New health care exchange called: MI Health Marketplace

MICHIGAN: Legislation has been introduced to set up a health care exchange called the MI Health Marketplace. It is estimated that as many as 520,000 individuals who are uninsured or who come from other plans would come onto the MI Health Marketplace in its initial year of operation, and another 500,000 would be Medicaid eligible. Participants could total more than 1 million participants in the first year. The exchange, which would be established as a nonprofit, will serve individuals and small businesses. The nonprofit would be governed by a board, to be appointed by the Governor, and have the ability to appoint an executive director. Federal funds will pay for the operation of the exchange through 2014, and the bill would require insurers to be assessed moving forward. No budget has been spelled out, leaving an open question as to how much the exchange will cost. The Snyder administration expects to pass an exchange bill by the end of November. Many in our industry are working with the sponsors of the bill on amendments.

It is our opinion that health insurance companies, will provide the required medical plans within the exchange, (Gold, Bronze and Platinum) yet for those who qualify provide another set of plans outside the exchange in a free market setting, allowing for lower premiums and more competitive product selection. Much of the same is already happening in Massachusetts and Utah where the federal “health care reform law” was passed and modeled after. Currently in Michigan, if you can not qualify for a medically underwritten medical plan, your only choice would be to purchase health care insurance at an increased rate, from a non-profit, such as Blue Cross and Blue Shield of Michigan or apply for Medicaid. For those of you reading this, what changed with the passage of the new federal health care reform law?

In other news Federal:

Week of October 10, 2011

Long-awaited recommendations concerning "essential health benefits" under the Affordable Care Act (ACA) were released last week (see below). The Institute of Medicine (IOM) recommendations will be used by the Department of Health and Human Services (HHS) to help guide the process of determining what should be included in an essential health benefits package starting in 2014. America's Health Insurance Plans (AHIP) released a statement on the recommendations and the need to strike a balance between cost of coverage and comprehensive coverage.

In other news, a special edition of Health Affairs was released last week with a number of articles that shed more light on the problem of racial and ethnic disparities in health care. Among the findings are that health plans have made considerable progress in the collection of data on race and ethnicity to enable efforts to reduce disparities. Aetna was an early adopter of data collection efforts and made the special Health Affairs edition possible with support through the Aetna Foundation.

IOM's highly anticipated report on the development of the “essential health benefits” package was released last week. The report comes in response to a request made last November by Health and Human Services (HHS). HHS requested that the IOM convene a study committee to advise the Secretary on the criteria and methodology for determining the essential health benefits package. Importantly, the 297-page report doesn’t actually say what the essential health benefits should be. It just recommends the methodology HHS should use to determine the package. The two big take-aways from the IOM recommendations: benefits should be based on the “typical” small employer plan, and states should have some flexibility to determine what is essential. The report further states that only medically necessary services for individuals should be included as essential. And, in defining the essential health benefits, HHS should first set a cost target before filling in benefits to meet that goal. The IOM has recommended that HHS should have the initial benefit package by May 1, 2012, and it should be as specific as possible.

The U.S. Supreme Court opened its new term last week with a case concerning whether individual providers and beneficiaries have the right to legally challenge the adequacy of Medicaid payments in California. The case, Douglas v. Independent Living Center of Southern California, involves providers and patients who claim California cut Medicaid reimbursement rates so low in 2008 and 2009 that they violated federal requirements that payments be sufficient to avoid disrupting patient access to care. Many of the questions from the justices focused on the HHS process for enforcing Medicaid requirements in the states. HHS issued a rule earlier this year that, for the first time, requires Medicaid reimbursements be “sufficient to enlist enough providers so that care and services are available.” That rule was issued, in part, to try to dissuade the Supreme Court from taking up the Douglas case.

Your comments and suggestions are welcome. Contact Winthrop & Gray Company at 800-258-1598 or email us at www.winthrop@winthropgray.com

Payroll and Compensation, Your Time or Their Time?

The time that employers must pay for isn't always clear. To help make sense of the confusion, here are answers to some frequently asked questions about when companies have to pay employees based on Labor

What States Require

Most states have labor regulations similar or the same as federal labor regulations. Click here to see what your state labor department requires.

The Supreme Court Weighs In

The Supreme Court took up the issue of compensable time in a case involving employees of meat production and poultry plants who were required to put on protective gear and walk to the production floor at the start of each day. At the end of the day, they had to walk back to the locker room and take off the gear.

