Federal Overtime Rules: Employers Fasten Seat Belts

Calling income inequality the “defining challenge of our time,” President Obama has been a powerful advocate of expanding government aid to lower and middle-income households.

He has urged support for housing, education, food stamps, unemployment insurance and, his signature achievement, the Affordable Care Act, which commits $1 trillion over ten years to expand Medicaid and provide subsidies to help pay health insurance premiums.

A key part of the strategy has been to boost incomes of the working poor—those who work full-time but don’t earn enough to make ends meet.

Minimum Wage Increase—

One of the President’s new initiatives has been legislation to increase the federal minimum wage—from $7.25 an hour to $10.10. Someone working full-time at today’s minimum wage earns only about $14,500 a year. A $10.10 per hour minimum wage would represent a 40% increase, to $20,200,

Congressional Republicans so far have been cool to the idea, citing a Congressional Budget Office report that hiking the federal minimum wage to $10.10 could cause employers to eliminate up to 500,000 jobs. CBO concludes that while a much higher minimum wage would make some workers winners others would come out losers because their employers couldn’t afford to pay them $10.10 an hour.

Fair Labor Standards Act Overtime Regulations—

As the minimum wage stalemate plays out on Capitol Hill the White House has reached for a second lever to directly boost worker pay—federal regulations governing exemptions from the time-and-a-half overtime rules of the Fair Labor Standards Act (FLSA).

U.S. Department of Labor rules stipulate that unless employees can be classified as FLSA “exempt,” they must be paid overtime for hours worked in excess of 40 per week. For example, FLSA exempt executives must earn more than $455 per week (about $23,000) and among other things have as their primary duty responsibility for managing, i.e., directing the work of other employees and having the authority to hire and fire.

Administrative exempt employees must earn more than $455 per week and perform office work directly relating to management or general business operations and exercise independent judgment with respect to matters of significance. Learned professionals can be FLSA exempt if they earn more than $455 a week and perform work requiring advanced knowledge.

Employers understand the FLSA’s distinctions between exempt and non-exempt categories and are careful to classify employees accordingly. Wage-hour law remains one of the highest employer compliance priorities.

It is precisely this area of FLSA overtime pay exemptions that President Obama has decided needs major change—specifically to extend FLSA overtime rules to more workers and thus directly increase their earnings.

In a March memorandum to the Secretary of Labor the President asserted that the “regulations regarding exemptions from the (FLSA) overtime requirement, particularly for executive, administrative and professional employees, have not kept up with our modern economy. Because these regulations are outdated, millions of Americans lack the protections of overtime and even the right to the minimum wage.”

The President then directed the Labor Secretary to “propose revisions to modernize and streamline the existing overtime regulations,” specifically to “update existing protections” and “address the changing nature of the workplace.”

It’s unclear how long this regulatory process will take, what changes the Department of Labor will propose or how all this might affect employers. We can guess that at a minimum Labor will seek to raise the $455 weekly threshold, set ten years ago, perhaps in the range of $600-$700 weekly, or $31,200-$36,400 annually. And since the President’s stated goal is to extend FLSA protections to millions more Americans, employers should assume the Labor Department may want to tighten the tests for executive, administrative and professional exemptions.

No timetable has been given but proposed rules could be announced before the end of this year. With public comments and Congressional hearings any final changes could be delayed well into 2015.

But there is no uncertainty about one aspect of changing federal overtime rules: they could have huge consequences for employer costs, compliance and scheduling. As noted above, FLSA wage-hour compliance is one of the highest employer compliance priorities. To implement major changes to federal overtime rules at the same time as Affordable Care Act mandates employers will need to have their seat belts firmly fastened.

Cherry Blossoms Bloom: Congress Still Frozen

Much anticipated as a harbinger of spring, Washington DC’s historic cherry blossoms reached peak bloom last week. After a long, cold winter, spring has arrived!

The big question is whether the beautiful blossoms can thaw the political deep freeze that has descended on the nation’s capital.

Aside from an agreement earlier this year on the federal budget and the debt ceiling, Democrats and Republicans disagree on almost everything—an extension of unemployment insurance; a hike in the federal minimum wage; the causes of income inequality; the pay gap between men and women; and, of course, the Affordable Care Act.

