"In a down economy many people may not think their most valuable asset is their ability to work," said Commissioner Jones. "But if illness or injury were to keep you from earning a living you would still need to pay your bills. Disability income insurance could be a viable option for people and their families, and that's why consumers need to take the time and evaluate their options closely."

According to the U.S. Census Bureau, one in four of today's 20-year-olds will become disabled before reaching retirement age; however, only 32 percent of U.S. private industry workers have long-term disability income insurance as part of their benefits package.

An individual may obtain disability income insurance coverage in two ways - either through a group-sponsored setting or purchased as an individual. Group insurance is available through an employer or an association, and these policies may offer short-term and long-term coverage. Short-term disability income insurance typically replaces a portion of the policyholder's salary up to a year following the disability, while long-term disability income insurance may begin six months after the disability and can last a few years or even until retirement.

Individual insurance is coverage that can be purchased from any insurance company that offers it. The terms of the policy, length and type of coverage are negotiated between the individual and the insurance company and are generally subject to underwriting requirements.

Comparing Disability Policies - When considering disability income insurance policy options there are definitions and benefits consumers should carefully compare.

Definition of disability - the definition varies from policy to policy.  Some may pay benefits if you cannot perform the duties of your own occupation, while others may require that your disability keep you from performing tasks of any occupation you are reasonably expected to perform based on your age, education, training and experience.

Extent of disability - Some policies may require you be totally disabled before it pays benefits, while others may pay a limited amount or for a limited time if your injury limits you to performing only part of your job.

Disabilities Covered - The list of covered injuries or illnesses considered disabilities under the policy will vary. Coverage for pre-existing conditions may be limited or excluded.

Residual benefits - This coverage fills in a gap in come if you are partially disabled, you return to work, and your income is reduced because you can't perform  all of the duties of your job.

Determining How Much Coverage You Need

Before purchasing disability income insurance, determine how much income you need to meet critical financial obligations such as rent/mortgage, food, fuel/transportation, utilities, etc. An easy way to do this is by adding up your monthly expenses and comparing them with the income from any existing disability coverage, plus any income from other sources, such as personal savings.

Becoming disabled can also bring with it increased or additional expenses like health care costs, assistance with daily activities, even home modifications. Keep this in mind while evaluating the amount and type of coverage you could need.

The amount of benefits you receive is based on a percentage of your pre-disability earned income. The benefit amount received can be reduced by other sources of disability support such as Social Security disability payments, employer long-term disability insurance, among others.

If the long-term disability income insurance coverage your employer offers is not enough to cover your needs, there are options for purchasing additional coverage".

As a corollary to this article, you may by wondering: what are the advantages of buying disability insurance?  What should you be looking for in a disability policy?  McKennon Law Group PC partner partner Robert J. McKennon has been litigating disability insurance claims for over twenty-five years and gives his advice on buying disability insurance in his article: Buying Disability Insurance:  What You Should Be Looking For

If you have any questions about your disability coverage, your disability claim or ERISA disability claim, please contact us.  Insurance consumers can learn more about insurance by visiting the California Department of insurance web site at www.insurance.ca.gov.

The attorneys at McKennon Law Group PC LLP took immediate action and filed lawsuits in federal court against the companies which were infringing on TriPharma’s exclusive license through product sales of their own, and filed claims in JAMS arbitration against Imagenetix for, among other things, fraud, breach of contract, and injunctive relief, seeking damages as well as reinstatement of the exclusive license agreement

Even more significantly, the McKennon Law Group PC LLP attorneys were able to obtain the injunctive relief they fought for so vigorously on behalf of TriPharma.  The arbitrator reinstated TriPharma’s exclusive license agreement, extended the term of the agreement, provided a six month abeyance of minimum obligations so that TriPharma could get its business back up and running, and enjoined Imagenetix from selling its weight loss product, or any other weight loss product based on the patent or clinical studies, to any other company.  The award effectively won back the rights that TriPharma had bargained for and which had been stolen by Imagenetix through its various activities relating to the sales and distribution of the product.

The victory for TriPharma and the McKennon Law Group PC LLP law firm was a complete success.  Not only did TriPharma recoup the ability to conduct business, but TriPharma and its CEO were vindicated and awarded significant monetary compensation for the fraud perpetrated on him and his company.  In issuing the award, the arbitrator gave particular mention to McKennon Law Group PC partner Robert J. McKennon:

McKennon l Schindler achieved substantial success in this litigation and its chief trial attorney Robert McKennon demonstrated exceptional skill in cross-examining [Imagenetix’s CEO and other employees].  Indeed, those examinations exposed the lack of credibility of those witnesses, which was a decisive factor in the Arbitrator’s findings and rulings.

Robert J. McKennon and Reid A. Winthrop tried the case on behalf of TriPharma.    

In 2006 the Villa Los Alamos Homeowners Association (HOA) contracted to have spray-applied acoustical (“popcorn”) ceiling texture in common area ceilings and stairways scraped and removed.  During the removal, asbestos fibers were released into the air, common areas, individual units and public areas outside the building.  The Bay Area Air Quality Management District (District) cited the contractor and ordered the HOA to clean up the asbestos fibers.  The HOA submitted a first party claim to State Farm, its insurance carrier, for approximately $650,000 in cleanup costs.  The HOA also sued the contractor.  The contractor then cross-complained against the HOA and its management company.  The HOA tendered its defense to State Farm.

A pollution exclusion in the first party coverage section of the policy excluded coverage for any loss caused by the “presence, release, discharge or dispersal of pollutants,” while the exclusion pertinent to third party claims removes coverage for injuries arising out of “discharge, seepage, migration, dispersal, spill, release or escape of pollutants.”  State Farm denied coverage for both the first party and third party claims, citing the pollution exclusion and faulty workmanship exclusions in the policy. 

The HOA sued State Farm for breach of contract, bad faith and declaratory relief.  The trial court granted summary adjudication in favor of State Farm on the first party claims based on the pollution exclusion.  The HOA dismissed its third party claims, and appealed.

