SZD Health Law Scan : Health Care Lawyers & Attorneys : Schottenstein Zox & Dunn Law Firm : Strategic Planning, Managed Care, Insurance : Columbus, Cleveland, Cincinnati, Central Ohio

On November 18, 2009, the Senate released a draft health insurance reform bill, entitled the "Patient Protection and Affordable Care Act."  Like the House bill, the Senate's bill proposes to establish Exchanges, or marketplaces for individuals to shop for insurance when insurance is not available through their employers. The bill contains a public option (referred to in the Senate's bill as the "community health insurance option") but differs from the House bill in that it permits states to "opt out" or prohibit that state's Exchange from offering a community health insurance option.  This bill will expand Medicaid coverage for those people earning less than 133% of the federal poverty line and will provide subsidies for the purchase of health insurance for people earning less than 400% of the FPL.

The Senate's bill stops short of the House's proposed ban on public health insurance options providing coverage of abortion services but it does prohibit the use of federal funds for abortion services.

To pay for some of the costs of the bill, the bill proposes an excise tax on high cost employer-sponsored health coverage (i.e., plans worth $8,500 for individuals and $23,000 for families).  The bill also proposes a tax on elective cosmetic surgeries and an increased hospital insurance tax on high-income taxpayers that would increase the Medicare deduction from 1.45% to 1.95% for incomes over $200,000 for individuals and $250,000 for couples.

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The Senate Finance Committee has approved its health care reform legislation, entitled "America's Healthy Future Act." This legislation will now have to be merged with the version approved by the Senate Committee on Health, Education, Labor and Pensions (the "HELP Committee").

The two bills share many common concepts, such as penalties for individuals who fail to obtain health insurance, expansion of Medicare and requirements for insurance plans that, for example, include prohibitions on exclusions for pre-existing conditions.

However, the Finance Committee's version differs from the HELP Committee's in some significant ways. First, the Finance Committee's version does not establish a government-run health insurance plan, commonly referred to as a "public option," that would compete in the health insurance exchanges with private health insurance plans. Second, it does not mandate employers to provide health insurance. Third, it proposes different methods for financing the cost of the legislation. For example, the Finance Committee's version proposes assessing fees on pharmaceutical manufacturing companies ($2.3 billion), medical device manufacturers ($4 billion), health insurance providers ($6 billion), and clinical laboratories ($750 million).

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On September 16, 2009, Senate Finance Committee Chairman Max Baucus released the Chairman's Mark for the committee's health care reform legislation, entitled America's Healthy Future Act.

The Chairman's Mark differs from the legislation passed by the Senate Committee on Health, Education, Labor and Pensions (the "HELP Committee") on July 15, 2009, in a number of ways such as:

1. Does not include a public insurance plan option. Rather, The Chairman's Mark proposes a Consumer Operated and Oriented Plan (CO-OP) program to create non-profit, member-run health insurance companies. These companies will be limited to competing in the individual and small group insurance markets.
2. Does not include an employer mandate. However, the Chairman's Mark provides for a fee capped at $400 per employee for certain employers who do not provide health insurance.
3. Expands Medicaid to non-elderly, non-pregnant (childless adults) with incomes up to 133% of the federal poverty line. The HELP Committee's bill expands Medicaid to such individuals up to 150% of the federal poverty line.
4. Provides tax credits (on a sliding scale basis) for individuals and families with incomes between 134-300% of the federal poverty line to offset the cost of private health insurance premiums. The HELP Committee's bill provides such credits for individuals and families up to 400% of the federal poverty line.

The Chairman's Mark is scheduled for markup at the committee's open executive session on September 22, 2009.
 

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Senate Finance Committee Chairman Max Baucus has been reported as circulating to members of the committee a document entitled "Framework for Comprehensive Health Reform."

The Framework represents "many of the policies" discussed by the committee but is "not a final product . . . and does not include everything that might be in the [Chairman's Mark]." It most notably does not include a public insurance option. Rather, it proposes a Consumer Operated and Orientated Plan (CO-OP) program to create nonprofit, member-run health insurance companies that service individuals in one or more states.