Blame politics for the icicles that dangle from these issues. A number of Senate Democrats up for re-election this fall hail from states Republican presidential candidate Mitt Romney carried in 2012, making them vulnerable this year. Party control of the Senate and with it President Obama’s agenda and legacy hang in the balance. With a net gain of just six Senate seats in November, Republicans could wrest control from Democrats, putting the GOP in the Capitol Hill driver’s seat.

Politics partly explains each party’s policy agenda for this year. Republicans hammer away at “ObamaCare,” promising to repeal and replace the Affordable Care Act and allow Americans to keep their health plans and doctors.

Democrats focus on growing U.S. income inequality, the “defining issue of our time,” says President Obama, calling for a higher minimum wage, more weeks of emergency unemployment insurance for the long-term unemployed and “paycheck fairness” to address the disparity in earnings between men and women.

With Democrats in control of the Senate and Republicans in control of the House of Representatives, few expect compromises on these issues, though a temporary U.I. extension remains possible.

A case in point is the Affordable Care Act, where a few common sense fixes seem obvious. Republicans and Democrats should be able to agree to change the definition of full-time employee from 30 hours per week to 40; to raise the threshold for a “large group employer” from 50 full-time employees to 200 full-timers or even more; to suspend the individual mandate for 2014; and create a lower-cost “copper” plan option in the insurance exchanges.

Election year politics, however, make ACA compromises unlikely. Republicans don’t want to be seen as “improving ObamaCare,” thereby giving up their campaign theme, and Democrats fear conceding the ACA is flawed. So the cherry blossoms will come and go without defrosting the Capitol Hill stalemate.

We’re reminded, however, that the original Tidal Basin cherry trees were a gift to Washington DC from the mayor of Tokyo in 1912—intended to honor the friendship between the U.S. and Japan.

We can only hope that the spirit of friendship will soon return to Capitol Hill; that Republicans and Democrats will put public interest ahead of partisan politics and work together, not only on the Affordable Care Act but on all the big issues affecting our country.

Affordable Care Act At 4 Years: March Madness?

The NCAA college basketball tournament invariably features surprise winners and losers. Shockers in this year’s Big Dance include Dayton’s upset of Syracuse, Mercer’s knockout of the Duke Blue Devils and the Kentucky Wildcats toppling #1 seed Wichita State.

The Affordable Care Act has its own version of March Madness, with the ACA’s four-year anniversary on March 23 and the deadline for exchange plan open enrollment on March 31. All this suggests an ACA “bracket” of winners and losers.

ACA’s winners would include:

1. A prohibition on pre-existing condition exclusions for children up to age 16, beginning in 2011, and for everyone else starting this year;
2. A ban on lifetime dollar coverage limits that took effect in 2011 and on annual dollar caps beginning this year;
3. The requirement that preventive health coverage be provided without patient cost-sharing;
4. The opportunity for employees to add dependent children up to age 26 to their group health plans, for plan years starting in 2011;
5. A maximum 90-day waiting period for health coverage to become effective for otherwise eligible employees;
6. Statutory limits on cost-sharing, effective this year, to cap patient out-of-pocket costs at $6350 for single coverage and $12700 for family plans.

Perhaps the biggest surprise in the 2014 bracket is that there are a number of ACA “winners” in this controversial issue. Few senators or representatives would wish to repeal all of the above.

Still, ACA March Madness has its share of tournament “losers”—provisions that so far have disappointed in their implementation.

1. Health Insurance Exchanges. Starting with the fumbled rollout of the federal exchange in October, this key part of the healthcare reform law has failed to meet expectations. Sign-ups are now expected to be in the 5 million range when the enrollment window closes on March 31, 2 million short of the goal.
2. Risk Pool Mix. Potentially a serious problem, the exchanges are not yet attracting enough younger and healthier people to balance insurance risks. Aiming for 40% of the enrollees to be between ages 19 and 34, it looks like the final figure will be closer to 25%, portending higher premiums for 2015.
3. Coverage Expansion. The ACA’s #1 goal was to extend coverage to 35 million uninsured. If present trends continue only 25% of the exchange enrollees will have been uninsured in 2013, a huge setback.
4. Cost. Clearly a big upset, ACA was forecast to reduce health insurance premiums by an average of $2500. All indications are that insurance premiums have continued to rise.
5. Existing Plans. Healthcare reform’s biggest boosters concede that this #1 seed going into the tournament was knocked out in the first round. Many individual health plans have been canceled and new networks sometimes don’t include preferred physicians and hospitals.