Discussion

In MacKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635 (2003), the California Supreme Court found that the standard pollution exclusion clause in a comprehensive general liability policy was intended to exclude coverage for injuries resulting from events commonly regarded as “environmental pollution.”  The Court rejected a broader, literal interpretation of the clause that would foreclose coverage for any and all injuries arising from harmful substances.  So, the Court held that it was unlikely that a reasonable policyholder would think that the activity in question there—namely, the ordinary but negligent spraying of pesticides around an apartment building in order to kill yellow jackets—was an act of pollution.  

The HOA argued that MacKinnon applied here, and that the pollution exclusion in the State Farm policy did not cover a single, negligent, localized asbestos release.  After reviewing MacKinnon and its progeny, the Villa Los Alamos court agreed that the general principles announced in MacKinnon concerning the pollution exclusion also pertain in the context of a coverage dispute over first party property insurance claims based on analogous pollution exclusion—despite the well-recognized analytical differences between first party property and third party liability policies.  But the Villa Los Alamos court otherwise rejected the HOA’s application of MacKinnon to the facts at hand. 

Reading the State Farm pollution exclusion in accord with MacKinnon as pertaining to environmental pollution, the Villa Los Alamos court asked this question:  Did the accidental release and airborne dissemination of asbestos fibers in this case amount to what is commonly regarded as “environmental” pollution?  The court concluded that asbestos is a pollutant as a matter of law, and that it was “released” into the air and areas around the popcorn ceiling texture during the contractor’s scraping and removal.  Emphasizing factual differences between a homeowner being able to buy and apply pesticides in a residential setting, and the removal of asbestos containing building materials being highly regulated by a myriad county, state and federal laws, the court rejected the HOA’s analogy of the asbestos removal to a single, ordinary act of negligence.  In short, the Villa Los Alamos court concluded that the ordinary layperson would understand the release of asbestos fibers under these circumstances to be “environmental pollution.”  Citing American Casualty Co. of Reading, PA. v. Miller, 159 Cal. App. 4th 501, 515-516 (2008), the court explained that

the key point under a MacKinnon analysis is whether the act in question is commonly thought of as environmental pollution. Thus, even if the accident consisted of a one-time negligent release of methylene chloride [as in Miller], the pollution exclusion would preclude coverage because permitting the chemical to be released into a public sewer was an act of environmental pollution. (Ibid.) Miller is persuasive. To establish bright-line rules as to what constitutes “environmental pollution” makes no sense: A one-time event can be a polluting event if it creates “‘impurity, something objectionable and unwanted.’” (MacKinnon, supra, 31 Cal. 4th at p. 654.) To reiterate: The release of asbestos from a product into the air people breathe constitutes a health hazard for which no level of exposure is safe. The work here apparently occurred over several days and resulted in the sufficient release of asbestos fibers into the air to contaminate the building complex and the adjacent outside areas, constituting environmental pollution.

Lesson Learned

There is no “bright-line” rule for when an ordinary layperson will consider a “release” of harmful substances in or around a residential structure to be “environmental pollution” rather than an “ordinary act of negligence.”  One can imagine the Villa Los Alamos court just as easily analogizing the release of asbestos fibers from asbestos-containing building materials in a residential building to be an “ordinary act of negligence” on par with pesticide contamination a la MacKinnon rather than “environmental pollution” a la Miller.  The clever insurance coverage attorney will start framing and controlling the analogy early on.

Initially passed in 1990, the Credit Card Act was enacted “to address the misuse of personal identification information for, inter alia, marketing purposes.”  It prohibits retailers from asking customers for their personal identification information and recording it during credit card transactions.  Specifically, section 1747.08(a) provides that no firm shall “[r]equest, or require as a condition to accepting the credit card as payment in full or in part for goods or services, the cardholder to provide personal identification information, which the . . . firm . . . accepting the credit card writes, causes to be written, or otherwise records upon the credit card transaction form or otherwise.”  Since its initial passage, there have been multiple class action lawsuits against retailers violating this statute.  As recently as 2008, California 4th District Court of Appeals addressed this specific issue in Party City Corp. v. Superior Court, 169 Cal.App.4th 497 (2008) where it held that ZIP codes were too general to be covered by the Credit Card Act because they pertain to a group of individuals, not a specific individual. 

Not to be deterred, Jessica Pineda brought a class action against Williams-Sonoma for violations of the Credit Card Act “and Business and Professions Code section 17200 et seq.  Her lawsuit was based on a 2008 visit to a Williams-Sonoma Store in California.  While making her purchase, the cashier asked for her zip code, but did not tell her what the information would be used for.  Thinking the information was necessary to complete the transaction, Pineda provided the information.  Later, using specialized computer software, Williams-Sonoma conducted a “reverse lookup” and was able to determine Pineda’s previously unknown mailing address by matching her name and zip code in a third-party database.  This information was then stored in Williams-Sonoma’s own database for use in direct-mail marketing campaigns.  Aware of the court’s prior holding in Party City, Pineda pursued her class action on the grounds that an essential element was missing from the prior cases.  Namely, allegations that Williams=Sonoma actually use of the acquired ZIP code.  Rather than rule that harm was a required element, the court instead overruled Party City altogether.   

The Court found further support in “the legislative history of the Credit Card Act in general, and section 1747.08 in particular, [which] demonstrates the Legislature intended to provide robust consumer protections by prohibiting retailers from soliciting and recording information about the cardholder that is unnecessary to the credit card transaction.”  Here, the ZIP codes at issue were not collected for identification purposes nor were they necessary in order to complete the credit card transaction.  Instead, Williams-Sonoma collected the ZIP codes specifically for marketing purposes.  The difference is key.  Had Williams-Sonoma collected ZIP codes for identification purposes, it would have been governed by Civil Code section 1747.08(d).  This statute allows a business to require reasonable forms of identification from cardholder, such as a driver’s license, but it may not record any of the information on that license, including the cardholder’s ZIP code.  It would be inconsistent with the intent of the Legislature to allow in subdivision (a) what would be explicitly forbidden in subdivision (d) - namely the requesting and recording of a ZIP code.  The logical conclusion, the court held, is that the term “personal identification information” as used in section 1747.08, includes a cardholder’s ZIP code.

