HEALTH REFORM ADVISORY PRACTICE
Lockton Benefit Group
“What the Health Reform is Going on Out There?” Click the logo to register January 6, 2017 Edward Fensholt JD, Mark Holloway JD, Scott Behrens JD
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4 4 HEALTH REFORM ADVISORY PRACTICE
Lockton Benefit Group
“What the Health Reform is Going on Out There?” January 6, 2017 Edward Fensholt JD, Mark Holloway JD, Scott Behrens JD
LOCKTON COMPANIE S Agenda
Welcome, Introductions and Acknowledgements
It’s About to Go Down: Procedures for Repeal and Replace or Delay
The ACA Repeal Legislation
The Replacement Plan
Other Things (time permitting)
Conclusion and Questions
s:\filepath 6 It’s About to Go Down: Procedures for Repeal and Replace or Delay Repeal and Replace? Repeal and Delay?
Unable to quickly agree on a replacement plan, and pressured by a perceived mandate to repeal the ACA, Republicans appear to have “I don’t think repeal is decided on repeal and delay. that complicated. We’ve done that once . . . Repeal and replace is still in play. Key senators are fighting for it, but When it comes time to repeal and delay seems much more replace . . . that’s realistic. complicated.” Sen. Tom Cotton (R-AR) Sen. Rand Paul (R-KY) Sen. Lamar Alexander (R-TN) Sen. John Thune (R-SD) Sen. Susan Collins (R-ME)
8 What ACA Repeal and Delay May Look Like
By Feb. 20, 2017 By Dec. 31, 2017 By 2019 or 2020
Target for passing repeal, but Target for passing ACA rules sunset, ACA rules replacement, but ACA rules replacement fully effective stay on the books stay on the books
Some repeals become Some ACA repeals and some effective. Executive action to replacement rules modify ACA provisions and may go into effect earlier stabilize insurance markets
Other legislative and executive action to smooth the transition
9 Mechanic for Accomplishing Repeal
The House can pass repeal legislation by simple majority (which Republicans have), but the Senate needs 60 votes to overcome a filibuster. Republicans have 52 Senate seats and Democrats say they won’t help repeal. Some vulnerable Democrats up for reelection in 2018, like Joe Manchin (D-WV) might help, but not likely eight.
Are we headed for a filibuster and a stalemate? Not if budget reconciliation is used, which requires only 51 votes in the Senate.
10 How Reconciliation Works
Reconciliation allows current law to be changed to meet the objectives of the proposed budget.
Reconciliation bills can only change Spending Revenue (i.e., taxes) Debt limit
The limits on reconciliation are why changes to the ACA’s “market reforms” like the prohibition on preexisting conditions and elimination of annual limits probably can’t be reversed during repeal. These ACA rules have only an incidental impact on the budget, so they likely cannot be changed via reconciliation.
11 Proposed Timeline for ACA Repeal Through Reconciliation
Budget Committee finalizes repeal bill to be voted on Final bill sent to by full House and president for Senate signature (20 Hours of debate in the Senate followed by vote-o- rama on a flurry of House adopts amendments) 5 rules limiting debate and amendments (Senate rules Senate and pre-established via 4 House Byrd Amendment) committees formulate and report proposed 4A changes to the If House and Senate Budget Committee 3 pass different bills, then conflicts are resolved in Adoption of conference committee budget resolution with reconciliation language for 2 4B specific committees Repeat steps 3 & 4 if necessary 1
Senate Completed In Progress; In Progress Jan. 4 Goal is early/mid Feb. Goal is Feb. 20 Jan. 3 (S. Con. Res. 3) due Jan. 27 (H. Res. 5)
12 Process for Replacement
It all depends on what cooperation Republicans get from Democrats
If Republicans can get Democrat support, then “regular order” – the normal legislative process – will be used More hearings, lengthier debate, and greater potential for amendments Vulnerable Democrats in traditionally Republican states up for reelection in 2018 may be key
If Republicans cannot get Democrat support, then a second budget reconciliation process will have to happen Normally, budget reconciliation can happen only once per year, but delays in passing a budget resolution in 2016 means they can pass two in 2017. Republicans will be constrained to non-incidental changes to revenue and spending
Replacement might happen through both—reconciliation for tax-related matters (maybe as part of broader tax reform) and regular order for non-budget matters like market reforms (e.g., selling insurance across state lines)