Predicting the teams that will reach the NCAA Sweet Sixteen or Final Four is almost impossible with so many regional powerhouses and inevitable upsets. Likewise, it’s impossible to predict how the Affordable Care Act will fare going forward. There will continue to be winners and losers, encouraging the President and members of Congress on both sides of the aisle to work together, maybe in 2015, to improve on what’s working and fix what’s not.

Affordable Care Act Reporting: New Compliance Complication

The IRS got the attention of employers in February when it issued final rules on ACA “employer shared responsibility.” Known colloquially as “Play or Pay,” the regulations spell out penalties employers face for failing to offer minimum essential coverage to full-time employees and their dependents starting in 2015.

Regulation round two followed on March 5: section 6056 reporting.

The two sets of regulations send an important message: Play or Pay cannot work without extensive employer reporting. This explains why IRS will require employers annually to (a) file a return with IRS, similar to the Form W-2, with respect to each full-time employee; and (b) furnish each full-time employee with a statement of their health insurance coverage.

More specifically, effective next year employers subject to Play or Pay are required to file an annual section 6056 (and section 6055) information return, Forms 1095-C, as well as an accompanying transmittal statement, Form 1094-C, containing the following information:

• Name, address, employer identification number and calendar year for which the information is reported;
• Name and telephone number of the employer contact person;
• Certification whether the employer offers to full-time employees and their dependents the opportunity to enroll in minimum essential coverage, by calendar month;
• Number of full-time employees for each calendar month during the calendar year;
• For each full-time employee, the months for which minimum essential coverage was available;
• For each full-time employee, the employee’s share of the lowest cost monthly premium for self-only coverage providing minimum value offered to that employee, by calendar month;
• The name, address and TIN/SSN of each full-time employee during the calendar year and the months during which the employee was covered under an employer plan.

Employers will file their first Forms 1094-C, covering calendar year 2015, no later than March 1, 2016 (March 31 if filed electronically). They will furnish employees with their first coverage statements no later than February 1, 2016.

It now becomes clear that ACA “employer shared responsibility” and employer reporting are two sides of the same compliance coin. Moreover, IRS has now spoken: public comments have been considered; final regulations have been promulgated.

On top of all the ACA compliance mandates that have rolled out in 2011, 2012, 2013 and 2014, we now know that 2015 will bring employer play or pay and employer health coverage reporting.

Prudent employers will use 2014 to prepare for 2015 ACA compliance. They will evaluate HCM solutions to enable seamless monitoring and tracking of detailed compliance metrics, like coverage “affordability” at 9.5 percent of W-2 wages for the lowest cost self-only plan. And they will make sure they have the tools to generate accurate and timely section 6056 reporting.

Tax Reform: Reading the Tea Leaves Part V

One of the few issues lawmakers from both political parties support is tax reform, meaning to simplify the U.S. tax code by eliminating special preferences and cutting tax rates.

Last week Rep. Dave Camp (R-MI), chairman of the powerful House Ways & Means Committee, unveiled a comprehensive tax reform proposal years in the making.

Will it become law this year?

Of our encyclopedic Internal Revenue Code Rep. Camp quipped, “It is now 10 times the size of the Bible, but with none of the Good News.”

That the tax code has become gargantuan in size and complexity is bad enough. Nina Olsen, the IRS Taxpayer Advocate, estimates that Americans spend over six billion hours every year complying with tax filing requirements. Worse, many taxpayers no longer trust the tax code to be fair.

Democrats and Republicans agree the solution is obvious: repeal as many special deductions as possible, which will raise billions in revenue, and then return revenue to taxpayers in the form of lower rates.

The formula has worked before, most recently in 1986 when President Ronald Reagan and a bipartisan congressional coalition teamed up on sweeping tax reform legislation.

Rep. Camp’s proposal, based on testimony from hundreds of witnesses at 30 separate committee hearings, would “fix America’s broken tax code by lowering tax rates while making the code simpler and fairer for families and job creators.”

Specifically, the Tax Reform Act of 2014 would collapse present tax brackets to two—of 10 percent and 25 percent, “ensuring that 99 percent of all taxpayers face maximum rates of 25 percent or less.” Moreover, the standard deduction would be significantly increased, to $11,000 for individuals and $22,000 for couples. And the highest earners would be subject to a new 10 percent surtax on earnings over $450,000, essentially creating a 35 percent tax bracket.