The issue before the Court was whether the time walking to and from the production floor should be paid time. The Court held the time to actually "don" and "doff" the gear was compensable, under the Fair Labor Standards Act.

The employees asserted that their workday began once they put on the gear. The employers maintained that the walking time was a commute or a break.

The Justices applied the "continuous workday" principle, which states that compensable time begins with the first principal activity of the day and ends with the last principal activity.

Because wearing the equipment was mandatory, the court ruled that the first and last principal activities were donning and doffing the gear. Time in between was work time that had to be paid for.

   

However, the court ruled against the employees on another issue: Sometimes employees would have to wait until protective gear was available. Applying the same "continuous workday" principle, the court ruled that because "wait time occurred before the first principal activity, the employer wasn't obliged to pay for that time. (IBP, Inc., vs. Gabriel Alvarez, et al, No. 03-1238, Nov. 8, 2005)

Department regulations:

Q.

Do We Have to Pay Employees On Call?

Yes, your company is required to pay employees if you require them to remain on your premises while they wait for an assignment (for example, firefighters waiting for an emergency call). If this is the case, they are considered to be working and must be paid, even if they are doing other things, such as playing cards.

No, you don't have to pay employees if you allow them to go home and they are free to leave messages saying where they can be reached. In most cases like these, the employees are not considered to be working.

Yes, you must pay employees if you allow them to leave but restrict their activities, (such as requiring them to remain close to the workplace or not drink alcohol while on call).

Q.

Do We Have to Pay for Travel Time?

No, you do not have to pay employees for the time they spend commuting back and forth from home.

Yes, you have to pay for travel time if you have maintenance employees who use their own cars every day to travel to your branch offices in neighboring cities. You pay for time between locations.

Q.

Do We Have to Pay for Meal Time and Rest Breaks?

Yes, you do have to pay if the employee continues working during lunch or rest breaks. For example, if your receptionist spends her lunchtime at her desk, answering the phone as usual and has not been relieved of her duties, you do have to pay her for the time. What if she works during lunch breaks against your instructions? It's up to you to enforce the rules.

State laws regulate break periods, including the minimum time required for meals and rest breaks and whether the time must be paid. But even states that don't require paid breaks do require employers to pay employees if job duties are performed during long breaks, such as lunch or rest periods during long shifts.

Q.

Do We have to Pay for Sleep Time?

Yes, you must pay for sleep time if employees sleep less than five hours or are on duty for less than 24 hours. They are considered to be working for those hours, even if they are allowed to sleep or engage in other personal activities during non-busy times.

No, you don't have to pay if your employees work 24 hours or more and you have an agreement that their work hours will exclude bona fide regularly scheduled sleep periods for not more than eight hours - as long as you provide sleeping facilities and they can generally sleep uninterrupted.

Will the Supreme Court take up health reform in its next term?

It is generally accepted that the issue of the constitutionality of the health reform law and the individual mandate will be decided by the U.S. Supreme Court. The only real question has been when that will be.

Now it looks as if it will be during the Court's next term, which begins next week. That means oral arguments by March, and a decision by June – during the 2012 presidential campaign.

On Wednesday, the Justice Department petitioned the Court to hear what is probably the key case concerning the health reform law: the case filed in Florida by 26 state attorneys general and the National Federation of Independent Business (NFIB). A federal judge in Florida ruled in January that the individual mandate was unconstitutional and struck down the whole law. In August, a three-judge panel from the Eleventh Circuit Court of Appeals in Atlanta agreed 2-1 that the mandate was unconstitutional, but did not agree that meant the entire reform law should be struck down.

After losing in the Eleventh Circuit, the Obama administration had two choices on how to proceed: go back to the Eleventh Circuit and ask for an "en banc" (entire court) hearing, or head directly to the Supreme Court. Because of the makeup of the appeals court, a ruling by all the judges probably wouldn't have differed from the ruling of the panel of three, so the administration probably would have lost again and had to appeal to the Supreme Court anyway. But it was widely believed that the Justice Department might go through the process anyway, to slow down this high-profile case's journey and make it more difficult for the Supreme Court to rule before the 2012 election. An after-election ruling would probably be better for the Obama administration than a ruling next summer, since a win would energize Republican opponents, and a loss would invalidate what is commonly seen as the President's signature achievement.

