Gorilla in the Room
New Risks and Challenges Created By the Affordable Care Act
The Affordable Care Act (ACA) was designed to increase the number of Americans with health insurance and to ensure that such health benefits meet certain minimum threshold requirements for coverage (i.e., preventive services with no cost sharing). Thus, the ACA is this year’s 800-pounds gorilla in the room in any discussion among professional liability providers. The common belief is that it will affect the way companies do business and will cause an overhaul (for better or for worse) to the healthcare industry. However, the ACA’s effects will not end there. Insurance providers are scratching their heads on how to better prepare, evaluate and predict the risks involved to the various professionals they insure.
The ACA requires that Americans have qualifying health coverage. Those who do not have insurance through their employer or through Medicaid or Medicare have the option of going to a new marketplace in their state to enroll in a private healthcare plan. There are different qualifying plans for the ACA that involve employers and employees. However, what people may not be aware is that in order for employers and employees to understand the different options, they need to first make sense of the new related IRS regulations.
The ACA benefits require a basic understanding of various tax obligations and deductions. For instance, the new law raises the employee portion of the Medicare payroll tax by an additional .09 percent on wages above the dollar threshold (i.e., $200,000 for individual returns, $250,000 for joint returns and $125,000 for married filing separately). This and other tax provisions create an exposure for accountants who regularly consult businesses. Starting this year, accountants can be held liable for failing to consult, or for providing wrong advice, that will expose their clients to higher tax liability or fines. Since all employers (even below the 50 employee threshold) are likely to consult their accountants in regards to the ACA, the risk associated with any advice will affect the accounting community at large.
There are nearly 70,000 agents and brokers certified nationwide to sell health insurance on the federal exchange. From an insurance broker standpoint, the ACA has altered the manner in which health insurance is purchased and brokered in the states. For example, it only permits “qualified health plans” to be sold on the exchange, which must comply with federal and state rules, although sometimes the federal and state rules may differ (for example, what is required under the “essential health benefits” differs between states and the federal rules). Insurance brokers who consult businesses will need to be familiar with the business insurance options and those who used to sell individual policies will also have to adjust to the new rules. Moreover, exchanges sell only qualified health insurance plans (namely, health insurance plans that cover essential health benefits). Therefore, it may be difficult to compare the new benefits to the old (and to what the market will offer in the future), which will affect how insurance brokers do business.
Still further, in order for brokers to participate in the exchange, they first need to prove compliance with new federal and state rules and regulations. This has created different roles for brokers by which they may participate in the exchange: They may enroll as a “Navigator” or “Assister” and they are required to complete a short training and pass a certification test. Navigators assist consumers in applying for health insurance and will receive compensation directly from the exchange for individuals they enroll. However, the Navigators do not have to be licensed agents or brokers, which may take business away from brokers and also leave them with higher exposure. It is also unknown how this distinction will be overseen and enforced by the regulators and the courts. Will there be a new standard of care in the industry? Will there be higher exposure to liability for the Assisters? Will carriers agree to offer coverage to Navigators as a class of professionals? Further, where the brokers owe common duties to their clients, there are currently no guidelines in place requiring Navigators to inform clients of non-exchange insurance plans, hence, the likelihood of fraud
in this area is high. Assisters however, are more akin to the traditional insurance broker and must, in fact, be licensed. An Assister will receive payment from third party health insurance carriers for enrolling individuals in the exchange.
In addition to the Assisters/Navigators, the exchanges have become a new line of professions. Insurance carriers and brokers are still not clear how to provide actuarial reports and predictions in order to properly evaluate coverage for the exchanges. It is likely that the exchanges will have to rely on non-standard lines and deal with lower rated insurance companies, awaiting these types of coverage to become conventional. Until then, there will be challenges for insuring and reinsuring these risks.
In the past, employer health coverage was voluntary. The ACA requires that employers offer adequate health benefits or face penalties. For the employer, managing affordability could lead to various compliance and discrimination issues. For these reasons, an amendment was added to the Fair Labor Standards Act (Section 18C) providing protection for nearly all private and public employees who engage in certain protected activities. For example, Section 18C prohibits employers from retaliating against employees who exercise their rights under the Act including, but not limited to, the prohibition of retaliating against employees who receive a tax credit or a subsidy under the Act (employers will know which employees are receiving subsidized health insurance through a monthly report) or report employers in violation of the Act.
In order to remain competitive, some employers may cut back on their employees’ hours and thereby circumvent the new requirement compelling employees to provide health insurance for employees working 30 hours or more per week. This approach may lead to more discrimination lawsuits, as well as, shareholder lawsuits related to spending and other decision making resulting from the ACA. Discrimination issues may also arise in connection with a plan exclusion of spousal coverage having a disproportionate gender impact.
Since violations of Section 18C may provide some challenges to defend, the employer should thus train management and human resources regarding the whistleblower protections so that they become aware of what the law provides, and to ensure compliance with the prohibitions of the ACA. Additionally, the employer should update its employment policies and codes of conduct to include an express prohibition on retaliation under the ACA. In the future, employers representing a variety of industries may stop offering employer-sponsored insurance.