Within California, the effect of this ruling is significant.  Retail stores routinely ask customers for their ZIP code for both marketing and regional sales forecasting.  The potential effect is compounded by the fact that in 2008, this practice was considered exempt from the Credit Card Act by the court’s holding in Party City.  Seemingly overnight, actions that were previously authorized could now subject retail stores to statutory penalties up to $250 for the first violation and $1,000 for each subsequent violation.  At a minimum, California retailers should take a close look at their information collection practices and consider updating those policies in light of this decision.  

Eric M. Peterson from the law firm of Dorsey & Whitney LLP has done a nice job summarizing the recently enacted Patient Protection and Affordable Care Act.  Peterson’s article, ‘Health Care Reform is Here’ is set forth verbatim immediately below, followed by the Democratic Policy Committee's implementation timeline for both Acts.

Health Reform and Reconciliation Bills Passed by the House Senate to Consider Reconciliation Bill The House passed both H.R. 3590, the Patient Protection and Affordable Care Act (the Affordable Care Act), and H.R. 4872, the Health Care and Education Reconciliation Act of 2010 (the Reconciliation Act) on Sunday, March 21, 2010. The President signed the Affordable Care Act on Tuesday, March 23, 2010.

This article summarizes several major topics addressed by the Affordable Care Act and highlights certain differences between the Affordable Care Act and the Reconciliation Act.

Private Insurers

The Affordable Care Act has both immediate and ongoing effects on the private insurance market.

Effective within ninety days of enactment and extending through January 1, 2014, individuals with pre-existing conditions can obtain health care coverage through a national insurance pool for high-risk persons. Access to the pool requires individuals to have been uninsured for at least six months and have a pre-existing medical condition.

Effective six months after enactment, all individual and group health plans:

• must provide dependent coverage for children through age 26;
• are prohibited from setting lifetime limits on the dollar value of coverage;
• are prohibited from rescinding coverage except in cases of fraud; and
• are prohibited from imposing pre-existing condition exclusions on children. This prohibition would be expanded to all individuals in 2014.

Of note, the Reconciliation Act would grandfather certain existing individual and group plans with respect to many new benefit standards. However, these plans will be required to extend dependent coverage to adult children up to age 26, prohibit rescissions of coverage and eliminate waiting periods for coverage of periods greater than 90 days.Beginning in 2014, grandfathered group plans must eliminate lifetime and annual limits on coverage. Grandfathered group plans must eliminate pre-existing condition exclusions for children within six months of enactment, and for adults in 2014.

Beginning in 2010, insurers must report the proportion of premium dollars spent on clinical services and quality. Beginning in 2011, if the amount of premium dollars that a particular insurance company spends on clinical services and quality falls below 85% for insurers in the large group market and 80% for insurers in the individual and small group markets, then that insurance company must provide rebates to consumers.

Beginning in 2014, additional provisions will become effective, including a prohibition on individual and group health plans placing annual limits on the dollar value of coverage.

The Affordable Care Act imposes an excise tax on high cost, so-called “Cadillac,” health plans. The Affordable Care Act and Reconciliation Act differ on the tax. According to the Affordable Care Act, effective in 2014, a 40% excise tax would be imposed on insurers of employer-sponsored health plans with values that exceed $8,500 for individual coverage and $23,000 for family coverage. The Reconciliation Act would delay the tax until 2018 and impose it on a higher threshold of coverage of $10,200 and $27,500 respectively. Regardless, the issuer of the policy is subject to the tax. If it is a self-insured plan the issuer is the administrator or employer.

Health Benefit Exchanges

Neither the Affordable Care Act nor the Reconciliation Act create a new government health insurance plan, the so-called “public option,” to compete with private insurers. However, the Affordable Care Act creates state-based health insurance marketplaces, known as “exchanges.” The exchanges go into effect in 2014 and either a governmental agency or a non-profit organization will administer them. Individuals and small employers with less than 100 employees can purchase insurance through an exchange. The exchanges will be open to employers with more than 100 employees beginning in 2017.

States may elect to create regional exchanges or to permit more than one exchange to operate in a given state if each exchange serves a distinct geographic area. For a limited time, states can obtain federal funding to establish such exchanges.

Increases in health plan premiums charged by those health plans participating in the exchanges will be subject to government review. Plans will be required to justify increases and states will report on premium increase trends. Unjustified increases could result in the removal of a plan from the exchange system.

Finally, the Affordable Care Act directs the federal Office of Personnel Management to enter into contracts with insurers to offer at a minimum two multi-state plans in each exchange in each state. At least one such plan must be offered by a non-profit insurer. Each of these multi-state plans must meet federal standards and must be licensed in each state.

Illegal immigrants will not be eligible to purchase insurance from an exchange.

Essential Benefits Package

Beginning in 2014, all qualified health benefits plans offered through the exchanges and in the individual and small group markets, with certain exceptions, must offer an “essential benefits package.” An essential benefits package consists of a minimum package of health benefits, which offer comprehensive services and cover at least 60% of the value of such benefits. The plan must limit annual cost sharing to the 2010 health savings account limits.

Employers

The Affordable Care Act does not expressly require employers to offer health care coverage. However, effective in 2014, certain employers with more than fifty employees will become subject to a penalty if they do not offer heath care coverage and if any of their workers obtain subsidized coverage through the planned health care exchanges. The Reconciliation Bill would raise the penalty from $750 to $2,000 per full time employee and exempt the first thirty employees when calculating such penalties.

Under the Affordable Care Act, employers with more than fifty employees that offer coverage but have at least one full-time employee receiving a subsidy will pay the lesser of $3,000 for each employee receiving a subsidy or $750 for each full-time employee.