Also, it does not propose an employer mandate. However, as discussed below, while there is no employer mandate, certain employers may be fined for not providing health insurance coverage.

Some other highlights of the document include:

• Penalizing US citizens and legal residents who fail to obtain health insurance coverage up to $3,800 per year.
• Fining employers with more than 50 full-time employees (30 hours and above) that do not offer health insurance coverage to their employees up to $400 annually for each employee who receives a tax credit for health insurance through an exchange.
• Establishing state-based exchanges to assist individuals and small groups to more easily compare health insurance plan benefits and premium costs for four benefit options that would be available.
• Permitting health insurance premiums to vary based on only four factors: tobacco use, age, family composition and geographic differences.
• Prohibiting health insurance plans in the individual market from excluding coverage for pre-existing health conditions or rescinding health coverage.
• Levying an excise tax of 35% on insurance companies and insurance administrators for any health insurance plan that is above $8,000 for singles and $21,000 for family plans.
• Assessing fees that would be generally allocated by market share on pharmaceutical manufacturing companies ($2.3 billion), medical device manufacturers ($4 billion), health insurance providers ($6 billion), and clinical laboratories ($750 million).
• Permitting states to form "health care choice compacts" between two or more states to allow the purchase of non-group health insurance across state lines.
• Expanding Medicaid coverage to include individuals who are not currently eligible (e.g., non-elderly individuals (childless adults) at or below 133% of poverty).
• Reducing a state's allotment for Medicaid Disproportionate Share Hospital Payments by 50% once the number of uninsured individuals in the state is reduced by 50%.

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The community benefit standard is the most common test applied by the IRS to determine whether a hospital, clinic, or other healthcare provider is operated to promote health in a manner that services a charitable purpose and, accordingly, merits tax-exempt status. The new form 990, introduced by the IRS in December 2007, has significant implications for the determination of community benefit as reported to the IRS. In response to these IRS changes, the Catholic Health Association (CHA) released the 2008 Edition of A Guide to Planning and Reporting Community Benefit, which discusses various forms of community benefit, including community health education. As part of its discussion on community health education, CHA’s Guide identifies health law topics for consumers, such as the American Health Lawyers Association’s (AHLA) Public Information Series (Series), as a recognizable form of community benefit.

AHLA has compiled a new Community Benefit Toolkit to explain how healthcare providers can share these publications within their local communities to promote community health education and advance community health improvement. Healthcare organizations can co-brand the Series’ publications to share with their local communities either electronically as a .pdf or reproduce the publications in hard copy at no cost. The distribution of these publications to consumers and healthcare professionals will provide healthcare organizations with additional community benefit to list on their IRS Form 990 Reports and thus may assist in meeting their community benefit obligations. As healthcare providers allocate scare resources to further their missions, the sharing of these publications is a cost-effective means of providing tangible value to local communities.

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In the 2008 Form 990 instructions, the I.R.S. recommends a sequencing list for completing the core form and schedules.  Chronologically second on this list, after completing some basic information on the core form, the I.R.S. recommends determining the filing entity’s “related organizations”?

What is a related organization?

The I.R.S. definition, simplified, characterizes a related organization as an organization that stands in a parent, subsidiary, brother/sister, and/or supporting/supported relationship with the filing organization.  Disregarded entities (for example, single member LLCs) are treated as part of the filing organization and not as related organizations.

If you are not directly responsible for preparing Form 990, why might you care about this definition of related organization?

The related organization concept is significant to various disclosures in separate parts of the 2008 Form 990.  By way of example:

(1)  If you are a listed person in Part VII, Section A of the core form (i.e., director/trustee, officer, key employee, or highest compensated employee), compensation from a related organization may be reportable on the core form or Schedule J.  (We will save discussion on listed persons and compensation for another day.)

(2)  Transactions with related organizations are transparent under Schedule R of the 2008 Form 990, which, among other disclosures, generally requires identification of related organizations and disclosures on transactions with related organizations.

