under section 4980I of the Internal Revenue Code. Section 4980I, which was added by the Affordable Care Act, applies to taxable years beginning after December 31, 2017.
Under this provision, if the aggregate cost of “applicable employer-sponsored coverage” provided to an employee exceeds a statutory dollar limit, which is revised annually, the excess is subject to a 40% excise tax.
The issues addressed in this notice primarily relate to:
- the definition of applicable coverage,
- the determination of the cost of applicable coverage, and
- the application of the annual statutory dollar limit to the cost of applicable coverage. The Department of the Treasury (Treasury) and IRS invite comments on the issues addressed in this notice and on any other issues under section 4980I.
This notice describes potential approaches on a number of issues which could be incorporated in future proposed regulations, and invites comments on these potential approaches.
Treasury and IRS intend to issue another notice before the publication of proposed regulations under section 4980I, describing and inviting comments on potential approaches to a number of issues not addressed in this notice, including procedural issues relating to the calculation and assessment of the excise tax.
After considering the comments on both notices, Treasury and IRS anticipate publishing proposed regulations under section 4980I. The proposed regulations will provide further opportunity for comment, including an opportunity to comment on the issues addressed in the preceding notices.
Know the Minimum Wage in Your State? You Might Want to Check Again
Originally posted on January 5, 2015 by Rick Montgomery, JD on ThinkHR.com.
2014 was an odd year in regards to minimum wage. Although Congress failed to pass any legislation regarding the federal minimum wage, nearly half the states had minimum wage increases that went into effect on January 1, 2015. In addition, at least 20 states will have minimum wage increases in 2016 (due to scheduled minimum increases or annual minimum wage calculations). Employers, especially those with multi-state operations, should review the minimum wage of the state(s) in which they operate and make preparations for the changes.
Breakdown of Minimum Wage Increases
There are currently 10 states that adjust their minimum wage annually: Arizona, Colorado, Florida, Missouri, Montana, Nevada, New Jersey, Ohio, Oregon, and Washington. Of all of these states, with the exception of Nevada, the new minimum wage rate goes into effect on January 1stof each year. In Nevada, the new minimum wage rate goes into effect on July 1st of each year.
In November 2014, there were four states that passed ballot initiatives increasing the state minimum wage: Alaska, Arkansas, Nebraska, and South Dakota. With the exception of Alaska, the new minimum wage rates in these states went into effect on January 1, 2015. While South Dakota limits their minimum wage increase to 2015, Alaska, Arkansas, and Nebraska have increases in subsequent years.
The minimum wage increases in the remaining jurisdictions were the result of legislation passed in either 2014 or previous legislative sessions. These jurisdictions include: Connecticut, Delaware, the District of Columbia, Hawaii, Maryland, Massachusetts, Michigan, Minnesota, New York, Rhode Island, Vermont, and West Virginia. Many of these states also have scheduled minimum wage increases in years following 2015.
The New Rates
The following is a summary of the minimum wage increases.
Alaska. Alaska’s minimum wage is scheduled to increase as follows:
- On February 24, 2015, the minimum wage will increase to $8.75 per hour.
- On January 1, 2016, the minimum wage will increase to $9.75 per hour.
Arizona. Effective January 1, 2015, Arizona’s minimum wage is $8.05 per hour.
Arkansas. Effective January 1, 2015, Arkansas’s minimum wage is $7.50 per hour. Arkansas’s minimum wage is scheduled to increase as follows:
- On January 1, 2016, the minimum wage will increase to $8 per hour.
- On January 1, 2017, the minimum wage will increase to $8.50 per hour.
California. Effective January 1, 2016, California’s minimum wage will increase to $10 per hour.
Colorado. Effective January 1, 2015, Colorado’s minimum wage is $8.23 per hour.
Connecticut. Effective January 1, 2015, Connecticut’s minimum wage is $9.15 per hour. Connecticut’s minimum wage is scheduled to increase as follows:
- On January 1, 2016, the state minimum rate will increase to $9.60 per hour.
- On January 1, 2017, the state minimum rate will increase to $10.10 per hour.
Delaware. Effective June 1, 2015, Delaware’s minimum wage will increase from $7.75 to $8.25 per hour.
District of Columbia. The District of Columbia’s minimum wage is scheduled to increase as follows:
- On July 1, 2015, the minimum wage will increase to $10.50 per hour.
- On July 1, 2016, the minimum wage will increase to $11.50 per hour.
Florida. Effective January 1, 2015, Florida’s minimum wage is $8.05 per hour.
Hawaii. Effective January 1, 2015, Hawaii’s minimum wage is $7.75 per hour. Hawaii’s minimum wage is scheduled to increase as follows:
- On January 1, 2016, the minimum wage will increase to $8.50 per hour.
- On January 1, 2017, the minimum wage will increase to $9.25 per hour.
- On January 1, 2018, the minimum wage will increase to $10.10 per hour.
Maryland. Effective January 1, 2015, Maryland’s minimum wage is $8 per hour. Maryland’s minimum wage is scheduled to increase as follows:
- On July 1, 2015, the minimum wage will increase to $8.25 per hour.
- On July 1, 2016, the minimum wage will increase to $8.75 per hour.
- On July 1, 2017, the minimum wage will increase to $9.25 per hour.
- On July 1, 2018, the minimum wage will increase to $10.10 per hour.
Massachusetts. Effective January 1, 2015, Massachusetts’ minimum wage is $9 per hour. Massachusetts’ minimum wage is scheduled to increase as follows:
- On January 1, 2016, the minimum wage will increase to $10 per hour.
- On January 1, 2017, the minimum wage will increase to $11 per hour.
