Tag Archives: Affordable Care Act (ACA)

The Cadillac Tax

“It will be of little avail to the people…if laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood.”  James Madison

 

When the Affordable Care Act (ACA) was passed in 2010, there was a provision to have an excise tax on high-cost employer sponsored health care plans. This tax, known as the “Cadillac tax” was to be 40% of the cost of health coverage that exceeds certain, predetermined threshold amounts. This tax was to go into effect in 2018. In the original law, this tax was to be non-tax deductible and it was to be permanent.

 

In calculating the tax, the cost of coverage was to include the total contributions paid by both the employer and the employees. However, cost sharing amounts such as co-pays and deductibles would not be used in the cost calculations.

 

The intent of the Cadillac tax was to reduce the tax preferred treatment of employer purchased health care insurance; reduce the overall health care spending which was manifest by these high cost plans, and to help finance the expansion of health care coverage of the ACA.

 

The tax was supposed to incentivize employers to pay their employees higher salaries or wages instead of compensating them with these desirable health care plans. The government could tax wages and salaries but they could not tax the health care plans prior to the ACA.

 

It was also claimed by those who were in support of the tax, that the expensive health care plans were more likely to be used by the people; they would be more inclined to visit the emergency room or their physicians when they might not need to. People act rationally; they are more likely to use something if they do not have to pay for it.

 

During the debates on the Affordable Care Act, Nancy Pelosi infamously proclaimed that the bill must be passed so that we can find out what’s in it (or words to that effect). She was being prescient. When it became known what benefits would be effected by the Cadillac tax there was significant movement to have it removed from the law.

 

On December 18, 2015, Congress passed and President Obama signed a two year delay of the Cadillac tax. With the change, the tax would not become effective until 2020 and the payments would be deductible for federal tax purposes.

 

The tax would be 40% of the cost of the health care insurance policy so long as the policy exceeded a predetermined amount. This predetermined amount is currently $10,200 for an individual policy and $27,500 for a family policy. However, these amounts are allowed to be raised before the tax takes effect in 2020. The tax will be indexed for inflation in future years which means it is only going up.

 

For people under 65 who are engaged in high risk professions, the threshold amounts are a little higher, $11,850 for individuals and $30, 950 for a family policy. These amounts may also go up prior to the tax going into effect and they will also be indexed for inflation in future years.

 

A recent survey done by the National Business Group on Health showed that about half of our nation’s largest companies have health plans that will reach the threshold by 2018 if measures fail to control rising costs. Three quarters of these companies are likely to reach the threshold by 2020.

 

Not surprisingly, republicans, employees and employers subject to the tax would like to see it removed from the ACA. What is a surprise is that unions and some democrats are in agreement that the tax should eliminated. Even President Obama agreed to sign off on the two year delay on implementation—this is actually the first significant change of Obamacare that he will sign off on.

 

Initially the Cadillac tax will affect the benefits of employees and union workers that already have generous plans. As the caps rise each year (remember, they are indexed to inflation), this tax will go up. As the tax goes up, it is foreseeable that the wages and salaries of those who have the plans, will go down. Or, if salaries do not go down, it is foreseeable that the benefits will be decreased, or in some cases, eliminated. Since the plans deductibles and out of pocket expenses are not subject to the Cadillac tax calculations, it is likely that these costs will rise.

 

Wellness programs, tax-free contributions to health savings accounts, and on-site health clinics, are all subject to health plan costs that are used in the Cadillac tax calculation. As such, they are likely to be removed from the plans even though they would be likely to decrease health care costs in the long run. Unions that have also been able to negotiate higher benefits in their health care plans (often at the cost of lower wages) would also be subject to changes in their health plan benefits. No wonder that President Obama and some democrats in Congress are willing to hold off on the Cadillac tax and let the next administration deal with its implications.

 

One of the key problems with the Cadillac tax in its present form is the link of the threshold to standard inflation. Historically, inflation of medical costs has exceeded standard inflation and there is every reason to think that this will continue. As the costs of the plans rise faster than the threshold, more plans will be subject to the Cadillac tax. The battle between what the provider’s bill and what the third party payers will be willing to pay will also continue.