Also effective in 2014, employers that offer coverage must provide a voucher equal to what the employer would have paid under the employer’s plan to employees with incomes up to 400% of the federal poverty level who choose to enroll in the planned health care exchanges. Those employers providing the vouchers will not be subject to penalties for employees that obtain coverage in the exchanges.

In addition, certain subsidies to purchase health insurance will be made available to qualifying employers. For example, Employers with fewer than 25 employees and with certain average worker annual wages that purchase health insurance for their employees will qualify for a tax credit. Between 2010 and 2013, the employer will receive a tax credit of up to 35% of the employer’s contribution toward the employee’s premium, but only if the employer contributes at least 50% of the total premium cost. Starting in 2014, the tax credit increases to 50% of the employer’s contribution. As the employer’s size and average worker annual wages increases, the tax credit would be phased out.

The Affordable Care Act also provides assistance with retirees’ medical claims. Effective ninety days after enactment and until January 1, 2014, a temporary reinsurance program for employers providing health insurance coverage to retirees over age 55 who are not eligible for Medicare will reimburse employers or insurers for 80% of retiree claims between $15,000 and $90,000.

Individuals

Beginning in 2014, with some exceptions, all United States citizens and legal residents must have a minimum level of health insurance coverage or pay a penalty. Individuals without qualifying coverage must pay a tax penalty with certain maximums. Under the Affordable Care Act, the penalty will be phased-in according to the following schedule: $95 or 0.5% of taxable income in 2014, $325 or 1.0% of taxable income in 2015 and $695 or 2.0% of taxable income in 2016, with a maximum of $2,250 for a family. The Reconciliation Act would modify the phase-in and per family maximum as follows: the greater of $95 or 1.0% of taxable income in 2014, $325 or 2.0% of taxable income in 2015 and $695 or 2.5% of taxable income in 2016, with a maximum of $2,085 for a family. After 2016, the penalty will increase annually based on the cost-of-living adjustment.

Certain categories of individuals will qualify for an exception from the penalty: American Indians, individuals with religious objections, individuals who can show financial hardship, individuals without coverage for less than three months, households with income below 100% of the federal poverty level and households that would pay greater than 8% of income on premiums for the cheapest available plan. The Reconciliation Bill would remove the federal poverty level exception in favor of an exception for households with income below the tax filing threshold.

In addition, the Affordable Care Act would provide tax credits (subsidies) to purchase health insurance through the exchange on a sliding scale to individuals and families with incomes up to 400% of the federal poverty level. Households in the lowest income group would spend approximately 2% to 4% of their income on premiums. The health plans would cover 94% of the cost of benefits. Households in the highest eligible group would pay 9.8% of their income on premiums, with health plans paying 70% of the cost of the benefits. Subsidies would increase at the same rate as the increase in premium contributions from the prior year.

Beginning in 2013, the Affordable Care Act increases Medicare payroll taxes from 1.45% to 2.35% on taxpayers earning $200,000 or more ($250,000 for joint filers). The Reconciliation Act would impose an additional 3.8% tax on “unearned income,” such as capital gains, dividends and interest earnings.

Medicare

The Affordable Care Act will reduce the projected growth of Medicare by $500 billion over 10 years, including $116 billion from private Medicare Advantage plans. The Reconciliation Act would increase the amount reduced from private Medicare Advantage plans to $132 billion by freezing Medicare Advantage payments in 2010 and reducing Medicare Advantage payment benchmarks beginning in 2012. The Reconciliation Act further seeks to reduce Medicare Advantage costs by ensuring such plans spend at least 85% of their revenue on medical costs and quality improvements to care.

Payments to providers under Medicare will be more closely tied to quality outcomes. For example, beginning in 2013, a portion of a hospital’s Medicare payment will be linked to the hospital’s performance on quality measures related to common and high-cost conditions. Similar programs will be introduced for other health care providers as well. Similarly, beginning in 2015, hospitals in the top 25th percentile of rates of hospital-acquired conditions for certain high-cost procedures will be subject to a payment penalty.

Quality measure reporting programs will also be expanded beyond acute care hospitals to include long-term care hospitals, rehabilitation hospitals, hospice programs, and prospective payment system-exempt cancer hospitals. Payments to physicians and payments for rural health care will increase. For example, the Medicare physician fee schedule will increase by 0.5 percent over 2009 rates. In addition, Medicare payments for rural health care will increase to providers in any state where at least 50% of the counties are “frontier counties.” A frontier county must have a population density of less than six people per square mile.

Certain payment demonstration programs for payment and care will also be developed. An example of such a program is an alternative care organization (ACO), which functions by integrating hospitals, physicians and other health care providers in order to provide care for a defined patient population. An ACO is partially paid based on, and generally held accountable for, the cost and quality of care furnished by the ACO provider members to the defined patient population. In turn, the ACO provider members are accountable for the total cost of care provided to such patient population. The ACO and its provider members are paid based on a pre-set formula for the care provided and they may be eligible to receive incentive payments for achieving certain cost and quality goals.

The Affordable Care Act also makes changes to Medicare Part D, the prescription drug program, including taking steps to close the “donut hole” —or coverage gap—for prescription drug coverage. Beginning July 1, 2010, drug makers will provide a 50% discount on brand-name drugs to low- and middle-income Medicare Part D beneficiaries who have to pay for the drugs themselves once the coverage gap begins. The Reconciliation Act would give a one-time $250 rebate to those beneficiaries facing the coverage gap in 2010 and begin the 50% rebate from drug manufacturers in 2011. It would offer 75% discount on brand name and generic drugs to those affected by 2020.

The Reconciliation Act makes further changes to Medicare reimbursement, refining language in the Affordable Care Act, including among other things, beginning Medicare disproportionate share hospital reimbursement cuts in 2014, earlier than the date set forth in the Affordable Care Act (but trimming the total ten-year reduction amount by $3 billion), and reducing the annual market basket update for, among others, inpatient hospital, home health, and skilled nursing facility providers.

Medicaid

The Affordable Care Act will expand access to Medicaid and the scope of services covered thereunder.