A recent trend in professional liability and employment practices insurance is to provide limited coverage for administrative grievances. The ACA provides for administrative grievances complaints to be filed by regulators and consumers against professionals who appear to be in violation of the ACA. One example of such a procedure is directly referred to in the ACA, which incorporates the complaint procedures set forth in 15 U.S.C. § 2087(b), incorporating provisions of the Consumer Product Safety Improvement Act. An employee who believes he has been subject to retaliation has 180 days to file a complaint with the Occupational Safety and Health Administration. The market will dictate whether insurers will provide coverage for such procedures, and employers will need to know that they may need to obtain such coverage.
Directors and Officers and Fiduciaries
Due to the effect of the ACA on the employer/employee relationship, violation of the ACA may provide significant exposure to directors and officers of the company as well. Directors and officers’ insurance rates are on the rise and the available terms and conditions have been tightened.
It is critical for employers to evaluate the potential impact of the ACA provisions on their directors and officers and on the company at large by analyzing their healthcare spending, organizational strategies and restructure benefit programs. A balance must be maintained between the fiduciary responsibility to shareholders to control costs and the responsibility to ensure the health and well-being of the employees.
The largest class of professionals who will be affected by the ACA are medical professionals such as, physicians, nurses, therapists and the like. Third-party payment arrangements that can compromise the independence of healthcare providers may grow. Providers will also be subject to more government regulation and oversight, further limiting their independent judgment. In fact, the low reimbursement from Medicare and Medicaid already gives providers lower incentive to provide care for such patients.
The ACA also imposes more rules, regulations and restrictions on providers. A Patient Centered Outcomes Research Institute will be examining the effectiveness of medical treatments, procedures, drugs and medical devices. It is not clear how findings will be implemented, some of which may include penalties or other forms of business interruption. As this relates to risk, a question arises whether any of those new imposed penalties will be covered by liability insurance. Another possible question is far more reaching. The ACA requires specialized training and compliance with complex clinical measures. Will adherence to these enhanced measures and the shortage of healthcare professionals create a new standard of care and perhaps new types of professionals? Will an advanced practice nurse soon be able to take more tasks previously administered by physicians? Will nurses be more exposed to liability?
There are also performance programs evaluated on a value-based payment modifier. This may create incentives to comply with standardized guidelines instead of individual patient care, thereby reducing the standard of care, inviting malpractice suits.
Lastly, another element that can cause the lowering of the standard of care is that at least initially there will be a larger amount of patients who will seek care, but there will be no increase in healthcare facilities and medical professionals. At times, insureds may be treated by nurse practitioners or physician assistants versus a doctor. A less qualified medical practitioner may overlook or simply misdiagnose a critical symptom. Insureds may also experience longer waits to see a physician or to undergo a diagnostic test, which could result in more errors. In turn, these issues may create more risk to the medical providers for which they will need to obtain malpractice coverage.
The ACA allows the federal government to withhold Medicare payments from hospitals if too many patients return within 30 days of discharge for certain ailments such as a heart attack or pneumonia. This means there will be more focus on what happens when a patient leaves the hospital following surgery or treatment. Hospitals may require follow-up visits. Poor performing hospitals will take a financial hit if they do not improve. In fiscal 2015, federal reimbursement rates will be cut by 1 percent to hospitals that have the highest rates of infection acquired in the hospital.
Several new policies are being implemented by medical facilities including, using new partners, new billing, new set of reporting and so forth. Hospitals are in the process of conducting new educational and procedural guidelines, which have not yet been tested, whereas older guidelines have been perfected over many years. Improper guidelines and new procedural requirements setting the standard of care may cause hospital new risks and new exposures.
Many institutions may no longer shop every year for an insurance company to administer their plans. Instead, they will use benefit managers who will become active partners in designing plans and incentives that address the specific institution’s health, wellness and retirement benefit needs. Self-insured institutions such as universities will be using the assistance of plan administrators to restructure their health benefits packages and become real stakeholders in improving the health of their employees. This will require more sophistication from plan managers, which may include assisting in evaluating anything from administering sick leave to which diseases most affect the employees, to creating incentives for preventive screening and healthy behavior. Higher expectations from the plan administrators may increase their liability risk.
Cyber liability and related regulations have been a trend in risk exposure in the last few years. The ACA adds more concerns in this regard. For example, it requires the issuance of operating rules for HIPAA standard transactions to make the information and transmission formats more uniform. HIPPA is the Health Insurance Portability and Accountability Act of 1996, which required the adoption of national standards for electronic healthcare transactions and code sets, unique health identifiers, and security. Congress also incorporated into HIPAA provisions that mandated the adoption of federal privacy protections for individually identifiable health information. The privacy rules were designed to improve the efficiency of the healthcare system by standardizing the electronic exchange of data and protect the security and privacy of health information.
In the ACA there are new, expanded provisions. All professional providers, including insurance brokers, will need to be familiar with those requirements. Related cyber and privacy risks are created by use of the exchanges. An exchange employee in Minnesota released more than 2,000 Social Security Numbers last year. Since the exchanges are so large, the room for mistake or abuse increases.
Other risks can be from scammers setting up fake websites related to the exchanges, since this is such a novel area to most Americans. This will not necessarily be a covered risk, but other risks may be covered. For example, the ACA’s push to convert health records to electronic formats will give hackers another route into accessing private information.
Right now there are more questions than answers as one of the most sweeping legal and social changes of this decade is being implemented. Many concerns will pass and never become manifested risks, but in other instances there will be risk were none was anticipated. As the law is carried out, the industry will work on improving the services to limit the risks.