by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
CBO Will Yet Again Lower the Coverage Losses Resulting from Repeal of the Individual Mandate Penalty Tax (see Q&A from Sen. Enzi on page 1 and 2)
- The head of the CBO told the Senate Budget Committee that the agency will be issuing a report that will lower the coverage losses resulting from repeal of the individual mandate penalty tax. This is not the first time CBO lowered the coverage losses. Back in Nov. 2017 – when “scoring” the Tax Reform legislation – CBO revised its assumptions when it came to determining the impact of repeal of the penalty tax. And based on those revised assumptions, CBO lowered the coverage losses (see the attached update from Nov. 2017 where I talked about CBO’s new “score”).
- Analysis: What will the new coverage losses be? Well, the head of the CBO said the agency will be lowering the coverage losses by one-third. Yes, one-third. To me, that is a material reduction. Let me try to put things into context. Back in Nov. 2017, CBO said that repeal of the individual mandate penalty tax would result in 4 million people dropping their health coverage in the 1st year of repeal, increasing to 13 million people going without insurance in 2027. I am not very good at math (that’s why I went to law school), but if CBO is lowering the coverage losses by one-third that means 2.7 million people will drop coverage in the 1st year of repeal. And, in 2027, 8.7 million people will go without insurance. Republican “repeal and replace” advocates continue to be annoyed with CBO because the agency continues to lower the coverage losses resulting from repeal of the individual mandate penalty tax. I fully expect Republicans will voice their displeasure when CBO officially releases its report on the coverage losses, arguing that if CBO estimated these numbers back in July 2017, “repeal and replace” may have actually been successful. Look, please do not construe my comments here as cheering for the success of “repeal and replace.” I am Switzerland on the matter. BUT, I raise the above point to make this point: I think it is significant when assumptions adhered to by CBO – which now appear to be faulty – had such profound policy and political ramifications. But note, it’s not the first time CBO cratered legislation relating to health care reform (for example, although I wasn’t around for it, CBO adversely impacted the Clinton health care reform exercise in the early 1990s). And also note, Democrats have a reason to be annoyed with CBO as well, because lower coverage losses = lower “savings” to the government (because more people will be maintaining their premium subsidy). Which means that the $338 billion in savings CBO estimated back in Nov. 2017 will now be lower, and if CBO would have estimated lower savings back then, it is likely that Republicans would NOT have been able to make the 21% corporate tax rate permanent (it is likely that Republicans would have violated the “reconciliation” rules because they would not have had the necessary savings from repeal of the penalty tax to “offset” the corporate tax rate reduction).
- As we all know, Congress failed to provide the necessary funds for the cost-sharing subsidy payments. But, as we also know, that will NOT stop the insurance carriers from getting the money for the cost-sharing subsidies that the statute still requires them to pay (with or without funding for the payments). Why? Because I expect every State to allow their carriers selling individual market plans through the Exchange to “silver load” (i.e., load onto the premiums for the “silver” Exchange plans the unfunded cost-sharing subsidy payments). In this case, the carriers will indirectly be “made whole” despite the cancellation of the cost-sharing subsidy payments.