With respect to access, Medicaid will cover all individuals with incomes of less than 133% of the federal poverty level, expanding eligibility to approximately 16 million people. The new law also allows states, beginning in 2014, to expand Medicaid eligibility to nonelderly, non-pregnant individuals who are not otherwise eligible for Medicare, if they have incomes of less than 133% of the federal poverty level. To assist states with the cost of covering such newly eligible individuals, from 2014 through 2016, the federal government will pay 100% of the new cost. The Reconciliation Act would pay all costs until 2016, 95% in 2017, 93% in 2019 and 90% thereafter.

With respect to the services covered by Medicaid, they have been expanded to include, among others, preventive services, long-term care services, certain maternal and child health services, free-standing birth centers, and the option of covering personal care attendant services to disabled Medicaid beneficiaries who would otherwise need institutional care.

Further, the Reconciliation Act would increase Medicaid payment rates to primary care doctors to match Medicare rates and makes further changes to Medicaid reimbursement, including among others, reducing Medicaid disproportionate share hospital reimbursement cuts.

Similar to Medicare, the Affordable Care Act creates certain payment demonstration programs for payment and care for Medicaid beneficiaries. One demonstration program involves payment bundling, which would move medical charges away from paying providers separately for each service provided under a traditional fee-for-service system in favor of providing a single payment per patient for acute and post-acute care.

Fraud and Abuse

To address fraud and abuse of federal health care programs, the Affordable Care Act will allow provider screening and enhanced oversight periods for new providers and suppliers. It also imposes enrollment moratoria in elevated risk areas by requiring providers and suppliers to establish compliance programs. The Reconciliation Act creates a 90-day period of enhanced oversight for initial claims for reimbursement of durable medical equipment. Both laws include enhanced penalties for submitting false claims and provide funding for enhanced anti-fraud activities.

Food and Drug Administration

The Affordable Care Act authorizes the Food and Drug Administration to approve generic versions of certain biologic drugs, granting manufacturers 12 years of exclusive use before the marketing of generics.

Medical Malpractice

The Affordable Care Act will award and fund five-year demonstration programs to states to address alternatives to tort litigations in the medical malpractice area.

Health Care Sector Fees on Drug and Device Manufacturers and Insurers

Beginning in 2010, the Affordable Care Act imposes fees, allocated by market share, of:

• $2.3 billion per year on drug makers.
• $2 billion in 2011 on medical device manufacturers, increasing that amount to $10 billion in 2017.
• $2 billion in 2011 on insurance companies, increasing that amount to $10 billion in 2017, but exempting nonprofit insurers that spend a sufficient portion of their premiums on medical care rather than administrative costs.
• By comparison, the Reconciliation Act would delay all fees for up to three years, imposing them as follows:
• Drug makers would pay $2.5 billion in 2011, $3 billion from 2012 to 2016, $3.5 billion in 2017, $4.2 billion in 2018 and $2.8 billion in 2019 and thereafter.
• Medical device manufacturers would pay a 2.9% excise tax on devices sold. Insurance companies would pay $8 billion in 2014, increasing to $14.3 billion in 2018, with the amount rising annually by the rate of premium growth thereafter.

Long-Term Care Insurance

Beginning in 2011, the Affordable Care Act creates a voluntary federal program to provide long-term care insurance, paid for by payroll deductions and no federal subsidy. Lifetime benefits become available when a person becomes disabled after having paid premiums for at least five years and working for at least three of those years. The amount of benefit may not be less than $50.00 per day. The Secretary of Health and Human Services could increase premiums for the plan in the future to ensure its financial solvency.

Physician Ownership of Hospitals

The Affordable Care Act imposes certain prohibitions on physician ownership of hospitals. A physician could maintain an ownership interest in a hospital to which they self-refer only if: (i) the hospital was physician-owned on or before a certain date; and (ii) a provider agreement between Medicare and the physician-owned hospital was in effect on or before that date. Thereafter, however, a physician owner may not own a greater percentage of the hospital than was owned on the date the law was enacted. Moreover, such hospitals may not expand the number of operating rooms, procedure rooms or beds without meeting the requirements of certain exceptions, such as grandfathered hospitals that, among other things, document increases in certain Medicaid patient admissions.

Skilled Nursing Facilities

The Affordable Care Act will require skilled nursing facilities to disclose information regarding ownership, expenditures and certain other accountability requirements. This information will be disclosed to a website for Medicare and Medicaid beneficiaries to compare the facilities.

- Eric M. Peterson (March 23, 2010)

The Democratic Policy Committee has provided the following ‘Implementation Timeline‘ reflecting the Patient Protection and Affordable Care Act (H.R. 3590) and the Health Care and Education Reconciliation Act of 2010 (H.R. 4872):

Implementation Timeline

Reflecting the Patient Protection and Affordable Care Act and

the Health Care and Education Reconciliation Act

2010

Immediate Access to Insurance for Uninsured Individuals with a Pre-Existing Condition. Provides eligible individuals access to coverage that does not impose any coverage exclusions for pre-existing health conditions. This provision ends when Exchanges are operational. Effective 90 days after enactment.

Small Business Tax Credit. Initiates the first phase of the small business tax credit for qualified small employers for contributions to purchase health insurance for employees. The credit is up to 35 percent of the employer‟s contribution to provide health insurance for employees. There is also up to a 25 percent credit for small nonprofit organizations. Effective calendar year 2010. (Later, when Exchanges are operational, tax credits will be up to 50 percent of premiums.)

Eliminating Pre-Existing Condition Exclusions for Children. Bars health insurance companies from imposing pre-existing condition exclusions on children‟s coverage. Effective six months after enactment and applying to all employer plans and new plans in the individual market. (This provision will apply to all people in 2014).

Rebates for the Medicare Part D ‘Donut Hole.’ Provides a $250 rebate check for all Part D enrollees who enter the „donut hole.‟ Currently, the coverage gap falls between $2,830 and $6,440 in total drug spending. Effective calendar year 2010. (Beginning in 2011, institutes a 50 percent discount on brand-name drugs and begins generic coverage in the donut hole; fills the donut hole by 2020.)