In a statement, the Justice Department said, "The department has consistently and successfully defended this law in several courts of appeals, and only the Eleventh Circuit Court of Appeals has ruled it unconstitutional….Throughout history, there have been similar challenges to other landmark legislation such as the Social Security Act, the Civil Rights Act and the Voting Rights Act, and all those challenges failed. We believe the challenges to the Affordable Care Act…will also ultimately fail and that the Supreme Court will uphold the law."

It was a busy day at the Supreme Court. Earlier, the NFIB had filed its own appeal of a portion of the Eleventh Circuit's ruling. The NFIB's petition says the Court should strike down the whole reform law because the individual mandate cannot be separated from the rest of the law. "Until this court decides the extent to which the ACA survives, the entire nation will remain mired in doubt, which imposes an enormous drag on the economy," the NFIB petition argues. "Individuals, employers and states will lack a firm understanding of their rights and duties when planning their affairs. Providers of health insurance will have no idea what rules will govern their industry. Government officials will not know what regulatory measures need to be developed."

A little later, the 26 states also filed a petition. "Time is of the essence," wrote former Solicitor General Paul Clement, who is representing the 26 states. "The grave constitutional questions surrounding the ACA and its novel exercise of federal power will not subside until this court resolves them."

Meanwhile, last week, another challenge to the reform law was heard by a panel of judges of the Court of Appeals for the District of Columbia Circuit. It is unclear when a decision will come in that case.

So far one appeals court (Cincinnati) has said the individual mandate is constitutional, one (Atlanta) has said it is unconstitutional, and a third (Richmond) dismissed a case saying that the penalty for not having insurance is a tax, and tax provisions cannot be challenged until the tax is actually paid (which won't be until 2014).

The national agenda

The deficit-cutting work of the super committee and the President's proposals for cutting the deficit are absorbing a lot of the energy in Washington. Still, two other important health-related issues are also on the agenda this fall. They include:

The "doc fix"—The latest patch for the broken Sustainable Growth Rate formula expires at the end of the year. Unless Congress acts, the fees for doctors treating Medicare enrollees will decrease by 29.5 percent. Almost no one believes cutting physician fees to that extent is a good idea, but the problem is that repeal or even a long-term patch would cost about $300 billion. Proposals floated to fund the "doc fix" include elimination of the quality bonus payment demonstration for Medicare Advantage plans, which was enacted as part of the health reform law to offset overall payment reductions.

The question of who will run the Centers for Medicare and Medicaid Services (CMS) – The recess appointment of CMS Administrator Don Berwick also expires at the end of the year, and Senate Republicans have said they will block his permanent appointment. Will the Obama administration find some kind of work-around? Or will Berwick be replaced?

Meanwhile, here's a high-level look at the early stages of the deficit-cutting work.

The super committee at work

The Joint Select Committee on Deficit Reduction – or, as it's more commonly called, the super committee – has now had several closed-door and several public meetings. No one is revealing much of anything – for example, after one closed-door meeting last week, the panel's co-chairs, Sen. Patty Murray, D-Wash., and Rep. Jeb Hensarling, R-Tex., said only that the 12-member group was making progress.

"We had a very productive conversation today," Murray said. "Clearly, we all understand the tremendous time challenge in front of us and the tremendous challenge on the part of our country today for us to come to an agreement. We had a great discussion today to begin to frame that."

Hensarling said, "Every day that the committee meets, I believe there is progress."

Still, their job seemed to be made harder when the President and House Speaker John Boehner (R-Ohio) made conflicting demands. In a speech last week, Boehner said that tax increases should not be a part of the deal. Obama, however, promised to veto any deal that includes entitlement cuts but no new revenue from high-income Americans.

The President's deficit-reduction proposals

Last week, President Obama announced his proposals for cutting the deficit. They include collecting $1.5 trillion in additional revenue and saving $1 trillion by scaling back military operations in Iraq and Afghanistan. In addition, here are some of his notable proposed health care savings:

Cuts of $248 billion in Medicare growth in the next decade, and $72 billion in Medicaid growth

Starting in 2017, new beneficiaries would pay higher deductibles before Medicare coverage of doctors' services and other outpatient care kicks in ($25 more in 2017, 2019 and 2021).

Higher-income beneficiaries would pay higher premiums for Medicare Parts B and D, and the income threshold would be frozen so more people would have to pay the surcharge. (About 5 percent of people with Medicare now pay the higher premiums. The proportion would grow to 25 percent.)