On the other side of the equation the bill would repeal 220 sections of the tax code, including the deduction for state and local taxes. The mortgage interest deduction would be limited to $500,000 of debt and the exclusion for employer-provided health coverage would be capped at the 25 percent bracket.

One would think that a proposal by the chairman of the Ways & Means Committee to simplify the tax code and cut tax rates would have a good chance of becoming law. Alas, the tea leaves tell us that this proposal will remain just that, and for two big reasons:

First, while Democrats and Republicans agree that the tax code is complicated and unfair they disagree on one vital detail: Democrats want to siphon some tax reform revenue to the U.S. Treasury, i.e., not return all the new revenue to taxpayers. Republicans, on the other hand, favor “revenue neutral” tax reform—no additional revenue for the government.

Second, neither Democrats nor Republicans wish to be diverted from their 2014 political priorities. Democrats want to focus on income inequality, the minimum wage and immigration reform; Republicans to attack “Obamacare” and pursue alternative healthcare reform ideas.

Put another way, after all the legislative battles of recent years neither side believes the country is ready for a debate over issues like the tax deduction for mortgage interest or the exclusion for municipal bond income.

Still, Rep. Camp has done a great service to the nation by mapping the way forward on what one day will become an urgent national priority—making the tax code simpler and fairer while cutting tax rates. Like the early explorers Rep. Camp has chartered the course others will follow. The only question is when.

Employer Mandate Compliance: IRS Issues Q & A Part 2

Our efforts to help you understand the Feb 10 final rules on “Employer Shared Responsibility” continue here with excerpts and commentary on the IRS Q&A, including on Transition Relief for 2015. For information about the penalties as described in the IRS Q&A, please see Part 1 of this blog series.

Transition Relief for 2015—

• Employer Shared Responsibility provisions are effective for 2015;
• Employers will not be subject to a potential Employer Shared Responsibility payment until the first day of the 2015 plan year;
• An employer that takes steps during its 2014 plan year toward offering dependent coverage will not be subject to an Employer Shared Responsibility payment solely on account of a failure to offer coverage to dependents for plan year 2015, i.e., temporary relief for dependent coverage.
• For employers with fewer than 100 full-time employees in 2014 no Employer Shared Responsibility payment will apply for any calendar month during 2105;

What percent of an employer’s full-time workforce must be offered coverage in plan year 2015?

• For 2015, an employer that had at least 100 full-time employees in 2014…will be liable for an Employer Shared Responsibility payment only if:
  • the employer does not offer coverage or offers coverage to fewer than 70% of its full-time employees and (unless the employer qualifies for 2015 dependent coverage temporary relief) the dependents of those employees, and at least one of those full-time employees receives a premium tax credit subsidy to help pay for exchange coverage (“Greater Penalty”); OR
  • the employer offers health coverage to at least 70% of its full-time employees and dependents (see transition relief for 2015), but at least one full-time employee receives a premium tax credit subsidy, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered to that employee was either unaffordable or did not provide minimum value. (“Lesser Penalty”)
  • (In other words, in 2015 if an employer offers coverage to 75% of its full-time employees, but one of the employees in the 25% category not offered coverage qualifies for a premium tax credit subsidy for exchange coverage, the employer potentially will be liable for the “Lesser” employer shared responsibility penalty for that one full-time employee).

When can an employee receive a premium tax credit?

• Household income is between 100% and 400% of the federal poverty line and they enroll in exchange coverage;
• They are not eligible for government coverage like Medicaid or CHIP;
• They are not eligible for employer-sponsored coverage or they are eligible only for employer coverage that is unaffordable or does not provide minimum value.

Play or Pay Compliance—

Neither last week’s final rules on employer shared responsibility, nor IRS’s 46 questions and answers, nor this blog will enable employers to fully understand the compliance implications of the Affordable Care Act “play or pay” mandate. A federal government requirement that employers offer health coverage to full-time employees is unprecedented. There are no experts.

Employers with fewer than 100 full-time employees now have until 2016 to comply; transition relief gives employers with more than 100 full-timers a tad more flexibility for 2015.