Michigan. Michigan’s minimum wage is scheduled to increase as follows:
- On January 1, 2016, the minimum wage will increase to $8.50 per hour.
- On January 1, 2017, the minimum wage will increase to $8.90 per hour.
- On January 1, 2018, the minimum wage will increase to $9.25 per hour.
Minnesota. Minnesota’s minimum wage is scheduled to increase as follows:
For large employers (employers that have at least $500,000 in annual gross sales or business done) the minimum wage will increase as follows:
- On August 1, 2015, the minimum wage will increase to $9 per hour.
- On August 1, 2016, the minimum wage will increase to $9.50 per hour.
For small employers (employers that have annual gross sales or business done of less than $500,000) the minimum wage will increase as follows:
- On August 1, 2015, the minimum wage will increase to $7.25 per hour.
- On August 1, 2016, the minimum wage will increase to $7.75 per hour.
Missouri. Effective January 1, 2015, Missouri’s minimum wage is $7.65 per hour.
Montana. Effective January 1, 2015, Montana’s minimum wage is $8.05 per hour.
Nebraska. Effective January 1, 2015, Nebraska’s minimum wage is $8 per hour. Nebraska’s minimum wage is scheduled to increase to $9 per hour on January 1, 2016.
Nevada. Effective July 1, 2015, Nevada’s minimum wage will increase; however, the state does not announce the new effective minimum wage rate until April 1st of each year.
New Jersey. Effective January 1, 2015, New Jersey’s minimum wage is $8.38 per hour.
New York. Effective January 1, 2015, New York’s minimum wage is $8.75 per hour. New York’s minimum wage is scheduled to increase to $9 per hour on January 1, 2016.
Ohio. Effective January 1, 2015, Ohio’s minimum wage is $8.10 per hour.
Oregon. Effective January 1, 2015, Oregon’s minimum wage is $9.25 per hour.
Rhode Island. Effective January 1, 2015, Rhode Island’s minimum wage is $9 per hour.
South Dakota. Effective January 1, 2015, South Dakota’s minimum wage is $8.50 per hour.
Vermont. Effective January 1, 2015, Vermont’s minimum wage is $9.15 per hour. Vermont’s minimum wage is scheduled to increase as follows:
- On January 1, 2016, the minimum wage will increase to $9.60 per hour.
- On January 1, 2017, the minimum wage will increase to $10 per hour.
- On January 1, 2018, the minimum wage will increase to $10.50 per hour.
Washington. Effective January 1, 2015, Washington’s minimum wage is $9.47 per hour.
West Virginia. Effective January 1, 2015, West Virginia’s minimum wage is $8 per hour. West Virginia’s minimum wage is scheduled to increase to $8.75 per hour on January 1, 2016.
'Cadillac' Tax Could Diminish Union Health Plans
Originally posted by Bob Herman on March 3, 2015 on businessinsider.com.
Health plans obtained through union collective bargaining agreements often include much more generous benefits than other employer-sponsored plans. But such benefits are likely to be pared down as the Affordable Care Act's excise tax nears, a new study in Health Affairs contends.
That excise tax, often called the “Cadillac” tax, will go into effect Jan. 1, 2018. A 40% tax will be levied on every dollar of total premiums paid above $10,200 for individual health plans and $27,500 for family plans.
Policymakers included the Cadillac tax in the ACA as a way to raise revenue to fund the law. The Congressional Budget Office estimates it will bring in $120 billion between 2018 and 2024. Most of that will come from higher taxes on employees' taxable wages instead of the tax-exempt insurance benefits.
But the tax also was viewed as a way to reduce the number of health plans that have little cost-sharing and premium contributions, which some argue contribute to the overuse of healthcare. President Barack Obama has been quoted as saying the excise tax will discourage “these really fancy plans that end up driving up costs.” Lavish executive-level health plans and collegiate benefit packages, like Harvard University's, have been oft-cited targets. However, many collectively bargained policies fall into the Cadillac bracket as well.
The Health Affairs study, published Monday, sought specifics about what kind of health benefit packages unions provide for employees. People with union plans have lesser out-of-pocket obligations and don't pay as much per month toward their premium as others with employer-based insurance, but the surprise was “the magnitude of the differences for certain things,” said Jon Gabel, a healthcare fellow at NORC at the University of Chicago and one of the study's authors.
For instance, families in collectively bargained plans paid about $828 per year toward their premium, or about $69 per month, according to the study's surveyed data. That compared to $4,565 for the average employer-sponsored family plan, or about $380 per month, according to 2013 data from the Kaiser Family Foundation.
Cost-sharing requirements also were less onerous in union health plans, the study found. The average annual in-network deductible for an individual in a collectively bargained plan was $203. The average deductible at other employer-based plans was almost six times higher at $1,135.
Although the federal government is considering some flexibility for “high risk” unionized occupations such as miners and construction workers, many employers are looking to get ahead of the excise tax by slimming down benefits.
“For those who are fortunate to have a Cadillac plan right now, it's probably not going to be so comprehensive in the future,” Mr. Gabel said. However, he said, reduced benefits should lead to increased wages to offset higher cost-sharing.
Tom Leibfried, a health care lobbyist for the AFL-CIO, a federation of 56 unions, calls the Cadillac tax “a misnomer” because union plans apply to middle-class Americans with modest wages. The issue should not be about the generosity of health coverage, but rather whether the coverage is appropriate for people based on the health care costs in their geography, he said.
“Trying to control utilization in that way really does amount to a cost-shift,” Mr. Leibfried said. “This is really a middle-class problem.”
Higher compensation supplanting lost benefits is not a sure thing either, Mr. Leibfried said. Indeed, wages and salaries have been mostly stagnant the past decade, barely edging out inflation even as health benefits shrink.