Starting in 2017, new enrollees would pay co-payments for home health care that is exempt from co-payments now.

"Medigap" supplemental insurance premiums would increase.

Drug manufacturers would have to give Medicare additional discounts for prescription drugs bought by low-income beneficiaries.

Starting in 2015, the ability of states to use Medicaid provider taxes to increase federal matching funds would be phased down.

The formula for calculating Medicare payments to the states would be revised.

Starting in 2013, Medicare payments to hospitals for bad debts would be reduced. and so would payments to teaching hospitals.

The Independent Payment Advisory Board, whose powers have not yet gone into effect, would be strengthened.

In general, the response to the President's proposals has not been positive from either the Democratic or Republican side. The executive director of the progressive group Families USA said the plan "shifts the burden to states and ultimately onto the shoulders of seniors, people with disabilities and low-income families who depend on the program as their lifeline." A senior vice president of the American Hospital Association said the proposals were "disappointing and aren't helpful in terms of moving forward." Sen. Pat Toomey, R-Penn. and a member of the super committee, said, "With the deadline looming, we do not have time to waste on political games and pushing big tax increase that will only make our economy weaker."

Jacob Lew, director of the White House Office of Management and Budget, was one of the few who publicly defended the proposals, saying, "If you look at the details of what's in the plan that the President is sending to Congress, there is a lot of pain, and it's spread – it's spread broadly and, we think, fairly."

Challenge: Duals

The issue of cutting the health care costs of dual eligibles – that is, people who qualify for both Medicare and Medicaid benefits – is getting a lot of attention right now. But for years, members of Congress and health policy experts have struggled to deal with the interplay of the two government programs, as well as attempts to reduce spending and ensure quality of care. Sen. Ron Wyden, D-Ore., highlighted this history during a Senate Finance Committee hearing on the subject last week. "We have been treading water on this issue literally for decades, when I had a full head of hair and rugged good looks, and I was a director of the Gray Panthers," he said, recalling discussions 30 years ago.

The pressure to cut the deficit and health care costs has renewed interest in the issue. Dual eligibles are some of the states' most expensive, chronically ill patients. They account for 16 percent of all Medicare beneficiaries, but 27 percent of the spending. They account for 15 percent of all Medicaid beneficiaries, but almost 40 percent of Medicaid spending.

At the hearing, the only witness was Melanie Bella, the director of the new Medicare-Medicaid Coordination Office. She pointed to coordinated care arrangements as a key element in controlling costs and promoting better care for dual eligibles. She said that of the 9 million duals, only 100,000 are currently in coordinated care programs (through either a Medicaid managed care arrangement or Medicare Advantage-type arrangement). Her office's goal is to get one million into coordinated care in 2012, then build on that progress.

To that end, states have until Oct. 1 to submit letters of intent for demonstration projects on aligning their Medicare and Medicaid payment systems. Fifteen states have already received grants of up to $1 million to test their own care-coordination programs, which vary in the way they integrate payments and contract with different types of private health plans.

Meanwhile, a new report commissioned by the industry group America's Health Insurance Plans and written by Kenneth Thorpe, professor of health policy at Emory University, has found that as much as $125 billion could be saved over the next decade by enrolling dual eligibles in team-based coordinated care programs. Here are some more of the report's findings:

"Over half of all dual eligibles are under treatment for five or more chronic conditions."

"Some of these conditions, including diabetes, pulmonary disease and hypertension, are potentially manageable."

"Current Medicare and Medicaid policies provide little incentive for the states to rely on health plans and team based care programs."

Thorpe proposes that states enroll every dual in a health plan (but give them the choice to opt out), let health plans design their own evidence-based approaches (must include preventive care, transitional care, medication management, and other specific functions), and make health plans responsible for "coordinating, integrating and developing each of the care-coordination functions."

"States could also contract with other entities such as community health teams or other forms of medical homes."

The paper concludes, "Expanded reliance on health plans and other coordinated care approaches for dually eligible beneficiaries can achieve significant savings while improving quality of care….Policymakers should seriously consider greater reliance on these strategies as action on deficit reduction initiatives moves forward."