- Analysis: The last point I make above is important – at least as it relates to CBO “scoring” – because CBO assumes that the “funding” for the cost-sharing subsidies will continue under the law because instead of receiving a direct payment from the government in the form of a cost-sharing subsidy payment, CBO assumes that the carriers are STILL receiving these funds – indirectly – in the form of higher premium subsidy spending (due to “silver loading”). CBO’s assumption here is also important if Congress ever decides to “appropriate” the necessary funds for the cost-sharing subsidy payments. Why? Because CBO seems to now be saying that if Congress simply appropriated the money, CBO would continue to treat these funds as “entitlement spending,” which is spending CBO already assumes is occurring. This means that CBO would find NO “savings” to the government if Congress ever decided to appropriate the necessary funds. BUT, I told you back in February that CBO “unofficially” indicated that the agency WOULD estimate “savings” to the government if Congress ever appropriated the necessary funds (see my 2nd attached update, 1st post). So what’s the difference now? In my opinion, it is really just semantics. What I mean is this: CBO seems to be saying that the agency would indeed find “savings” to the government if Congress “designated” – through specific legislation language – that the appropriated funds are for “direct payments” of the cost-sharing subsidies. In other words, if Congress makes a plain-vanilla appropriations of the cost-sharing subsidy funds, CBO would treat these funds as “entitlement spending” and CBO would NOT treat this appropriation as producing “savings” to the government. BUT, if Congress “earmarked” (or “designated”) the appropriations as “direct payments” of the cost-sharing subsidies, CBO WOULD treat this appropriation as resulting in “savings” to the government. WHEW…that was confusing. And arguably immaterial at this point because it does NOT look like Congress is about to appropriate – as a “direct payment” or otherwise – the necessary funds for the cost-sharing subsidy payments. BUT, I believe it was worth torturing you here because if Congress is ever in a pinch – and they need savings – who knows, maybe Congress decides to appropriate the money. I know Republicans would like to appropriate the “direct payments” to (1) use the savings to offset other spending, (2) to end the “silver loading” practice, and (3) to mitigate the political talking point that Republicans are “sabotaging” the market and increasing premiums by 10%+ in 2019 (which is on top of CBO’s projected 10% premium increase due to repeal of the individual mandate penalty tax). Note, even if I am wrong here and CBO treats an appropriation for “direct payments” of the cost-sharing subsidies as simply “reducing the deficit” – and NOT “savings” to the government – at least Republicans will have (1) ended the “silver loading” practice and (2) reduced the premiums for “silver” Exchange plans (and thus, mitigated the political talking point that Republican actions are increasing premiums). BUT, I do NOT see appropriated funds ever happening because Democrats won’t go for it. Politically, it is a winner for Democrats to refrain from funding the cost-sharing subsidies (premiums go up, and Democrats can blame Republicans, and Exchange planholders continue to enjoy higher premium subsidy amounts).
Associations Health Plan Update
The Proposed AHP Regulations Are Now at OMB (no news story)
- This past Friday, geeks like me got excited when we learned that the proposed DOL regulations on AHPs were sent over OMB. My excitement stems from the fact that when proposed regulations get over to OMB, it is a signal that final regulations will be released sooner rather than later. That’s because OMB is the last stop in the rule-making process before regulations are pushed out the door in final form.
- Analysis: Although OMB’s job is to review proposed regulations to determine their impact on the budget and the economic impact on businesses, OMB also serves as a policy-making arm of the White House. This means that – sometimes – regulations are changed over at OMB if the White House feels that the policy changes set forth in the proposed regs need to be modified for one reason or another. BUT, if the White House is comfortable with the policy changes drawn up by the Federal Department with jurisdiction over the issue, then very few – if any – policy changes are made by OMB. The extent to which regulations might be changed by OMB is important from a timing perspective. That is, if OMB wants to make a bunch of changes to the policy in the proposed regs they receive, then it will take time for OMB to work through and make those changes, which ends up delaying the release of the regs in final form. But, if OMB makes little to no changes, then OMB really only has to focus on the budgetary and economic impacts of the regs, which means the regs will only make a short pit-stop at OMB before released as final. At this point, it is difficult to determine whether OMB will make substantive policy changes to what the DOL has drawn up on AHPs. Ever since the public comment period for the proposed AHP regs closed on March 6th, the DOL has been on lock-down, and no one has had much of an opportunity to talk to anyone over there to get a sense of what changes – if any – could be made to the regs before they are finalized. We will just have to wait for the final regs to be released to find out what changes – if any – were made. So stay tuned.
If We Did See Changes to the Proposed AHP Regulations, What Changes Could We See? (no news story)
- While I am sure you did not read all 722 comments on the proposed AHP rules (I did not either), there is a change that many commenters suggested should be made to one of the proposed “nondiscrimination protections” that I think is worth talking about. Especially because an op-ed ran in the Wall Street Journal back on April 22nd, which brought much more attention to the unintended consequences that may result if this “nondiscrimination protection” is finalized.