Prohibiting Rescissions. Prohibits abusive practices whereby health insurance companies rescind existing health insurance policies when a person gets sick as a way of avoiding covering the costs of enrollees‟ health care needs. Effective six months after enactment and applying to all new and existing plans .

Eliminating Lifetime Limits. Prohibits insurers from imposing lifetime limits on benefits. Effective six months after enactment and applying to all plans.

Regulating Use of Annual Limits. Tightly regulates plans‟ use of annual limits to ensure access to needed care in all group plans and all new individual plans. These tight restrictions will be defined by the Secretary of Health and Human Services. Effective six month after enactment and applying to new plans in the individual market and all employer plans. (When the Exchanges are operational in 2014, the use of annual limits will be banned for new plans in the individual market and all employer plans.)

Covering Preventive Health Services. All new group health plans and plans in the individual market must provide first dollar coverage for preventive services. Effective six months after enactment.

Improving Prevention Health Coverage. Requires State Medicaid programs to cover tobacco cessation services for pregnant women. Effective Fiscal Year 2011.

Extending Coverage for Young Adults. Requires any group health plan or plan in the individual market that provides dependent coverage for children to continue to make that coverage available until the child turns 26 years of age. Effective six months after enactment.

Bringing Down the Cost of Health Care Coverage. Health plans, including grandfathered plans, must annually report on the share of premium dollars spent on medical care and provide consumer rebates for excessive medical loss ratios. Effective January 1, 2011

Reducing the Cost of Covering Early Retirees. Creates a new temporary reinsurance program to help companies that provide early retiree health benefits for those ages 55-64 offset the expensive cost of that coverage. Effective 90 days after enactment.

Strengthening Community Health Centers. Provides funds to build new and expand existing community health centers. Effective Fiscal Year 2011.

Strengthening the Primary Care Workforce. Expands funding for scholarships and loan repayments for primary care practitioners working in underserved areas participating in the National Health Service Corps. Effective Fiscal Year 2011.

Improving Consumer Assistance. Requires that any new group health plan or new plan in the individual market implement an effective appeals process for coverage determinations and claims. Effective six months after enactment.

Improving Consumer Information through the Web. Requires the Secretary of HHS to establish an Internet website through which residents of any State may identify affordable health insurance coverage options in that State. The website will also include information for small businesses about available coverage options, reinsurance for early retirees, small business tax credits, and other information of interest to small businesses. So-called “mini-med” or limited-benefit plans will be precluded from listing their policies on this website. Effective not later than July 1, 2010.

Improving Consumer Assistance. Requires the Secretary of Health and Human Services (HHS) to award grants to States to establish health insurance consumer assistance or ombudsman programs to receive and respond to inquiries and complaints concerning health insurance coverage. Effective upon enactment.

Cracking Down on Health Care Fraud. Requires enhanced screening procedures for health care providers to eliminate fraud and waste in the health care system. Many provisions are effective on the date of enactment.

Improving Public Health Prevention Efforts. Creates an interagency council to promote healthy policies at the federal level and establishes a prevention and public health investment fund to provide an expanded and sustained national investment in prevention and public health programs. Effective not later than July 1, 2010.

Strengthening the Quality Infrastructure. Additional resources provided to HHS to develop a national quality strategy and support quality measure development and endorsement for the Medicare, Medicaid and CHIP quality improvement programs. Strategy submitted not later than January 1, 2011.

Extending Payment Protections for Rural Providers. Extends Medicare payment protections for small rural hospitals, including hospital outpatient services, lab services, and facilities that have a low-volume of Medicare patients, but play a vital role in their communities. Effective calendar year 2010.

Establishing a Patient-Centered Outcomes Research Institute. Establish a private, non-profit institute to identify national priorities and provide for research to compare the effectiveness of health treatments and strategies. Effective date of enactment.

Ensuring Medicaid Flexibility for States. A new option allowing States to cover parents and childless adults up to 133 percent of the Federal Poverty Level (FPL) and receive current law Federal Medical Assistance Percentage (FMAP) will take effect. Effective April 1, 2010.

Non-Profit Hospitals. Establishes new requirements applicable to nonprofit hospitals beginning in 2010, including periodic community needs assessments. Effective on the date of enactment.

Expanding the Adoption Credit and Adoption Assistance Program. Increases the adoption tax credit and adoption assistance exclusion by $1,000, makes the credit refundable, and extends the credit through 2011. Effective for tax years beginning after December 31, 2009.

Encouraging Investment in New Therapies. A two‐year temporary credit subject to an overall cap of $1 billion to encourage investments in new therapies to prevent, diagnose, and treat acute and chronic diseases. Available for qualifying investments made in 2009 and 2010.

Tax Relief for Health Professionals with State Loan Repayment. Excludes from gross income payments made under any State loan repayment or loan forgiveness program that is intended to provide for the increased availability of health care services in underserved or health professional shortage areas. Effective for amounts received by an individual in taxable years beginning after December 31, 2008.

Excluding from Income Health Benefits Provided by Indian Tribal Governments. Excludes from gross income the value of specified Indian tribal health benefits. Effective for benefits and coverage provided after the date of enactment.

Establishing a National Health Care Workforce Commission. Establishes an independent National Commission to provide comprehensive, nonbiased information and recommendations to Congress and the Administration for aligning federal health care workforce resources with national needs. Effective not later than September 30, 2010.

Strengthening the Health Care Workforce. Expands and improves low-interest student loan programs, scholarships, and loan repayments for health students and professionals to increase and enhance the capacity of the workforce to meet the range of patients‟ health care needs. Effective calendar year 2010.

Special Deduction for Blue Cross Blue Shield (BCBS). Requires that non-profit BCBS organizations have a medical loss ratio of 85 percent or higher in order to take advantage of the special tax benefits provided to them under Internal Revenue Code (IRC) Section 833, including the deduction for 25 percent of claims and expenses and the 100 percent deduction for unearned premium reserves. Effective for tax years beginning after December 31, 2009.