13 Senate: Key Committees and Presumptive Chairs
Budget—Drafts the budget resolution and helps formulate and oversee the reconciliation process Chair: Michael Enzi (R-WY)
Finance*—Oversees taxation and revenue as well as government funded health programs. Chair: Orrin Hatch (R-UT) Chair Health Subcommittee: Pat Toomey (R-PA)
Health, Education, Labor, and Pension*—Jurisdiction over public health policy. Chair: Lamar Alexander (R-TN) Chair Health Subcommittee: Michael Enzi (R-WY)
Appropriations—Provides legislation allocating funds to administrative agencies in line with the budget. Chair: Thad Cochran (R–MS) Chair Subcommittee for DOL and HHS oversight: Roy Blunt (R-MO) *Committees given jurisdiction over reconciliation/repeal language by the current budget resolution
14 House: Key Committees and Presumptive Chairs
Budget—Similar to the Senate, drafts the budget resolution and helps formulate and oversee the reconciliation process Chair: Diane Black (R-TN-06)
Energy and Commerce*—Broad jurisdiction over public health (including insurance) and commerce Chair: Greg Walden (R-OR-02) Chair Health Subcommittee: Mike Burgess (R-TX-26)
Ways & Means*—The Constitution requires all tax bills start here Chair: Kevin Brady (R-TX-08) Chair Health Subcommittee: Pat Tiberi (R-OH-12)
Appropriations—Similar to Senate, provides legislation allocating funds to administrative agencies in line with the budget Chair: Rodney Frelinghuysen (R-KY-05) Chair Subcommittee for DOL and HHS oversight: Tom Cole (R-OK-02)
Education and Workforce—Oversees employment related legislation including healthcare Chair: Virginia Foxx (R-NC-5) Chair Health and Labor Subcommittee: Phil Roe (R-TN-1) (introduced replace bill) *Committees given jurisdiction over reconciliation/repeal language by the current budget resolution
15 The Affordable Care Act “Repeal” Bill: What Will Change and What Won’t?
Background – ACA Repeal
Since the ACA’s inception in 2010, House Republicans have passed dozens of ACA repeal bills Some never saw daylight in the Senate; all that cleared the Congress were vetoed by President Obama Latest attempt was a HR 3762, a reconciliation bill sponsored by Rep. Price (R-GA) that was vetoed by President Obama in December 2016 Rep. Price is President-elect Trump’s designee for Secretary of HHS
We will assume HR 3762 will serve as the blueprint for a repeal bill for the Congress in 2017 Possible that repeal of Cadillac Tax and Medical Device Tax will be done with stand-alone bills Why?
Republicans continue to discuss effective date(s) for repeal Dates used on forthcoming slides may change
s:\filepath 17 ACA Repeal – What It May Look Like
House Republicans’ prior repeal bill, HR 3762, is 8 pages in length, compared to 900+ pages of the ACA as enacted Repeal bill uses multiple references to “Effective as of [date], this Section [of the ACA] shall have no force and effect” Very few references to outright repeal of ACA provisions Many unanswered questions right now
Bill would also resurrect some prior rules that were changed with ACA’s enactment in 2010 More on that in a few moments
Goal is to have a repeal bill passed by both houses and on the President’s desk for signature by February 20
After inauguration on January 20, Executive Orders might be used to derail some ACA provisions prior to outright repeal Q: ACA reporting?
s:\filepath 18 ACA Repeal – Employer and Individual Mandates
Employer Mandate: Reduces to $0 any penalties that would apply to employers for not offering coverage to ACA FTEs Applies retroactively to 2015 (first year in which employer mandate applied) Effectively kills ACA regulatory regime for counting hours to determine FTE status What about ACA tax reporting?
Individual Mandate: Reduces to $0 any penalties that would apply for not maintaining “minimum essential coverage” Applies retroactively to 2015 (individual mandate applied beginning in 2014)
s:\filepath 19 ACA Repeal – Exchanges
Exchange subsidies (premium tax credits, cost-sharing subsidies) Repealed, beginning in 2018 Including tax credit available to small employers who offer coverage
Exchange reinsurance programs (protects insurers from catastrophic claims) “HHS shall not collect fees or make reimbursements” Applies retroactively to 2016 Appears to require refund of 2016 TRF paid by self-funded plans What about PCORI Fee? But what would be done to protect exchange plans from poor risks?
