Source: https://healthlawmonitor.jacksonkelly.com/2012/08/index.html
Timestamp: 2019-04-25 20:08:59+00:00

Document:
The Treasury Department issued proposed regulations under Section 501(r) of the Internal Revenue Code (“IRC”), which was enacted as part of the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act (collectively “ACA”). As proposed regulations, the regulations are not final or binding upon taxpayers, but they may be relied upon until final regulations are issued. After March 23, 20120, a hospital must fulfill the requirements described in IRC §501(r) in addition to the requirements of IRC §501(c)(3).
The proposed regulations provide guidance for IRC §501(r)(4) through IRC §501(r)(6), concerning a Hospitals’ financial assistance policy, limitations on charges, and billing and collection requirements. Because the ACA survived opponents’ constitutional attacks in National Federation of Independent Businesses v. Sebelius, decided by the Supreme Court on June 28, 2012, hospitals must continue to implement the new stipulations of IRC §501(r). Hospitals may apply the guidance provided in the proposed regulations to assist in compliance with IRC §501(r) to remain tax-exempt.
The proposed regulations first make some semantic clarifications. A “hospital facility” is a facility that is required by state law to be licensed, registered, or similarly recognized as a hospital. If a hospital organization operates more than one hospital facility, then each facility must individually meet the IRC §501(r) requirements.
IRC §501(r)(4) requires a hospital organization to establish a written financial assistance policy (FAP). The FAP must include: (1) eligibility criteria for financial assistance and whether such assistance includes free or discounted care; (2) the basis for calculating amounts charged to patients; (3) the method for applying for financial assistance; (4) in the case of an organization that does not have a separate billings and collections policy, the actions the hospital organization may take in the event of nonpayment; and (5) measures to widely publicize the policy within the community served. The proposed regulations do not mandate any particular eligibility criteria. A hospital has the freedom to structure the eligibility standards of its FAP, so long as it specifies the financial assistance available and the criteria for qualification.
Under the proposed regulations, hospitals must take four specific measures to widely publicize the FAP. The hospital organization must have hard copies of the FAP available for interested persons, conspicuously display the FAP within the hospital, communicate information about the FAP to community members most likely to require financial assistance, and post the FAP materials on the hospital’s web page. In addition, if more than 10% of a hospital’s community speaks a non-English language, the FAP must be available in that language. This section lastly requires hospital facilities to adopt a written policy stating that they will provide, without discrimination, care for emergency medical conditions to individuals, regardless of their FAP eligibility.
IRC §501(r)(5) states that a hospital facility must limit the amount charged for any medically necessary care it provides to a FAP-eligible individual to not more than the amounts generally billed to individuals with insurance covering that care (AGB). The proposed regulations provide two methods for hospitals to determine AGB, the “look back or the “prospective” method, and a hospital may use only one of the methods. The “look back” method calculates the AGB based on all past claims that have been paid in full to the hospital facility for medically necessary care by either Medicare fee-for-service alone or by Medicare fee-for-service together with all private health insurers paying claims to the hospital. The “prospective” method bases the AGB on an estimate of the amount that would be paid by Medicare and a Medicare beneficiary for the medically necessary care at issue if the FAP-eligible individual were a Medicare fee-for-service beneficiary.
The regulations also prohibit hospitals from charging FAP-eligible individuals the gross charge of their medical care, which is the full, established price for the medical care that a hospital uniformly charges all patients before applying any contractual allowances, discounts, or deductions. If, however, the hospital does not know whether an individual is FAP-eligible, the proposed regulations provide a “safe harbor”; the hospital can bill the person its usual charges and still be compliant, as long as it makes attempts to determine whether the person is eligible for financial assistance. If the hospital determines that the individual is eligible, it must refund any excess payments.
IRC §501(r)(6) provides that a hospital cannot engage in extraordinary collection actions (ECAs) against an individual before it makes a reasonable effort to determine whether the individual is eligible for financial assistance. The proposed regulations define the terms “extraordinary collection actions” and “reasonable effort.” ECAs are any actions taken by a hospital facility against an individual, related to obtaining payment of a bill for care covered under the hospital’s FAP, that require legal or judicial process. Such actions include foreclosure on the individual’s real estate or placing a lien on an individual’s property. Deferring or denying medical care because of a pattern of nonpayment is not considered an ECA. A hospital has made reasonable efforts to determine an individual’s FAP eligibility if the hospital: (1) Notifies the individual about the FAP; (2) in the case of an incomplete FAP application, provides the individual with information relevant to completing the application; and (3) in the case of a complete FAP application, makes and documents a determination as to whether the individual is FAP-eligible. Hospitals have 120 days following a first bill to notify an individual about financial assistance, and patients have an additional 120 days to submit a complete application.
The Treasury Department’s proposed regulations do not address IRC §501(r)(3), which requires hospitals to conduct community health needs assessments (CHNAs). However, the IRS issued such guidance in a previous notice. In Notice 2011-52, the IRS stated that a CHNA must have certain components. A CHNA must describe the community served and how the community was determined, as well as the processes and methods used to conduct the assessment. The CHNA must identify any organizations with which the hospital facility collaborated in completing the CHNA and any public health experts it consulted. Finally, the CHNA must prioritize the community health needs and discuss the existing resources available to meet these needs. The hospital must include a strategy for implementing the CHNA and make the assessment available to the public. Notice 2011-52 also states that a hospital can incur penalties for noncompliance, such as a $50,000 excise tax for each year of noncompliance and a loss of its tax-exempt status. A hospital must complete its CHNA by the last day of its first taxable year beginning after March 23, 2012.