Indoor Tanning Services Tax. Imposes a ten percent tax on amounts paid for indoor tanning services. Indoor tanning services are services that use an electronic product with one or more ultraviolet lamps to induce skin tanning. Effective for services on or after July 1, 2010.

2011

Discounts in the Part D ‘Donut Hole.’ Provides a 50 percent discount on all brand-name drugs and biologics in the donut hole and begins phasing in additional discounts on brand-name and generic drugs to completely fill the donut hole by 2020 for all Part D enrollees. Effective January 1, 2011.

Improving Preventive Health Coverage. Provides a free, annual wellness visit and personalized prevention plan services for Medicare beneficiaries and eliminates cost-sharing for preventive services. Effective January 1, 2011.

Increasing Reimbursement for Primary Care. Provides a 10 percent Medicare bonus payment for primary care physicians and general surgeons. Effective January 1, 2011.

Improving Health Care Quality and Efficiency. Establishes a new Center for Medicare & Medicaid Innovation to test innovative payment and service delivery models to reduce health care costs and enhance the quality of care provided to individuals. Effective January 1, 2011.

Providing New, Voluntary Options for Long-Term Care Insurance. Creates a long-term care insurance programs to be financed by voluntary payroll deductions to provide benefits to adults who become disabled. Effective January 1, 2011.

Improving Transitional Care for Medicare Beneficiaries. Establishes the Community Care Transitions Program to provide transition services to high-risk Medicare beneficiaries. Effective January 1, 2011

Transitioning to Reformed Payments in Medicare Advantage. Freezes 2011 Medicare Advantage payment benchmarks at 2010 levels to begin transition. Continues to reduce Medicare Advantage benchmarks in subsequent years relative to current levels. Benchmarks will vary from 95 percent of Medicare spending in high-cost areas to 115 percent of Medicare spending in low-cost areas with higher benchmarks for high-quality plans. Changes are phased-in over three, five or seven years, depending on the level of payment reductions. Effective January 1, 2011.

Increasing Training Support for Primary Care. Establishes a Graduate Medical Education policy allowing unused training slots to be re-distributed for purposes of increasing primary care training at other sites. Effective July 1, 2011.

Expanding Primary Care, Nursing, and Public Health Workforce. Increases access to primary care by adjusting the Medicare Graduate Medical Education program. Primary care and nurse training programs are also expanded to increase the size of the primary care and nursing workforce. Ensures that public health challenges are adequately addressed. Effective July 2011.

Increasing Access to Home and Community Based Services. The new Community First Choice Option, which allows States to offer home and community based services to disabled individuals through Medicaid rather than institutional care. Effective October 1, 2011 .

Reporting Health Coverage Costs on Form W-2: Requires employers to disclose the value of the benefit provided by the employer for each employee‟s health insurance coverage on the employee‟s annual Form W-2. Effective for tax years beginning after December 31, 2010.

Standardizing the Definition of Qualified Medical Expenses. Conforms the definition of qualified medical expenses for HSAs, FSAs, and HRAs to the definition used for the itemized deduction. An exception to this rule is included so that amounts paid for over-the-counter medicine with a prescription still qualify as medical expenses. Effective for tax years beginning after December 31, 2010.

Increased Additional Tax for Withdrawals from Health Savings Accounts and Archer Medical Savings Account Funds for Non-Qualified Medical Expenses. Increases the additional tax for HSA withdrawals prior to age 65 that are not used for qualified medical expenses from 10 to 20 percent. The additional tax for Archer MSA withdrawals not used for qualified medical expenses would increase from 15 to 20 percent. Effective for tax years beginning after December 31, 2010.

Cafeteria Plan Changes. Creates a Simple Cafeteria Plan to provide a vehicle through which small businesses can provide tax‐free benefits to their employees. This would ease the small employer‟s administrative burden of sponsoring a cafeteria plan. The provision also exempts employers who make contributions for employees under a simple cafeteria plan from pension plan nondiscrimination requirements applicable to highly compensated and key employees. Effective for tax years beginning after December 31, 2010.

Pharmaceutical Manufacturers Fee. Imposes an annual, non-deductible fee on the pharmaceutical manufacturing industry allocated according to market share and not applying to companies with sales of branded pharmaceuticals of $5 million or less. Effective for tax years beginning after December 31, 2010.

2012

Encouraging Integrated Health Systems. Implements physician payment reforms that enhance payment for primary care services and encourage physicians to join together to form “accountable care organizations” to gain efficiencies and improve quality.

Linking Payment to Quality Outcomes. Establishes a hospital value-based purchasing program to incentivize enhanced quality outcomes for acute care hospitals. Also, requires the Secretary to submit a plan to Congress by 2012 on how to move home health and nursing home providers into a value-based purchasing payment system.

Reducing Avoidable Hospital Readmissions. Directs CMS to track hospital readmission rates for certain high-cost conditions and implements a payment penalty for hospitals with the highest readmission rates.

2013

Improving Preventive Health Coverage. Creates incentives for State Medicaid programs to cover evidence-based preventive services with no cost-sharing.

Administrative Simplification. Health plans must adopt and implement uniform standards and business rules for the electronic exchange of health information to reduce paperwork and administrative burdens and costs.

Encouraging Provider Collaboration. Establishes a national pilot program on payment bundling to encourage hospitals, doctors, and post-acute care providers to work together to achieve savings for Medicare through increased collaboration and improved coordination of patient care.

Increasing Medicaid Payment for Primary Care. Requires states to pay primary care physicians the same rate Medicare pays, and fully federally funds any additional state costs.

Limiting Health Flexible Savings Account Contributions. Limits the amount of contributions to health FSAs to $2,500 per year, indexed by CPI for subsequent years.

Eliminating Deduction for Employer Part D Subsidy. Eliminates the deduction for the subsidy for employers who maintain prescription drug plans for their Medicare Part D eligible retirees.