Exchange plans would not need to cover “essential health benefits” (not in HR 3762, but likely for 2017 repeal bill) No ACA mandate that large employer plans cover EHBs – but if did cover, then no annual of lifetime dollar limits Does this mean that dollar limits would be OK?
s:\filepath 20 ACA Repeal – Medicaid
Repeal bill would roll back Medicaid expansion at the end of CY 2017 31 states expanded Medicaid; remainder did not USSC ruled Feds could not force expansion on States What to do for individuals who lose Medicaid coverage?
s:\filepath 21 ACA Repeal – Insurance Mandates
Repeal bill not clear on ACA’s insurance mandates, but adult child coverage to age 26 and no pre-ex likely to stay
Preventive care mandate: might be possible to unwind with no Congressional action
Discrimination based on health status: employer plans subject to these rules before ACA What about turbo-charged ACA wellness rules (50% penalty for smokers)?
Unclear how the following mandates would be impacted: Maximum waiting periods (currently 90 days) Medical loss ratios for insured plans Summaries of Benefits and Coverage (SBCs) Ban on rescissions New claim appeal rules for non-GF’ed plans Coverage for gender dysphoria
s:\filepath 22 ACA Repeal – What Was Once Old is New Again
Other changes, effective in 2016 (taxable years beginning after 12/31/15) Over-the-counter drugs: payable from a health FSA (no doctor’s note required) and qualifies for tax-free distribution from HSA Bill does not address HRAs, though No $2,500 cap on health FSAs Plan would establish dollar cap, as was the case pre-ACA 10% excise tax for non-qualifying HSA distributions Currently 20% tax Changes tax treatment of post-65 retiree drug subsidy (RDS) to pre-ACA (allows employer deduction of expenses allocable to RDS) Issue for employers getting RDS or using other vehicles for post-65 retirees, such as group waiver programs
IRS would need to address tax impact of retroactive nature of changes Likely a moot point for employer FSA and HRA programs For example, IRS has imposed restrictions after Congress retroactively extended tax rules for pretax transit passes
s:\filepath 23 ACA Repeal – What Was Once Old is New Again (cont.)
Other changes, effective in 2016 (taxable years beginning after 12/31/15) Reduces medical expense deduction to pre-ACA level of 7.5% of adjusted gross income Repeals other ACA taxes and fees, including: Cadillac tax (repealed as of 12/31/17) Health insurance tax (applies to health insurers) Medical device tax (applies to device manufacturers) Prescription medication tax (applies to drug makers) Tanning bed tax (why?) Other taxes on higher income individuals that helped fund ACA (increase in Medicare payroll tax and tax on net investment income)
s:\filepath 24 The Replacement Plan: The Sausage Making Begins….