What health insurance data will do

For the first time, private sector health insurance claims data will be available just as Medicare claims data is available to policymakers, regulators, researchers, analysts and consumers. Humana and three other health insurance companies – Aetna, Kaiser Permanente and UnitedHealth care – have agreed to supply their claims data to the newly formed Health Care Cost Institute, an independent, nonprofit entity "committed to creating the nation's most comprehensive source of information on health care costs and utilization, and promoting research on the drivers of escalating health care costs and utilization in the U.S." The data, of course, will be de-identified. It will include more than 5 billion medical claim records representing more than $1 trillion of health care activity from more than 5,000 hospitals and a million service providers from 2000 through the present. And it will be updated regularly to ensure its usefulness.

HCCI's mission is to promote independent research and analysis on the causes of rising health spending, to provide more transparent information on what is driving health care costs, and to help the nation get greater value from its health spending.

The institute's governing board is made up of national physician leaders and academic researchers, many of them well known, including Jonathan Gruber, a health care economist at MIT, Harvard Provost Alan Garber, Harvey Fineberg, president of the Institute of Medicine, and Elizabeth Nabel, president of the Brigham and Women's/Faulkner Hospitals.

Starting in 2012, the institute hopes to produce scorecards of trends in health care utilization and cost.

Steep cost climb in 2011

The Kaiser Family Foundation's annual survey of employers' spending for health care coverage showed the average cost of a family plan increased 9 percent this year, to $15,073 – three times the growth in 2010. Coverage for single employees grew 8 percent, to $5,429.

Workers paid an average of $921 toward the premium of single coverage and $4,129 for family plans.

The survey also shows the cost of family coverage has more than doubled since 2001, when premiums averaged $7,061 (this is compared to a 34 percent gain in wages over the same period).

The survey includes data on both fully-insured and self-funded plans. It shows that 60 percent of covered workers are in partially or completely self-funded plans, a trend that has been increasing. (Note: The fact that premiums are increasing for both fully-insured and self-funded employer plans is evidence that these increases are being driven by rising claims costs.)

Half of workers at small firms with individual policies now have annual deductibles of $1,000 or more, compared with 16 percent in 2006. At large firms, the share has grown from 10 percent to almost a third.

Employers are mainly coping with rising health-care costs by moving their workers into plans with higher out-of-pocket costs like deductibles, co-pays, and co-insurance.

The political arguments over health reform's contribution to the cost increases are already starting. In the past year, some new mandates have gone into effect, such as the requirement for new plans to offer preventive care without cost-sharing and for children to be able to stay on their parents' health plans until age 26. The Kaiser survey showed that about a quarter of people with employer-sponsored plans gained the preventive-care benefit last year.

Karen Ignagni, CEO and president of America's Health Insurance Plans, said, "This report is just the latest warning that far more needs to be done to address the rising cost of health care. Policymakers in Washington and the states need to focus on all of the factors that are driving premium increases: soaring prices for medical services, changes in the covered population that has resulted in an older and sicker risk pool, and new benefit and coverage mandates that add to the cost of insurance. Reducing health care cost growth will make it easier for consumers and employers to afford coverage, ease the burden on federal and state budgets, and put our vital safety net programs on sustainable and fiscally responsible paths."

Meanwhile, early responses to an annual survey released by the benefits firm Mercer last week say that per-employee health care benefit costs will increase 5.4 percent in 2012, the smallest increase Mercer has seen in 15 years. Employers surveyed said they have been trying to contain costs by raising deductibles, increasing employee contributions, and moving employees to lower-cost health plans. They also reported that if they made no changes to their plans, their benefit costs would increase by 7.1 percent instead.

More grants to states for rate review

Last week, the Department of Health and Human Services awarded $109 million in grants to 28 states to help them strengthen their rate review processes. HHS already had awarded $46 million to 45 states and D.C. a year ago.

The health insurance industry group AHIP responded in a blog post, "Highly publicized provisions such as premium rate review may make for good sound bites, but literally do nothing to address the soaring cost of medical care." Robert Zirkelbach, an AHIP spokesperson, said, "The current focus on rate review ignores the soaring cost of medical care that is driving up the cost of coverage and taking up a greater and greater share of federal and state budgets."

Steve Larsen, director of the Center for Consumer Information and Insurance Oversight, said that the rate review process "at a minimum" ensures that premiums "really reflect underlying costs."

Meanwhile, an analysis of government data by AHIP shows that premium increases rose in direct proportion to health care cost increases from 2000 to 2009.