- Analysis: According to this proposed “nondiscrimination protection,” an AHP cannot develop different premiums for different employer members based on the “health claims experience” of the employer members’ employees. Instead, the premium rates for each employer member must be the same rate, and developed based on the “health claims experience” of the ENTIRE number of employees and/or working owners covered under the AHP. In essence, the DOL is proposing that the AHP must be treated as one, single risk pool, and premiums must be developed based on the “health claims experience” of ALL of the lives covered under the plan, instead of different premium rates being charged to different employer members based on the individual employer’s employees “health claims experience.” BTW, it makes some sense to have come up with this particular nondiscrimination protection. After all, this is how the “small group” market currently works (i.e., the “small group” market has a “single risk pool” requirement, requiring insurance carriers to include in the same risk pool ALL of the employees covered under the small group plans under-written by a particular carrier). Also, this particular protection should eliminate any concern that AHPs might “cherry-pick” healthy employer groups by offering them low premium rates, while excluding employer groups with less healthy employees by “pricing them out” of the AHP coverage by charging them high premium rates. In addition, if you have working owners participating in the AHP (i.e., self-employed individuals with no employees), how can you develop premiums for these members? Current law (under HIPAA), prohibits an AHP from developing a different premium rate for an AHP participant based on their specific “health claims experience.” BUT – in my opinion – there are some inherent problems with this “nondiscrimination protection.” First, existing AHPs engage in the practice of developing different premium rates for different employer members participating in the AHP. If this nondiscrimination protection is finalized, this would cause significant disruption and adversely impact these existing AHPs and the employees who receive AHP coverage. Another problem is this: One of the chief reasons why existing AHPs risk-rate their employer members is so they can attract “healthy” employer groups to offset the “less healthy” employer groups covered under the AHP. In other words, by risk-rating different employer members, an AHP has a better chance to attract employer members with “healthy” employees who are then able to offset the health risks associated with “high-medical-utilizers.” This practice allows an AHP to better manage and maintain a sustainable risk pool. If an AHP – for example, an existing AHP or a newly formed AHP – CANNOT engage in risk-rating, the AHP will NOT be able to attract “healthier” employer groups, which would leave “less healthy” employer groups as members of the AHP, which would detrimentally impact the solvency and long-term sustainability of the AHP (regardless of whether the AHP is self-insured or fully-insured). Many commenters have encouraged the DOL to develop a “grandfather” rule, allowing existing AHPs to continue to engage in this risk-rating practice. There is some merit to this suggestion because the DOL should NOT want to adversely affect health coverage that employer members and their employees are currently enjoying. BUT – in my opinion – developing a “grandfather” rule would NOT allow the AHP regulations to meet their full potential – which is encouraging the formation of new AHPs, in addition to making it easier for existing AHPs to operate and attract new members. Make no mistake, I am NOT arguing against a “grandfather” rule. What I am saying is that exempting existing AHPs from this “nondiscrimination protection” – while still imposing this requirement on new AHPs – will have a chilling effect on the formation of future AHPs. In my opinion, future AHPs will be set up to fail. A result that I do not believe the DOL intends. Last comment: The reason I focused on this “nondiscrimination protection” is because if there are any changes made to the proposed AHP regulations, I believe this is one area where the DOL and/or OMB could make a change. In other words, I could see the elimination of this “nondiscrimination protection.” Or alternatively, I could see some sort of modification that, for example, allows AHPs – both existing and future AHPs – to risk-rate employer members of a certain size, say 15 employees and above. And, when it comes to developing premiums for smaller groups (below 15 employees) and working owners (i.e., self-employed individuals), the AHP could treat ALL of these micro-group employees – along with ALL of the working owners – as one, single group, and develop premiums based on this entire group’s “health claims experience.” We will just have to wait and see when the final regs come out, which I am guessing will be mid-June. Again, stay tuned.