The Replacement Plan
Off the shelf GOP has several replacement plans to choose from, already on the shelf (crafted/introduced in the past) Patient Choice, Affordability, Responsibility, and Empowerment Act Empowering Patients First Act American Healthcare Reform Act of 2015 Paul Ryan’s A Better Way blueprint (June 2016) Others
s:\filepath 26 The Replacement Plan - Themes
Universal Access vs. Universal Coverage ACA aimed to achieve universal coverage but bungled the job, mainly due to three provisions…two intentional (with unintended consequences), the other poor draftsmanship Guarantee issue and no pre-existing condition restrictions Individual mandate too small, shifted too much risk to insurers and offered inadequate risk adjustment payments ACA allows individuals to satisfy the mandate with skimpy coverage, such as a preventive care only plan, which does not retard the cost shifting that occurs when hospitals provide care to the uninsured/underinsured GOP aims for universal access Open up the individual market, allow insurers to sell wider range of policy designs, allow insurers to sell policies across state lines Retain guarantee issue rule and ban on pre-existing condition restrictions, but tweak the rules to protect insurers Limit market access to the “gamblers” after they’ve lost the gamble; shift them to high risk pools
s:\filepath 27 The Replacement Plan - Themes
Tax treatment of employer-provided coverage, at the employee’s end Current rule: Employer-provided health insurance is completely tax free to employees, spouses, children thru year they attain 26 (most plans terminate coverage at end of month of 26th birthday), and other dependents (e.g., dependent domestic partners) Not considered taxable income; no payroll taxes from either employers or employees What about employer’s deduction? The nontaxable nature of employer-provided coverage is the federal government’s single largest loss of tax revenue under the Tax Code Congress has eyed it hungrily for years; bipartisan commissions have repeatedly called for some level of taxation The ACA’s “Cadillac Tax” was an inroad into that tax exclusion, but was roundly criticized (bipartisan, bicameral repeal bill introduced Jan. 5)
s:\filepath 28 The Replacement Plan - Themes
Tax treatment of employer-provided coverage, at the employee’s end Republican proposals Eliminate the employee’s income tax exclusion above certain AGI thresholds Eliminate the exclusion for health plan values above certain thresholds (a sort of Cadillac Tax at the employee level) Eliminate the exclusion, replace with dollar-for-dollar tax credits (i.e., dollar-for-dollar offsets against income tax liability)…various amounts, refundable vs. non-refundable, various conditions (other coverage, other coverage offers, etc.) Eliminate the exclusion, replace with flat deduction amounts
s:\filepath 29 The Replacement Plan - Themes
Tax credits to assist lower-income Americans with insurance purchase Look familiar? Difference: No marketplaces, no essential health benefits requirements, etc. Conditional on not having coverage offers elsewhere (what does this imply?) Refundable credits? Where does the excess (if any) go?
Medicaid coverage Roll back the federally-recommended increase in Medicaid eligibility to 133% (effectively 138%) of poverty level Replace with block grants to states to design and run their own programs
Make HSAs more attractive Increased limits, allow both spouses to make catch-up contributions
What to do about wellness?
Sell insurance across state lines
s:\filepath 30 The Replacement Plan – The Vehicle for Replacement?
HR __ - American Health Care Reform Act of 2017 (AHCRA) Released by Republican Study Committee Jan. 4 Burnished version of HR 2365 from 2015 Contravenes important aspects of Speaker Ryan’s blueprint, and Rep. Tom Price’s replacement bill
How should we think about this legislation?
Remember too: This is just the House’s version Senate Republicans are talking about piecemeal replacement, perhaps part and parcel (at least in part) to larger tax reform legislation
s:\filepath 31 The Replacement Plan – The Vehicle for Replacement?
Standard Deduction for Health Insurance Currently, employer-provided coverage is entirely tax free, but employees without an offer from an employer and buying coverage in the market can only deduct part of their premiums AHCRA strips the non-taxability of employer-provided coverage (HSA contributions remain nontaxable, as does some post-employment coverage) Provides a flat deduction for health insurance expenditures of $7,500 (single coverage), $20,500 for other coverage tiers; prorated by month Payroll taxes do not apply up to the extent of the deduction (e’ee can choose to pay the payroll taxes however) MUST purchase a “qualified health plan” Basically, an HSA-compatible plan, although it can have lower deductibles than HSA- compatible plans do Must cover inpatient, outpatient, emergency and physician care Must “meaningfully limit individual economic exposure to extraordinary medical expenses”
s:\filepath 32 The Replacement Plan – The Vehicle for Replacement?
Standard Deduction for Health Insurance
Example: Employee has family coverage with a premium value of $22,000…employer pays $18,000, employee pays $4,000 via pre-tax payroll deduction. Current law: No income or payroll taxes on the $22,000 AHCRA: Assuming the plan is a “qualifying health plan,” $22,000 is included in employee’s taxable income, but the first $20,500 is not subject to payroll taxes. Employee receives a deduction of $20,500 from his or her taxable income. Employee pays income tax on the remaining $1,500
s:\filepath 33 The Replacement Plan – The Vehicle for Replacement?