 

Since the Cadillac Tax was supposed to help cover some of the costs for Obamacare, the two year delay will lead to increased deficits associated with the law. In fact, the Committee for a Responsible Federal Budget estimates that the delay will add over $90 billion to the federal deficit.

 

It’s hard to predict how people will react once this tax goes into effect. Will it change the way people see their health care providers? Will health care costs decrease as people will be less inclined to see their providers under the lesser plans? Will health care improve? Hard to believe that it will.

 

The two year delay in implementation will allow Congress to make adjustments such as by indexing to medical inflation. However, if a republican administration is elected to the Oval Office, then the postponement will likely become just the first step to repeal, not just of the Cadillac tax, but all of the Affordable Care Act.

 

 

darrylweiman

by Darryl S. Weiman, M.D., J.D.

Professor, Cardiothoracic Surgery, University of Tennessee Health Science Center and Chief of Surgery, VAMC Memphis, TN

MORE ABOUT THE AUTHOR: Darryl Weiman is a featured expert in www.healthcaredive.com on February 17, 2016. 

The Collateral Source Rule and Obamacare

The Collateral Source Rule is a legal doctrine holding that the damages being asked for by a plaintiff should not have payments coming from a source other than the defendant deducted from the damages the defendant would otherwise have to pay. The origins of this rule lie in the common law whereby the jury was forbidden from considering evidence of the plaintiff’s health insurance in covering some of the future medical expenses emanating from the defendant’s negligence.

 

It seems like this rule would allow the plaintiff who has health insurance get a windfall if he wins the malpractice suit. The insurance and the defendant would both be paying for the same projected future health care costs which were due to the injuries. As a physician, this rule seems to be, on its face, unfair. A look at the history of the rule is warranted.

 

The Collateral Source Rule comes from common law which dates back to the nineteenth century. At that time, health insurance was rare and those that had it paid for the premiums out of their own pockets. The courts felt that there was a strong public interest in having health insurance and they did not want to penalize people who had the insurance by decreasing their medical malpractice damages by the amount paid for by the insurance. The problem with the common law was the potential for the plaintiff of obtaining a double-recovery for the future medical expenses calculated in the damage claim of the malpractice suit.

 

As more people obtained health insurance, especially from employer plans, the strong public interest in getting people to get coverage became less of an issue. In a quest for fairness, some states passed collateral source statutes which aimed to prevent the double-recovery of damage claims. Under these statutes, the jury was still prevented from hearing evidence of health insurance coverage when deciding on the damage award. However, after the jury verdict, the defendant is allowed to present evidence of collateral sources of payment before the judge. The judge would then be allowed to reduce the jury award by an amount that was “reasonably certain” to be covered by the insurance policy.

 

With the passage of the Affordable Care Act (ACA) in 2010, the near universal health coverage mandates takes away the need of the Collateral Source Rule. Juries should now be allowed to hear evidence of health care coverage when evaluating the damage award in a malpractice action. The public interest of incentivizing individuals to purchase their own health care insurance is now gone; the ACA now requires the purchase of health care insurance and those who do not are subject to penalties (a tax?).

 

Although the Collateral Source Rule still stands, it is likely that future litigation will attack the Rule. There is a case on point. In Aidan Ming-Ho v. Verdugo Hills Hospital, a medical malpractice case, the jury gave the plaintiff the verdict and awarded damages which included future medical costs. The hospital argued, on appeal, that it should have been allowed to present evidence of the plaintiff’s health insurance coverage to rebut the claims for future medical expenses especially in light of the ACA whereby “the availability of such federally mandated available insurance options makes the prospect of future health insurance coverage for plaintiff anything but speculative.” Aidan Ming-Ho Leung v. Verdugo Hills Hospital, 2013 WL 221654 (CA Ct. App., 2013)

 

The Leung court was not convinced. The court held that “such evidence, standing alone, is irrelevant to prove reasonably certain insurance coverage…because it has no tendency in reason to prove that specific items of future care and treatment will be covered, the amount of that coverage, or the duration of the coverage.”