In any event employers are committed to being in compliance with the law—and therefore we need to commit to learn this new language.

Employer Mandate Compliance: IRS Issues Q & A Part 1

Concerned that the Feb 10 final rules on “Employer Shared Responsibility” create more compliance uncertainty, the IRS has now posted 46 questions and answers about the Affordable Care Act employer play or pay mandate.

Understanding the IRS requirements is like learning a foreign language: it involves an entirely new vocabulary. In the first of two blog posts on this topic, the excerpts and commentary below attempt to translate the new language. In Part 2 we’ll cover Transition Relief for 2015.

All employers that are Applicable Large Employers (i.e., they have 50 or more full-time employees) are subject to the Employer Shared Responsibility provisions, including for-profit, nonprofit and government employers.

An employee is a full-time employee for a calendar month if the employee averages at least 30 hours per week or 130 hours of service in a calendar month. Special rules are provided for seasonal workers, volunteers and adjunct faculty, among others.
One method to determine whether an employee has sufficient hours to be a full-time employee is the look-back measurement period, under which an employer determines the status of an employee during a future “stability period” based on hours of service in a prior “measurement period.” (For 2015 employers may use a 6-month look-back period in 2014 and a 12-month stability period in 2015).

An employer will be liable for an Employer Shared Responsibility payment (penalty) only if:

• the employer does not offer coverage or offers coverage to fewer than 95% (70% in 2015) of its full-time employees and the dependents of those employees and at least one full-time employee receives a premium tax credit subsidy to help pay for exchange-based health coverage; OR
• the employer offers health coverage to at least 95% (70% in 2015) of its full-time employees and dependents, but at least one full-time employee receives a premium tax credit to help pay for exchange coverage, which may occur because—(i) the employer did not offer coverage to that employee or (ii) the coverage the employer offered that employee was either “unaffordable” or did not provide “minimum value.”

In any case, an employer will not be liable for an Employer Shared Responsibility payment unless at least one full-time employee receives a premium tax credit subsidy. If no full-time employee receives a premium tax credit, the employer will not be subject to an Employer Shared Responsibility payment. (Note: the premium tax credit triggers the penalty; no subsidy, no penalty).

How much is the penalty for not offering coverage to full-time employees?

• If an applicable large employer does not offer coverage or offers coverage to fewer than 95% (70% for 2015) of its full-time employees (and their dependents), it owes an Employer Shared Responsibility payment equal to the number of full-time employees (minus up to 30) multiplied by $2,000, as long as at least one full-time employee receives the premium tax credit subsidy.
• (We can call this the “Greater Penalty” because in this scenario if one full-time employee qualifies for a premium tax credit subsidy the $2,000 penalty is multiplied by the total number of full-time employees.)

How much is the penalty for offering coverage that is unaffordable or not of minimum value for an employee?

• For an employer that offers coverage to at least 95% (70% in 2015) of its full-time employees (and their dependents) but has one or more full-time employees who receive a premium tax credit subsidy, the payment is computed for each month and equals the number of full-time employees who receive a premium tax credit subsidy for that month multiplied by 1/12 of $3,000.
• (We can call this the “Lesser Penalty” because in this scenario the $3,000 penalty pro-rated monthly is multiplied only by the number of full-time employees who qualify for a premium tax credit subsidy. If only one full-time employee receives a premium tax credit subsidy for 2015 the total employer shared responsibility penalty is $3,000.)

How does an employer know if it is liable for a penalty?

• If an employer owes an Employer Shared Responsibility payment IRS will contact employers to inform them of their potential liability before notice and demand for payment is made. The contact for a given calendar year will not occur until after the due date for employees to file individual tax returns for that year claiming premium tax credits and after the due date for employers to file the information return identifying their full-time employees and describing the coverage that was offered. (This suggests that employer mandate penalties will not be imposed until mid-year 2016).

Please stay tuned for Part 2 of this blog series for additional excerpts and commentary, including on Transition Relief for 2015 based on the IRS Q&A.

Employer Mandate Delayed Again: More Compliance Complexity

As our Reading the Tea Leaves blog predicted a few weeks ago, the Obama Administration has once again delayed the Affordable Care Act “Employer Shared Responsibility” requirement, also known as the Play or Pay mandate.
This controversial compliance requirement was to have taken effect this year for employers with 50 or more full-time employees but was delayed in July 2013 until next year. It has now been delayed again for most employers, this time until 2016.