- In the first attached update above (from the week of Nov. 6th), I talked about an issue relating to the “employer mandate” penalty tax. In particular, I explained that the IRS was going to start sending penalty assessment letters to employers that the IRS has identified as non-compliant. I also discussed a legal issue that I believe bars the IRS from assessing penalties, at least for 2015. My friend Alden Bianchi and I actually wrote an article that walked through this legal issue, with accompanying statutory and regulatory cites to support our argument. See the attached pdf.
- Analysis: The New York Times – just yesterday – ran an article talking about the IRS’s enforcement of the employer mandate. In the article, I was quoted as noting that there may be a legal issue, potentially barring the IRS from actually assessing penalties for 2015. As the attached pdf explains: As a pre-condition to any penalty assessments, the statute and implementing regulations clearly state that employers must have received a “notice of certification” from an ACA Exchange that at least one of the employer’s employees enrolled in an Exchange plan and accessed a premium subsidy. For 2015, the Federal Exchange did NOT send any notices of certification. And, most of the 14 State-based Exchanges operating in 2015 did NOT send out any notices of certification either. In 2016, the Federal Exchange sent out some notices of certification, but for 2017 and 2018, NO notices of certification were sent by ANY of the ACA Exchanges. Why do I continue to harp on this? Unfortunately for me, Congressional intent does not carry the weight it used to, especially when it comes to the ACA. BUT, having been a part of the development of the employer mandate penalty tax provision, I can tell you that we intended for the IRS assessment process to be a 2-step process. That is, we specifically wanted an ACA Exchange to FIRST notify an employer that one of its employees accessed a premium subsidy before the IRS came knocking at the employer’s door. We had a good reason for this: We wanted to give the employer the ability to “cure” their health coverage deficiency BEFORE the IRS stepped in. In other words, in cases where an employer was NOT offering health coverage – a violation of the employer mandate – we hoped that the notice of certification from the Exchange would light-a-fire-under-the-employer so the employer would actually start offering coverage to avoid any additional penalties. Also, in cases where an employer was offering an “unaffordable” plan, we wanted the employer to fix this problem by, for example, increasing the employer contribution for the coverage so the employee could have “affordable” coverage (i.e., coverage that did not cost the employee more than 9.5% of their income). Same goes for a plan that did NOT provide “minimum value.” We wanted the employer to fix this issue and offer a plan that satisfied the “minimum value” test on a going forward basis after notification from the Exchange. BUT, something happened between the enactment of the ACA and implementation of the employer mandate penalty tax. And that “something” was NONE of the ACA Exchanges could get the appropriate processes in place to send the notices of certification to employers. In an effort to still “make the law work” – even in the face of these process issues – it appears that the previous Administration (both the IRS and HHS) decided to come up with a “creative” way around the clear statutory requirements and Congressional intent. And that “creative” way was this: Although ACA section 1411 gives the Secretary of HHS (and NOT the Secretary of Treasury) the exclusive authority to determine whether an employee is eligible for a premium subsidy – and despite the fact that ACA section 1411 specifically requires an ACA Exchange (and NOT the IRS) to notify an employer of the Secretary of HHS’s decision – the previous Administration decided to include in HHS regulations a section that allowed the IRS to develop “methods to certify to an employer” that one or more employees has enrolled in an Exchange plan and accessed a premium subsidy. I specifically mention this IRS “certification method” because it appears that the IRS is taking the position that – due to this section of HHS’s regulations – the IRS believes it has the authority to treat its “assessment letters” as the “notice of certification” that is supposed to come from an ACA Exchange. BUT, as laid out in the attached pdf, the statute and implementing regulations that preceded the addition of this IRS “certification method” clearly indicate that an IRS assessment letter CANNOT be an ACA Exchange notice of certification required by ACA section 1411. This is the correct interpretation of the law because – again – ACA section 1411 explicitly requires the Secretary of HHS (NOT the Secretary of Treasury) to make a premium subsidy eligibility determination, and further, section 1411 explicitly requires the ACA Exchange (NOT the IRS) to notify the employer. Notwithstanding this question over statutory interpretation, sadly for someone like me, Congressional intent is not what it used to be, so the IRS is winning this legal battle. Unless and until the employer community files a lawsuit.