Health reform briefs

Two surveys – one by the government and one by Gallup – show that the number of young adults 19-25 covered by insurance has grown by about a million since a provision in the health reform law allowing them to stay on their parents' policies took effect.

The Kaiser Family Foundation has released a 50-state survey that provides a comprehensive look at state Medicaid managed care programs. The survey found that two-thirds of Medicaid enrollees nationally are in comprehensive managed care programs. It also documents their diverse approaches.

The National Association of Insurance Commissioners wrote a letter last week to the super committee, asking members to not prohibit first-dollar coverage in Medigap supplemental insurance policies as some deficit-cutting groups have recommended. They said that change would be disruptive to seniors, particularly if it was applied to existing policies.

The Institute of Medicine says that on Oct. 7, it will announce its recommendations on "essential health benefits" to the Department of Health and Human Services. The essential health benefits package that is then determined by HHS will be the minimum health insurance plan offered in state-based health exchanges beginning in 2014.

Why Combine Policies?

If you Combine your Policies, you save.  Here's how....

You have a number of polices that protect the precious facets of your life. Home, auto, life – you have all your bases covered. Now, if you haven’t considered it before, you may want to consider it now: combining your policies.


At Winthrop & Gray Company, we can combine your policies and even reduce your monthly premium. Just think, less hassle, less paperwork, and a nifty discount.
Contact us today – or fill out online contact form – to get the details!

No Single Factor Determines a Worker's Status

Does your firm use outside workers for some jobs? This can result in significant tax breaks if the workers are properly classified as independent contractors rather than employees.
Key point: If a worker is an employee, your company must withhold federal income tax and employment taxes from his or her wages. In addition, your business is responsible for paying the employer's share of federal payroll taxes. Conversely, if a worker is characterized as an independent contractor, your company isn't liable for these payroll tax obligations.
In addition, employers aren't required to offer independent contractors the same fringe benefits that regular employees receive, which can result in extra savings.
However, it's not always easy to distinguish independent contractors from employees. There are several factors the IRS and courts examine but it often boils down to a "control" issue. If you control how, where and when the worker does the job, he or she is usually classified as an employee.
Here are two cases heard in U.S. Tax Court that illustrate some of the traps that taxpayers can fall into on the employee-versus-independent-contractor issue:
Case #1: Tax Court Disregards Contracts
An Ohio trucking firm had written contracts with drivers to operate as independent contractors. The company filed 1099 Forms with the IRS for each of the drivers working under the contract. Nevertheless, the corporation:
Hired drivers, oversaw all work performed by them and confirmed
    Under Section 530 of the Revenue Act of 1978, an employer can claim independent contractor status for misclassified workers and not owe employment taxes if it can show:
There is a "reasonable basis" for the classification.
The business consistently treated workers as contractors.
    Here are the ways to qualify for Section 530 relief:
    1. The classification is a long-standing practice of a significant segment of the industry or profession.
   2. The employer was audited regarding the employment tax treatment of workers and the classification was allowed to stand.
    3. The employer relies on an authoritative court decision or IRS ruling to support its position.
   4. The employer based the determination on the sound reasoning of a paid tax professional.
the work had been completed.
Directed, supervised, paid, disciplined and discharged the drivers.
Decided which days that drivers would work and which loads they carried.
Determined when repairs to the trucks were necessary and was responsible for truck maintenance. The drivers had no investment in the trucks.
Based on these facts, the Tax Court ruled that the drivers should be treated as employees, despite the existence of the written contracts, because the company exerted significant control over their activities. (Peno Trucking, Inc., TC Memo 2007-66)
Footnote: The trucking firm argued that it should be entitled to "Section 530 relief" based on its consistent treatment of workers as independent contractors and the fact that two prior Workers' Compensation requests by drivers were denied by the state due to their written contracts. (See right-hand box for an explanation of Section 530 relief). But the Tax Court stated the Workers' Comp cases did not evaluate the employment relationships "through a common law analysis." Case #2: Are Workers Liable for Taxes if an Employer Wrongly Classifies Them?
What happens if an employer misclassifies a worker as an independent contractor and doesn't withhold income taxes or FICA? Does that mean the person is not liable for the taxes? One Florida woman found out the hard way that the answer is "no."
She worked as a seamstress at a retail bridal gown shop. The shop classified the woman as an independent contractor and paid her $11,210 during the year in question. The shop did not withhold income or employment taxes from its payments to her. The seamstress also received unemployment compensation of $208 that year from the Florida Agency for Workforce Innovation.
The woman also failed to file a tax return for the year. So the IRS filed one for her as a self-employed person with its "Substitute for Return Program" and sent her a tax bill. Later, the IRS agreed that the seamstress was an employee, rather than an independent contractor. The woman contended that the bridal shop, which failed to withhold taxes from her wages, was solely liable for the tax bill.
The Tax Court stated that it was "unfortunate" the employer classified the seamstress as an independent contractor and not as an employee.
But, the court added, "that does not alter the fact that the first principle of income taxation is that income must be taxed to (the person) who earns it" and "misclassification of an employee does not relieve the employee of his liability for filing a correct tax return." (Natalia Ravelo Escandon, TC Memo 2007-128)
These two cases are two in a long list of court filings against companies that hire independent contractors. In some cases, workers sue for benefits they claim they were eligible for, including health insurance and retirement plan contributions.
To make matters worse, the IRS continues cracking down on companies that hire independent contractors. If the tax agency "reclassifies" a worker as an employee, your company could be slapped with hefty bills for back taxes, interest and penalties. Audits by state agencies are also common and frequently occur when independent contractors apply for unemployment or Workers' Compensation.
Unfortunately, no single factor determines a worker's status. In the trucking company case described above, the Tax Court looked at these seven questions:
1. What degree of control is exercised by the business? Under this test, the court examined how much control the company exerted over the way the services were performed. But exercising control is not required in an employer-employee relationship, the Tax Court noted, as long as the company has the right to direct a worker if necessary.
2. Which party invests in "work facilities," used by the individual? "The fact that a worker provides his or her own tools generally indicates a non-employee status," the Tax Court explained.
3. Does the individual take any financial risk? "A worker's opportunity to earn a profit and assume risk of loss may indicate a non-employee status," the Court stated.
4. Can the business discharge the individual? "Generally, an employer's right to discharge an employee indicates an employer-employee relationship," the Tax Court noted.
5. Is the work an integral part of the company's regular business? An employer-employee relationship is supported when workers perform a service essential to the success of a business operation.
6. How permanent is the relationship? The Tax Court stated that "a transitory work relationship may point toward a non-employee status."
7. What kind of relationship do the parties believe they are creating? Entering into a written agreement that states a worker is an independent contractor indicates a non-employee relationship. However, a contract alone is not enough. "If an employer-employee relationship exists, characterization by the parties as some other relationship is immaterial," according to the Tax Court.