Specifically, the U.S. Treasury has announced that for employers with between 50 and 99 full-time workers the mandate will be delayed for an additional year, to 2016.

Employers with 100 or more full-time employees would be required to offer health coverage that is affordable and provides minimum value to 70 percent of their full-time employees starting in plan year 2015, rising to 95 percent in 2016.

Employers with between 50 and 99 full-time workers employ only about 7 percent of all employees, while employers with over 100 workers employ two-thirds of all employees, according to the Washington Post’s review of SBA data.

Implications for Employers—
First, for small businesses with fewer than 100 full-timers, which represents most employers, the Treasury announcement is very good news. The play or pay mandate is once again kicked down the road.

Second, employers who have over 100 workers face even greater compliance complexity next year. They will need to decipher which 30 percent of their full-time population will not need to be offered health coverage in 2015. For example, Treasury expects some employers to offer coverage only to employees working 35 or more hours a week, using 2015 to transition to the 30-hour ACA full-time employee definition.

These employers will need to plan in earnest this year for compliance with the 2015 effective date—now only 10 months away for calendar year plans. This will include all the idiosyncrasies of ACA Employer Shared Responsibility, including minimum essential coverage, dependents, affordability, minimum value, look-back and stability periods for determining full-time status and the entire regulatory superstructure the mandate imposes on employers.

Most significantly, these employers await the dropping of the proverbial second shoe—Section 6056 employer reporting, the linchpin of play or pay regulatory enforcement and penalties.

In February 2016 these employers will be required to file a new return with IRS for every employee, much like Form W-2, reporting detailed information on the terms and conditions of that employee’s health coverage. Penalties for non-compliance with the play or pay mandate would be based on the 6056 report and be imposed sometime in 2016. This week’s announcement states that final 6056 reporting rules will be issued shortly.

Outlook—
One question that looms over this week’s announcement is, Why was the mandate delayed again? While a Treasury Department official said the delay was a response to business concerns, some suspect that 2014 election politics played a role. With all the negative headlines about canceled health plans, too-narrow provider networks, the fumbled rollout of the exchanges and the recent CBO report on jobs, perhaps the White House wanted to get this issue off voter radar screens.

Accordingly, for employers with fewer than 100 employees, who now face a 2016 effective date, one could conclude that the mandate will ultimately be delayed past the 2016 presidential elections, i.e., permanently.

For larger employers, however, the outlook remains uncertain. Compliance questions abound. For example, what happens if a full-time employee in the 30 percent employee group that need not be offered coverage in 2015 qualifies for a subsidy to buy an exchange health plan? Is the employer still subject to a Play or Pay penalty in 2016?

And does the 70 percent-30 percent workforce segmentation make sense for employers? Was this done to delay de facto the 30-hour a week definition of a full-time employee?

One thing is certain: the Obama Administration, while showing some flexibility, particularly for small business, seems determined to execute and enforce the mandate for larger employers. Prudent employers will use this year to get prepared for 2015 Play or Pay, including having the tools they need for ACA compliance.

CBO Report: Bad News for Affordable Care Act

The Congressional Budget Office in Washington DC this week issued a special report on the economic outlook, including how the Affordable Care Act might affect jobs, sparking a new debate on the controversial healthcare reform law.

Respected on both sides of the aisle for non-partisan analysis, CBO forecast that generous ACA insurance premium subsidies and other factors would cut the number of hours worked by Americans by the equivalent of over 2 million jobs by 2021.

While supporters and opponents of the law put their own spin on the report there was no parsing the key finding: the healthcare reform law could adversely affect jobs.

Almost overlooked was another interesting CBO conclusion—because of the fumbled launch of the health insurance exchanges 2014 enrollment is expected to come in at 6 million, 1 million fewer people than the initial forecast. By 2024 total exchange enrollment would reach 24 million, good as far as it goes, but it would still leave some 31 million uninsured. And employment-based coverage would have dropped by 7 million.

The CBO report helped re-focus the ACA spotlight on how the federal and state exchanges are doing with this year’s March 31 deadline approaching for open enrollment.

Three Decisive Percentages—
Based on published reports we now understand that the success of the exchanges will turn on what happens to enrollment data on 3 key percentages: percent aged 18-34; percent previously uninsured; and percent paying their insurance premium, every month and on time.