Standard Deduction for Health Insurance Currently, employer-provided coverage is entirely tax free AHCRA strips the non-taxability of employer-provided coverage (HSA contributions remain nontaxable, as does some post-employment coverage) Provides a flat deduction for health insurance expenditures of $7,500 (single coverage), $20,500 for other coverage tiers; prorated by month Payroll taxes do not apply up to the extent of the deduction (e’ee can choose to pay the payroll taxes however) MUST purchase a “qualified health plan” Get the full deduction whether you need it or not, to offset health insurance premium payments
s:\filepath 34 The Replacement Plan – The Vehicle for Replacement?
Standard Deduction for Health Insurance Example: Employee has family coverage with a premium value of $16,000…employer pays $12,000, employee pays $4,000 via pre-tax payroll deduction. Current law: No income or payroll taxes on the $16,000 AHCRA: Assuming the plan is a “qualifying health plan,” $16,000 is included in employee’s taxable income (the employee dodges payroll taxes on that amount), but the Employee receives a deduction of $20,500 from his or her taxable income. The deduction effectively makes the coverage nontaxable, and the employee applies the additional $4,500 deduction to other taxable income, resulting in a form of tax cut.
What are we to make of this? Who will want cheap coverage? How might employers be forced to react? Why mess with a good thing? Why not provide 100% deduction to those without employment-based offers? Why the deduction cap? Doesn’t this hurt families?
s:\filepath 35
The Replacement Plan – The Vehicle for Replacement?
Standard Deduction for Health Insurance Reporting obligation Coverage under a Qualified Health Plan Coverage values by month
s:\filepath 36 The Replacement Plan – The Vehicle for Replacement?
Promotion of HSAs Employer contributions remain nontaxable Contribution maximum increased to OOP maximum Employee can make catch-up contributions for himself/herself and spouse Can make certain transfers from FSAs and HRAs Medicare Part A coverage alone is not disqualifying (nor are certain VA benefits, or Indian Health Service program care, or eligibility for TRICARE (unless enrolled in TRICARE Prime)) Coverage under health care sharing ministries is not disqualifying Capitated primary care coverage is not disqualifying (onsite clinics and telemedecine?) Concierge arrangements are not disqualifying Quirky rule about maintaining HDHP coverage for a year (after utilizing the “December deeming rule” is eliminated Employer can unilaterally convert traditional FSA benefits to limited purpose when an employee moved from non-HDHP to HDHP coverage
s:\filepath 37
The Replacement Plan – The Vehicle for Replacement?
Promotion of HSAs Child HSAs authorized, if established before age 5 ($3000 annual contribution max) Can purchase HDHP coverage with HSA dollars, tax free Can use HSA dollars to reimburse (tax free) medical expenses incurred in the months before the HSA is established “Preventive care” Rx includes OTC drugs and medicines Exercise care, fitness programs, and certain vitamins and supplements treated as “medical care” = tax free reimbursement from HSAs Retirement plan required minimum distributions can be deposited into an HSA Bankruptcy protection for HSAs Distributions to reimburse abortion expenses are taxable
s:\filepath 38 The Replacement Plan – The Vehicle for Replacement?
Wellness programs Adjusts maximum HIPAA/ACA incentives May vary premiums and cost sharing by up to 50% “based on participation (or lack of participation) in a standards-based wellness program” (hey…what about those EEOC rules?)
Association plans for small employers Various rules to ensure bona fide nature of the arrangement Statute lists industry silos that may do this; may self-insure
Selling individual market coverage across state lines Provisions for benchmark coverage, anti-abuse rules, etc.
Limit entry into individual markets to those with continuous coverage What does this imply? High risk pools for others, with premium capped to 200% of average premium in the state
Medical malpractice reform
s:\filepath 39
The Replacement Plan – The Vehicle for Replacement?
What happens next? What stays? What goes?
s:\filepath 40 Other Things Going On Out There Other Issues
Opt out arrangements Late notice that opt out arrangements in place before 12/15/15 can continue through 2017 without impacting affordability Alert , 7/26/16 discusses proposed rules
HIPAA and cloud computing Need for BAA if PHI managed, stored or accessed in cloud Benefits Insight & Guidance, December 2016
New disability appeal regulations Apply beginning in 2018 (appeals filed on or after 1/1/18)
HRAs for small employers (CURES Act) See Alert, 12/14/16
Guidance on excepted benefits See Lockton Health Reform Blog
FAQ guidance on special enrollment periods; preventive care
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