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Legal and accounting departments for charitable and nonprofit organizations might be overwhelmed by the scope of the revised (2008) form 990. If you are like me, digesting information—one page at a time—is helpful in advancing permanent knowledge retention. Over the next few months, I will post on various sections of the 2008 form 990. In doing so, I make two promises to you:

• Our focus will be on the 2008 form 990, not on prior form 990s, not on historical perspectives, and not on related areas of law or regulation.
• Our focus will be on disclosures and requirements most pertinent to legal departments or counsel for section 501(c)(3) organizations.

This post is on written policy and documentation disclosures under 2008 form 990 part VI, section B related to Governance, Management, and Disclosure. In completing the form 990, you should also always review the instructions applicable to each section. In this section of the 2008 form 990, the I.R.S. inquires as to whether the organization has adopted written policies or documentation regarding:

• Conflicts of Interest. 2008 form 990 asks whether at the end of the organization’s tax year, the organization had a written conflict of interest policy. If yes, the form 990 asks whether officers, directors or trustees, and key employees are required to disclose annually interests that could give rise to conflicts, and whether the organization regularly and consistently monitors and enforces compliance with the policy.
• Whistleblowers. 2008 form 990 asks whether, as of the last day of the organization’s tax year, the organization had a written whistleblower policy.
• Document Retention and Destruction. 2008 form 990 asks whether, as of the last day of the organization’s tax year, the organization had a written document retention and destruction policy.
• Executive Compensation. 2008 form 990 asks whether the processes for determining certain executives' compensation include a review and approval by independent persons, comparability data, and contemporaneous substantiation (documentation and recordkeeping) of the deliberations and decision.
• Joint Venture Arrangements. 2008 form 990 asks whether the organization invested in, contributed assets to, or participated in a joint venture arrangement or similar arrangement with a taxable entity during the year. If yes, the form 990 asks whether the organization has adopted a written policy or procedure requiring the organization to evaluate its participation in joint venture arrangements under applicable federal tax law, and has taken steps to safeguard the organization’s exempt status with respect to such arrangements.

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The Internal Revenue Service (IRS) has completed its revision of the Form Instructions for its newly redesigned Form 990 and posted them, along with various background materials explaining the new 990 and its revisions, here.  The IRS extensively revised the format and content of the 990 based on three guiding principles: enhancing transparency, promoting tax compliance, and minimizing burden on the filing organization.  While transparency and compliance are likely outcomes of the new 990, the extent to which the extensive, detail probing document will minimize an organization's burden remains to be seen.

Some of the major features of the new form include a new summary of activities and finances page, a new governance section, enhanced reporting of executive and key employee compensation, and an organization's relationship with insiders and other organizations.  Of significance to tax-exempt hospitals is the new Schedule H to the 990, which requires substantial detail with regard regarding the community benefit the hospital provides and the facilities it operates.  For tax year 2008, however, hospitals will only have to complete the portion of the Schedule H relating to their facilities.  Thereafter, all portions of Schedule H will have to be completed.

To prepare for completing the new 990 for the 2008 tax year, the IRS recommends the following: (i) identifying "related" organizations required to be listed on Schedule R; (ii) identifying key employees and the organization's five highest compensated employees; (iii) reviewing the new governance questions on the 990, which must be answered based on policies and practices in place on or before the last day of the 2008 tax year; and (iv) identifying the schedules the organization will be required to complete.

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Certainly, one of the most significant developments in the tax-exempt organization sector has been the IRS' development of a redesigned Form 990.  According to the IRS, the 990 redesign is based on three guiding principles: (1) enhancing transparency; (2) promoting compliance; and (3) minimizing the burden on filing organizations.  Given the significant amount of detailed information regarding an exempt organization's activities the redesigned 990 requires, the IRS' first two guiding principles will likely be achieved.  Whether the redesigned 990 will minimize the burden on filing organizations remains to be seen.  To assist hospitals in this regard, a coalition has been formed of the American Health Lawyers Association, Catholic Health Association, Healthcare Financial Management Association and VHA, Inc.  This coalition has developed a website to provide a repository of information and resources to assist non-profit hospitals and their advisors in compiling and reporting accurate information on their 990s. 

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