Hospitals can no longer wait to comply with IRC §501(r) requirements. Hospitals should compare the proposed regulations with their current policies to see if they can be easily implemented. For more information on how the proposed regulations may affect your organization, you may contact any of Jackson Kelly, PLLC’s Health Care and Finance attorneys.
The Patient Protection and Affordable Care Act was enacted by Congress on March 23, 2010 and amended by the Health Care and Educational Reconciliation Act of 2010 which was enacted on March 30, 2010 (collectively, referred to as “Healthcare Reform” or “PPACA”). The United States Supreme Court upheld the individual mandate (5-4) as within Congress's taxing power, stating that PPACA's “requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax”; National Federation of Independent Business v. Sebelius, No. 11-393 (U.S. 6/28/12). With PPACA now upheld by the Supreme Court, Employers need to begin planning now to reduce the overall cost of this legislation.
At the heart of the legislation is the requirement that commencing in 2014 individuals must have “minimum essential health coverage” for themselves and their dependents. Those individuals who do not have minimum essential coverage for themselves and their dependents will be required to make a “shared responsibility” payment essentially in the form of a tax. In 2008, uninsured Americans received about $116 billion worth of healthcare, almost 50% of which was uncompensated care. These uncompensated costs are recouped via higher charges for all healthcare services, which has the effect of increasing insurance premiums and costs for all. The cornerstone of Healthcare Reform is requiring all Americans, both healthy and unhealthy Americans, to either secure coverage or pay a penalty. The calculation of the penalty is relatively complex with limitations based upon household income. Generally speaking, for 2014, the penalty is $95.00 per adult, going up to $325.00 in 2015 and $695.00 in 2016.
In order to help low income individuals acquire health insurance through a state exchange, premium assistance is available for individuals (single or joint filers) with household incomes between 100% and 400% of the Federal Poverty Level (“FPL”) who do not receive health insurance through an employer or a spouse’s employer. If an applicable large employer offers to its full-time employees and their dependents, the opportunity to enroll in a plan offering minimum essential coverage and one or more full-time employees has enrolled in another qualified health plan with respect to which an applicable premium tax or cost-sharing reduction is allowed or paid with respect to the employee, then, the employer is subject to a tax, based only upon those full-time employees who are actually eligible for the premium tax credit or cost-sharing reduction, multiplied by $250.00 per month with the added limitation that the penalty under this provision would not exceed the penalty if the employer had offered no plan with minimum essential coverage.
If an employee is offered minimum essential coverage through his employer, the individual is ineligible for the premium tax credit. However, if the employee is offered “unaffordable coverage” (as defined in PPACA) by his or her employer, or the employer’s share of the cost for benefits is less than 60%, the employee can be eligible for premium tax credit, but only if the employee declines to enroll in the coverage and satisfies the condition for receiving a tax credit through an exchange.
3. Shared Responsibility for Employers.
Currently there is no federal requirement that employers offer health insurance coverage to employees or their families. Commencing in 2014, an applicable large employer (one, with respect to any calendar year, that employed an average of at least 50 full-time equivalent employees during the preceding calendar year). that does not offer coverage for all of its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage under which the employer’s share of the total allowed cost of benefits is less than 60%, is required to pay a penalty, if any full-time employee is certified to the employer as having purchased health insurance through a State exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.
An Applicable Large Employer that fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage and has at least one full-time employee has been certified as having enrolled in a qualified health plan with respect to which an applicable premium tax or cost-sharing reduction is allowed or paid with respect to such employee, then the employer is subject to a monthly tax equal to the product of its full-time employees, less 30, multiplied by $166.67 (1/12 of $2,000 per year). Effectively, the Employer penalty is $2,000 per year for each employee in excess of 30 who is participating in the exchange.
(1) Coverage for children up to age 26.
(2) Coverage for pre-existing conditions for children -- For enrollees who are under the age of 19 years, a plan may not have a pre-existing condition provision.
(3) Selection of primary care provider -- Health insurance plans must allow enrollees to select any participating primary care provider available and to cover emergency services without prior authorization requirements.
(4) Prevention and Wellness Program Requirements – All plans are required to cover preventative services and immunizations that are recommended by the U.S. Preventative Services Task Force and the Centers for Disease Control.
(5) No Lifetime or Annual Limits – A group health plan and a health insurance issuer offering group or individual health insurance coverage may not establish lifetime or annual limits on the dollar value of benefits for any participant or beneficiary.
(6) Revised Appeals Process – Health plans must provide enhanced claims appeal process.
(7) Cost of employer provided health care on W-2 – An employer is required to disclose on each employees annual Form W-2, the value of the employees health insurance coverage sponsored by the employer.
Additional 0.09% Medicare tax on individuals with wages in excess of $250,000 for married individuals.
Limit on FSAs – The Act limits employee salary reduction contributions to $2,500 or less to an FSA.
(1) Individual coverage mandated – See II,1. above.
(2) Premium assistance – See II,2. above.
(3) Shared responsibility for employers – See II,3. above.
(4) Insurance exchange option – States must establish American Health Benefit Exchanges and Small Business Health Option Programs (“SHOP”) exchanges to be administered by a governmental agency or non-profit organization.
(5) Pre-existing conditions – A plan may not have any pre-existing condition provisions effective January 1, 2014.
(6) Waiting periods – A group health plan and a health insurance insurer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days.
(7) Automatic enrollment – An employer that has more than 200 full-time employees and offers employees enrollment in one or more health benefit plans must automatically enroll new full-time employees in the plans.
High cost excise tax – An employer who sponsors a so-called “Cadillac” health plan will be required to pay an excise tax on the excess value of the coverage.

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