The preliminary numbers are not encouraging. With 3 million people so far signed up for private health plans in federal and state exchanges the 3 key percentages shape up like this:
• Less than 25% of the enrollees by Dec 28 were between the ages of 18 and 34 (Wall Street Journal Jan 14, 2014). Financial viability for exchange plans requires that about 40% of the people who buy exchange coverage be young and healthy, “cross-subsidizing” affordable premiums for older
enrollees.
• McKinsey & Co. estimates that only 11% of those who bought coverage on an exchange by the end of December were previously uninsured (Wall Street Journal Jan 18-19, 2014). Others may put the figure higher, perhaps in the 25% range, but it seems clear that most of those enrolling in the exchanges had individual or employer coverage last year, i.e., they were not uninsured.
• While premium payment data are not yet available, anecdotal information from several insurance carriers suggests that about one-third to one-half of those who signed up for coverage had not paid their January premium (Wall Street Journal Jan 11-12, 2014).

Obviously the Affordable Care Act is more than a numbers game. And the numbers will almost certainly improve as next month’s open enrollment deadline approaches.

But the incoming data remind that a cloud of uncertainty hangs over many aspects of the healthcare reform law, including its effect on employer-based coverage. The CBO report adds a new layer of ACA uncertainty and confirms that 2014 could be a political make-or-break year.

Immigration Reform Legislation: Reading the Tea Leaves Part IV

Immigration reform legislation is expected this spring to take center stage on Capitol Hill as lawmakers try to resolve the status of some 12 million illegal aliens.

The tea leaves tell us that two words, one procedural and one substantive, will determine the outcome: “comprehensive” and “special.”

Last year the Democrat-controlled US Senate approved, with President Obama’s enthusiastic support, S.744, the Border Security, Economic Opportunity and Immigration Modernization Act, a sweeping immigration reform package. The bipartisan bill would address a wide range of issues, including mandatory E-Verify, visa processing and border security.

The hot-button issue in the Senate-passed bill, of course, is granting those now in the country illegally full U.S. citizenship, with access to public benefits and voting rights, after some years and satisfying several conditions. The legislation would create a “special path to citizenship” for almost all undocumented immigrants.

The Republican-controlled House of Representatives has yet to approve immigration legislation. But just last week House Republicans released their standards for immigration reform.

In some ways the Republican concept paper mirrors the Senate-passed bill in addressing issues like border security, mandatory employment eligibility verification and visa processing.

But there the similarities end. On two central points Senate-House differences are significant: incremental, step-by-step legislation as opposed to a “comprehensive” approach; and legal status for undocumented aliens but no “special” path to citizenship.

Recognizing that our immigration system has “serious problems,” the principles paper insists “they cannot be solved with a single, massive piece of legislation.” House Republicans believe that the recent experience with comprehensive healthcare reform, the Affordable Care Act, precludes another comprehensive Washington DC prescription.

Instead they would consider individual pieces of legislation, e.g., first on border security, consider the merits and vote one-by-one. Individual bills could be packaged at a later date. On the question of citizenship, the main sticking point will be whether to enshrine into U.S. law something “special” for 12 million illegal immigrants.

The principles document would open this door a crack by creating a special path for those “who were brought to this country as children,” and either serve in the U.S. military or attain a college degree.

But there would be no special path to citizenship “for those who broke our nation’s immigration laws.” Such persons could be granted status so they could live and work legally in the U.S. if they met certain conditions like paying fines and back taxes. Legal status would permit these individuals to access the existing pathways to permanent residence that are available to anyone, but there would be no special pathway to citizenship for illegal immigrants.

Will immigration legislation become law in 2014? It faces three big hurdles:

One, House Republicans must be willing to translate their statement of principles into formal legislation and then vote to approve it.

Two, Senate Democrats must be willing to accede to a series of smaller bills and give up the special path to citizenship —a major concession.

And three, President Obama and the influential immigration advocacy community, including the AFL-CIO, need to be willing to accept half a loaf—permanent legal status for millions; but no special path to U.S. citizenship.

The tea leaves tell us that all this could happen if, and it’s a big if, Democrats and Republicans are willing to compromise on a consensus solution. But compromise requires trust, and that’s not very visible in Washington DC tea cups.