  Did  you know that if you sell your house after 2012 you will pay a 3.8% sales  tax on it?        That's  $3,800 on a $100,000 home etc.
       When  did this happen? It's in the health care bill. Just thought you should  know.
       SALES  TAX TO GO INTO EFFECT 2013 (Part of the Health Care Bill)  Why 2013? Could it be  to come to light AFTER the 2012 elections?
       REAL  ESTATE SALES TAX
              Under  the new health care bill - all real estate transactions  will be subject to a 3.8% Sales Tax? The bulk of these new taxes don't  kick in until 2013  If you sell your $400,000 home, there will be a $15,200 tax. This  bill is set to penalize ALL Americans and the retiring generation who often downsize their homes. Does this stuff make your November and 2012 vote more  important?
       You were not aware this was in the Health Care Reform bill? Guess what, you aren't  alone. There are more than a few members of Congress that aren't aware of  it either .....   click on this to verify  ......
              http://www.gop.gov/blog/10/04/08/obamacare-flatlines-obamacare-taxes-home <http://www.gop.gov/blog/10/04/08/obamacare-flatlines-obamacare-taxes-home>
   
       An educated public, is a public that votes.

"Health-care overhaul law"

A federal appeals court on Wednesday upheld the most contentious provision of the health-care overhaul law, ruling that Congress can require Americans to carry insurance coverage.

In backing the individual mandate, the U.S. Court of Appeals for the 6th Circuit in Cincinnati became the first appellate court to rule on President Obama's signature domestic initiative. The decision also marked the first time a Republican-appointed judge has sided with the administration in evaluating the law's constitutionality.

"We find that the minimum coverage provision is a valid exercise of legislative power by Congress under the Commerce Clause," Judge Boyce F. Martin Jr., a Democratic appointee, wrote for the majority. He was joined by Republican appointee Jeffrey Sutton.