Increased Threshold for Claiming Itemized Deduction for Medical Expenses. Increases the income threshold for claiming the itemized deduction for medical expenses from 7.5 to 10 percent. Individuals over 65 would be able to claim the itemized deduction for medical expenses at 7.5 percent of adjusted gross income through 2016.

Additional Hospital Insurance Tax for High Wage Workers. Increases the hospital insurance tax rate by 0.9 percentage points on wages over $200,000 for an individual ($250,000 for married couples filing jointly). Expands the tax to include a 3.8 percent tax on net investment income in the case of taxpayers earning over $200,000 ($250,000 for joint returns).

Medical Device Excise Tax. Establishes a 2.3 percent excise tax on the first sale for use of a medical device. Excepted from the tax are eye glasses, contact lenses, hearing aids, and any device of a type that is generally purchased by the public at retail for individual use.

Limiting Executive Compensation. Limits the deductibility of executive compensation under Section 162(m) for insurance providers if at least 25 percent of the insurance provider‟s gross premium income from health business is derived from health insurance plans that meet the minimum creditable coverage requirements. The deduction is limited to $500,000 per taxable year and applies to all officers, employees, directors, and other workers or service providers performing services, for or on behalf of, a covered health insurance provider. This provision is effective beginning in 2013 with respect to services performed after 2009.

Fee for patient-centered outcomes research. Annual fee becomes effective on insured and self-insured plans to fund the patient centered outcomes research trust fund.

2014

Reforming Health Insurance Regulations. Implements strong health insurance reforms that prohibit insurance companies from engaging in discriminatory practices that enable them to refuse to sell or renew policies due to an individual‟s health status. Insurers can no longer exclude coverage for treatments based on pre-existing health conditions. It also limits the ability of insurance companies to charge higher rates due to heath status, gender, or other factors. Premiums can vary only on age (no more than 3:1), geography, family size, and tobacco use.

Eliminating Annual Limits. Prohibits insurers from imposing annual limits on the amount of coverage an individual may receive.

Ensuring Coverage for Individuals Participating in Clinical Trials. Prohibits insurers from dropping coverage because an individual chooses to participate in a clinical trial and from denying coverage for routine care that they would otherwise provide just because an individual is enrolled in a clinical trial. Applies to all clinical trials that treat cancer or other life-threatening diseases.

Establishing Health Insurance Exchanges. Opens health insurance Exchanges in each State to the individual and small group markets. This new venue will enable people to comparison shop for standardized health packages. It facilitates enrollment and administers tax credits so that people of all incomes can obtain affordable coverage.

Ensuring Choice through a Multi-State Option. Provides a choice of coverage through a multi-State plan, available nationwide, and offered by private insurance carriers under the supervision of the Office of Personnel Management.

Providing Health Care Tax Credits. Makes premium tax credits available through the Exchange to ensure people can obtain affordable coverage. Credits are available for people with incomes above Medicaid eligibility and below 400 percent of poverty who are not eligible for or offered other acceptable coverage. They apply to both premiums and cost-sharing to ensure that no family faces bankruptcy due to medical expenses again.

Ensuring Choice through Free Choice Vouchers. Workers who qualify for an affordability exemption to the individual responsibility policy but do not qualify for tax credits can take their employer contribution and join an Exchange plan.

Promoting Individual Responsibility. Requires most individuals to obtain acceptable health insurance coverage or pay a penalty of $95 for 2014, $325 for 2015, $695 for 2016 (or, up to 2.5 percent of income in 2016), up to a cap of the national average bronze plan premium. Families will pay half the amount for children, up to a cap of up to a cap of $2,250 per family. After 2016, dollar amounts are indexed. If affordable coverage is not available to an individual, they will not be penalized.

Promoting Employer Responsibility. Requires employers with 50 or more employees who do not offer coverage to their employees to pay $2,000 annually for each full-time employee over the first 30 as long as one of their employees receives a tax credit. Precludes waiting periods over 90 days. Requires employers who offer coverage but whose employees receive tax credits to pay $3,000 for each worker receiving a tax credit up to an aggregate cap of $2,000 per full-time employee.

Increasing Access to Medicaid. Medicaid eligibility will increase to 133 percent of poverty for all non-elderly individuals to ensure that people obtain affordable health care in the most efficient and appropriate manner. States will receive 100 percent federal funding for the first three years of this coverage expansion.

Small Business Tax Credit. Implements the second phase of the small business tax credit for qualified small employers.

Quality Reporting for Certain Providers. Places certain providers – including ambulatory surgical centers, long-term care hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities, PPS-exempt cancer hospitals and hospice providers – on a path toward value-based purchasing by requiring the Secretary to implement quality measure reporting programs in these areas and also pilot test value-based purchasing for each of these providers in subsequent years.

Health Insurance Provider Fee. Imposes an annual, non-deductible fee on the health insurance sector allocated across the industry according to market share. The fee does not apply to companies whose net premiums written are $25 million or less.

2015

Continuing Innovation and Lower Health Costs. Establishes an Independent Payment Advisory Board to develop and submit proposals to Congress and the private sector aimed at extending the solvency of Medicare, lowering health care costs, improving health outcomes for patients, promoting quality and efficiency, and expanding access to evidence-based care.

Paying Physicians Based on Value Not Volume. Creates a physician value-based payment program to promote increased quality of care for Medicare beneficiaries.

2018

High-Cost Plan Excise Tax. Imposes an excise tax of 40 percent on insurance companies and plan administrators for any health insurance plan that is above the threshold of $10,200 for self-only coverage and $27,500 for family plans. The tax would apply to the amount of the premium in excess of the threshold. The threshold would be indexed at CPI-U plus one percentage point for 2019 and CPI for years thereafter. An additional threshold amount of $1,650 for singles and $3,450 for families is available for retired individuals over the age of 55 and for plans that cover employees engaged in high risk professions. Employers with higher costs on account of the age or gender demographics of their employees when compared to the age and gender demographics nationally my adjust their thresholds even higher.