 

Health insurance policies may differ as to what is covered, how much will be paid for the health care, and the duration of the coverage. There are caps to some policies and the court recognized this. Both the duration and the quality of health insurance policies were variable and could be changed by the carrier at any time. The fact that the patient had medical insurance did not guarantee that his future medical expenses would be met.  It made sense to keep this information from the jury.  Rather than penalize the patient with poor health care coverage, the jury would be better off not knowing that the patient even had coverage.

 

However, under the ACA, there is a certain minimum amount of coverage that must be in the policy. Also, the policy has no ceiling of benefits and the policy can attach to the patient forever. As such, it makes sense to argue that the coverage that must be provided under the law should now be presented to the jury prior to making their deliberations. The strong public policy of encouraging patients to obtain health care is fast becoming a non-issue as most people are now required to get a policy or be covered under Medicare or Medicaid.

 

The issue addressing the necessity of the Collateral Source Rule will likely be litigated in several courts in the near future. Plaintiffs will argue that the Rule is still needed as the long-term viability of the ACA is still unknown.  Insurers are leaving the market as their losses are significant, people are going without health insurance as their co-pays and premiums are going up, and there are only minimal penalties to holding off on buying insurance until an illness or injury strikes.

 

At this time, there is uncertainty that the ACA will survive both from a financial and a political standpoint.  If a Republican elected to the Oval Office, the ACA may be overturned. This is especially likely if the House and Senate remain in republican hands. If the insurers continue to leave the market due to financial losses, there will be a complete collapse of the system.  As long as the future of the ACA is uncertain, it is unlikely that the courts will see fit to revisit the Collateral Source Rule. Perhaps it would be best to keep the knowledge of a health insurance plan in the hands of the judge anyway.

 

darrylweiman

by Darryl S. Weiman, M.D., J.D.

Professor, Cardiothoracic Surgery, University of Tennessee Health Science Center and Chief of Surgery, VAMC Memphis, TN

MORE ABOUT THE AUTHOR: Darryl Weiman is a featured expert in www.healthcaredive.com on February 17, 2016. 

 

The Affordable Care Act and Medical Malpractice Reform

This article by Dr. Weiman also first appeared on Huffington Post on June 04, 2016.

 

In Atlas Shrugged, written by Ayn Rand, a dystopian America is described. Health care is addressed in this novel. One of the characters, a prominent neurosurgeon decides to leave practice as opposed to losing his autonomy in patient care. For him, it was no longer worth it to be a physician.

 

The goals of health care reform are to ensure that everyone has access to high quality care and the care is affordable. Most providers believe that significant cost savings would be realized if there was meaningful tort reform. In fact, when the Affordable Care Act (ACA) was being formulated, there were numerous discussions relating to the limitation of future damages for patients injured by medical negligence, modification of the collateral source rule, and funding to the states for experimentation on litigation alternatives or substitutes.

 

Unfortunately, the only part of the ACA relating to malpractice reform to be passed was section 10607 of the Act which, “authorize[s] the Secretary of Health and Human Services to award demonstration grants to states for the development, implementation, and evaluation of alternatives to current tort litigation.” This section does not eliminate malpractice litigation; it will only look at alternative ways of resolving the cases. At this time, a health court model is being looked at in some states but the effects on malpractice cases are not yet known. It is also unknown if this model will still require a report to the National Practitioner Data Bank if all or part of the payment is due to the actions of the practitioner. I think the report will still be required so it is unlikely that the physician will change his tendency to practice defensive medicine. As a result, this section of the law is unlikely to result in a decrease in health care costs.

 

The risk to providers remains. Malpractice coverage will still be required to practice and losses can be catastrophic. Even if a verdict is within the limits of the coverage, the provider who is found liable will be reported to the National Practitioner Data Bank which could have significant detrimental consequences if he wants to move to a new practice or when his privileges are up for renewal at the facility where he presently practices.