The 2 to 1 ruling was hailed by the Justice Department and administration allies, who called it an important bipartisan test of the law's ability to withstand numerous legal challenges. Opponents of the health-care act disputed the ruling's significance, calling it one incremental step in a legal struggle widely expected to wind up at the Supreme Court.

"It's an unfortunate decision," said David Rivkin, a lawyer representing 26 states in a Florida-based lawsuit that also challenges the law. "By the time this gets to the Supreme Court, it's not going to matter which decision was first or second," added Rivkin, who predicted that the law will be overturned.

The differing interpretations reflected the deep divisions over a measure that has provoked vehement opposition and equally strong support among the public and politicians alike. More than 30 lawsuits have been filed since the Patient Protection and Affordable Care Act was pushed through Congress by Democrats in March 2010, resulting in several rulings by lower-court judges that, until now, have cleaved along partisan lines.

As a result, the ultimate fate of the statute, which aims to bring about the broadest changes to the nation's health-care system in several decades, may not be known for a year or more. Lawyers for the plaintiffs in the 6th Circuit case said they will appeal directly to the Supreme Court but acknowledged that the justices probably will not take the case right away.

Most contested provision

The health-care law seeks to extend medical coverage to 30 million uninsured Americans and make major changes in public and private health insurance. By far the most contested provision is the individual mandate, which requires most Americans to purchase at least a minimum level of health insurance starting in 2014 and imposes a tax penalty if they don't.

Like other legal challenges, the lawsuit filed by the Thomas More Law Center - a Christian-oriented law firm in Michigan - says Congress overstepped its constitutional authority to regulate commerce.

A three-judge panel of the 6th Circuit disagreed. The mandate is constitutional, Martin wrote, because "Congress had a rational basis to believe" that the provision would affect interstate commerce and that it was "essential" to the law's broader goals of reforming the health-care market.

Judge James Graham, a Republican appointee, dissented, but it was the concurrence of Sutton - a George W. Bush appointee and former law clerk for conservative Supreme Court Justice Antonin Scalia - that was most noteworthy.

Sutton wrote that "the government has the better of the arguments" and that "Congress did not exceed its power" in passing the individual mandate. But he also appeared to acknowledge that his word would not be final, writing, "The Supreme Court has considerable discretion in resolving this dispute."

And in a phrase that heartened conservative opponents of the law, Sutton questioned whether the legislation will have other, perhaps unintended, consequences. "That brings me to the lingering intuition - shared by most Americans, I suspect - that Congress should not be able to compel citizens to buy products they do not want," he wrote.

"If Congress can require Americans to buy medical insurance today, what of tomorrow? Could it compel individuals to buy health care itself in the form of an annual check-up or for that matter a health-club membership?"

Tracy Schmaler, a Justice Department spokeswoman, said that the government welcomed the ruling "and its finding that Congress acted within its authority in passing this landmark health-care reform law." She vowed that the department will continue to "vigorously defend" the law and said department officials believe that efforts to challenge it will fail.

Her words were echoed by a variety of Democrats and supporters of the law.

"Congress clearly has the authority to regulate the health insurance market, including protecting consumers from insurance industry abuses," said Ethan Rome, executive director of Health Care for America Now. "Every step of the way, the health-care debate has been polluted by partisan politics. Today's decision, made by judges appointed by both Republican and Democratic presidents, is immune to that criticism."

No 'ringing endorsement'

But Rivkin, citing some of the wording in Sutton's concurrence, said the decision is "not at all a ringing endorsement of the constitutionality of the individual mandate." And David Yerushalmi, a lawyer for the Thomas More Law Center, said that while the ruling was "disappointing," Sutton "essentially kicked this thing upstairs to the Supreme Court."

Yerushalmi said he is already drafting a petition asking the high court to hear the case, though he acknowledged that the justices will probably "put it aside" until other appellate court decisions are issued.

Two other federal appellate courts - the Richmond-based 4th Circuit and the 11th Circuit, based in Atlanta - recently heard oral arguments in lawsuits challenging various aspects of the health-care law's constitutionality, and they are expected to issue decisions in the coming weeks or months. The U.S. Court of Appeals for the District of Columbia Circuit has scheduled oral arguments for September.

Three U.S. district judges have ruled in favor of the administration on the constitutionality of the individual mandate, while two district court judges have said it is unconstitutional. Those decisions were all along partisan lines, with Democratic-appointed judges supporting the administration and Republican appointees opposing it.