April 20, 2011

Appropriations Act Repeals Affordable Care Act “Free-Choice Voucher” Rule

On April 15, 2011, President Obama signed into law the final appropriations bill for the federal government's current fiscal year (which runs through September 30, 2011).1 The appropriations act includes several changes to the Affordable Care Act,2 including the repeal of free-choice vouchers. This Capital Checkup summarizes those changes.

Free-Choice Vouchers Repealed

The appropriations act repeals the section of the Affordable Care Act creating free-choice vouchers. As a result, employers that sponsor group health plans will no longer have to offer vouchers beginning in 2014 to certain employees who purchase coverage on their own through the state health insurance exchanges and who meet certain criteria with respect to income level and amount of employee contributions to health coverage. (Under the Affordable Care Act, the vouchers would have equaled the amount that the employer would have contributed towards the employee's health coverage under the group health plan.)

The appropriations act does not repeal the employer responsibility penalty, which applies to employers with 50 or more full-time employees. That penalty, generally known as the free-rider penalty, will be imposed starting in 2014 if just one of the employer's full-time employees buys coverage through a state health insurance exchange and receives a federal tax credit subsidy to buy that coverage.3

CO-OP Funding Cut

The bill spending law eliminates $2.2 billion in funding for the Affordable Care Act's Consumer Operated and Oriented Plan (CO-OP) Program (out of a total of $6 billion in funding). Under this program, the federal government will provide grants and loans to new nonprofit member-run health insurance issuers seeking to offer qualified health plans in the individual and small group markets in 2014 and beyond. A 15-member advisory board, which has held monthly meetings since January 2011, will provide recommendations to the Secretary of the Department of Health and Human Services (HHS) with regard to the award of these grants and loans.

Various Reports and Audits Ordered, Including Audit of Annual Limit Waivers

The appropriations act requires various reports and audits relating to implementation of the Affordable Care Act:

  • Audit of Annual Waiver Requests The Government Accountability Office (GAO) must report to Congress, within 60 days, the results of an audit of requests for waivers of the annual limit requirements. As of April 1, 2011, HHS has granted 1,168 one-year waivers of the annual limit rules. This report is to include an analysis of the number of approvals and denials and the reasons for them.
  • Contracts and Consultants The GAO must report to Congress, within 90 days, on the costs and processes of implementing the Affordable Care Act, including contractors and consultants.
  • Impact on Premiums The Chief Actuary of the Centers for Medicare and Medicaid Services must report to Congress, within 90 days, on the impact of the guaranteed issue, guaranteed renewal and community rating requirements under various sections of the Affordable Care Act on premiums for individuals and families with employer-sponsored health coverage.
  • Comparative-Effectiveness Research The GAO must report to Congress, within 60 days, the results of an audit of expenditures made for comparative effectiveness research through funds provided by the Affordable Care Act or by an earlier law.

Implications for Plan Sponsors

For plan sponsors, the elimination of the free-choice vouchers is the most significant change to the Affordable Care Act. The free-choice voucher would have required plan sponsors to provide vouchers to a limited group of employees who had employee premiums that represented between 8 and 9.5 percent of household income. The provision would have been extremely difficult to administer and some experts have stated that it could destabilize plans by allowing certain groups to opt out of employer coverage. Elimination of the voucher program makes it easier for plan sponsors to determine the impact of other aspects of the ACA, such as the excise tax or free-rider penalty, on plan benefits.

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As with all issues involving the interpretation or application of laws and regulations, sponsors of group health plans should rely on their legal counsel for authoritative advice on the interpretation and application of the Affordable Care Act and related regulations. Segal can be retained to work with plan sponsors and their attorneys on compliance issues.

The U.S. House of Representatives passed the bill on April 14 by a 260-167 vote, and the Senate passed it later that day by a 81-19 vote. (Return to the Capital Checkup text.)
The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup text.)
For more information on the free-rider penalty, see The Segal Company's April 2010 Bulletin, "National Health Care Reform Becomes Law." (Return to the Capital Checkup text.)

Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.


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