 

With mandatory health insurance or Medicare and Medicaid, it was hoped that the 30 million uninsured in the country would now be covered. With a ban on lifetime payout limits and a prohibition on insurers from excluding patients with pre-existing conditions, the duration of coverage was also significantly increased. With more patients covered and covered for a longer time, it is foreseeable that more malpractice claims will result.

 

Despite the passage of the ACA, physicians and other health care providers continue to practice “defensive medicine” in hopes of better defending or even preventing future malpractice claims. By ordering more tests and doing more procedures in hopes of covering all the bases and not missing any significant diagnoses, the hope is to avoid any future litigation; the extra procedures and tests may not be in the patient’s best interests and some may even be harmful, but it will allow for an easier defense if faced with a claim.

 

There are several mandates under Obamacare which require significant expenditures on the part of health care providers. These expenditures have led to increased overhead costs which many, if not most, private practitioners are not able to meet. As a result, many providers are joining health care groups or hospitals whereby they become employees. The groups take care of the overhead costs and the providers are paid a salary.

 

One of the results of this practice model is that outpatient care and inpatient care is being divided. Patients are no longer the responsibility of a single practitioner. They may see a family practitioner in the office setting, but in-patient care will be provided by a hospitalist who has not yet had the opportunity to form a physician-relationship. The lack of this relationship is more likely to result in some animosity, especially if the hospital course does not go well. It cannot be good if the patient is viewed as a customer of the hospital as opposed to a person with whom there is a long-standing relationship. This inherent animosity will make it more likely to have a malpractice suit filed if the patient does not do well.

 

When a physician becomes an employee, they are expected to follow guidelines and protocols many of which were approved by Medicare. If the physician is able to meet certain benchmarks outlined in Medicare, they will be rewarded with a share of the savings. Failure to follow these guidelines can lead to economic penalties; the provider is faced with a dilemma—do what he feels is best for the patient or face decreases in pay and, perhaps, even the loss of his job.

 

If the patient suffers harm, a medical malpractice suit is likely to follow. Then there is the issue of malpractice premiums. If the employer is paying the premiums, will the lawyer hired to defend the case be answerable to the employer or the physician? If this is not spelled out in the physician’s employment contract, it is likely that he will need to hire his own attorney to be sure his interests are protected in the suit. This can be a significant expense.

 

The physician is caught in the middle. Too bad! The jury will not be sympathetic to the economic chains attached to the practice. The jury expects the physician to use his best medical/surgical judgment at all times. The standard of care is unchanged under the ACA; the physician will be expected to do what a reasonable physician would do if faced with the same or similar circumstances. I do not think that economic considerations will be entertained in this analysis.

 

With the changes in the health care environment driving many practitioners out of private practice, it is likely that we will see a rise in contract health care on a cash basis. For those who can afford it, this will be personalized health care with a known provider who will guarantee that he will provide the care needed as an outpatient and will guide the care needed in the hospital environment. The third party payers will be left out of this arrangement. We are already seeing this type of care with “concierge” practices and with “medical tourism”. The model has been established in cosmetic surgery and Lasik eye surgery. As for medical tourism, this model is already being offered, at very competitive rates, in several foreign countries for such things as heart surgery.

 

In the final analysis, it looks like the ACA has created a health care environment where it is more likely for the provider to be the target of a malpractice suit. Although alternative forms of resolution will be investigated, the target will remain the same.

 

Tort reform will likely be a slow process handled by the states. Physicians will vote with their feet. They will migrate to the states which have the more favorable laws relating to medical malpractice. States with unfavorable laws will be forced to change or be faced with a shortage of physicians. This scenario has already played out in Mississippi. In the meantime, health care costs continue to rise at a rate that exceeds regular inflation.

 

darrylweiman

by Darryl S. Weiman, M.D., J.D.

Professor, Cardiothoracic Surgery, University of Tennessee Health Science Center and Chief of Surgery, VAMC Memphis, TN

MORE ABOUT THE AUTHOR: Darryl Weiman is a featured expert in www.healthcaredive.com on February 17, 2016.