Employer Update
Employer Update
by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.
House to Vote on Full Cadillac Tax Repeal
- As you may know, the Democrats have promised the labor community that – when given the chance – they will vote to repeal the Cadillac Tax. Well, as the majority party in the House of Representatives, House Democrats now have that opportunity. So, it is not at all surprising – at least to me – to see full Cadillac Tax repeal being brought to the floor for a full-House vote. As you may also know, a good number of Republicans support full repeal of the Cadillac Tax too. So, I would not be surprised at all if full Cadillac Tax repeal gets 400+ votes in the House, with a majority of House Republicans joining the House Democrats. However, the most important point here is this: The forthcoming full-House vote will be a straight-up vote on fully repealing the Cadillac Tax with NO spending reductions and/or tax increases to offset the hundreds of billions in revenue loss (in particular, $193 billion in revenue loss over 10 years, according to the Congressional Budget Office (CBO)).
- Analysis: For both House Democrats and House Republicans, this is an “easy” and “safe” vote. What I mean is, all the House members are doing is fully repealing the Cadillac Tax. They are NOT voting on how to pay for full repeal. Soooo, the House members do NOT have to make tough decisions on things like how to reduce spending and/or increase taxes to pay for full repeal. Instead, all they have to do is vote “yes,” with NO consequences. After the vote, House Democrats can go back to the labor community and say see, “we kept our word.” House Democrats can also go to the employer community and say, “we got your back.” House Republicans can do the same thing. They can tell the employer community that they were – and are – listening to them. And, as a way of at least getting some love from the labor community, Republicans will tell labor that they too support full repeal of the Cadillac Tax. So again, a straight-up vote on repealing the Cadillac Tax – with NO spending reductions and/or tax increases to offset the revenue loss – is a NO BRAINER. HOWEVER, I believe that full repeal of the Cadillac Tax is unlikely to go anywhere in the Senate. Why? Because – as noted above – CBO says that full repeal of the Cadillac Tax costs $193 billion over 10 years. Actually, if you were to project the Cadillac Tax out another 10 years, the cost of full repeal triples if not quadruples. The positive for Cadillac Tax repeal supporters is that Congress lives and dies under “the 10-year budget window.” So, we really don’t have talk about the “out-years.” BUT, the negative for Cadillac Tax repeal supporters is that both Republican and Democratic Senators care about the $193 billion in revenue loss. And for this reason, both Republican and Democratic Senators will be hesitant to vote “yes” on an UNoffset full repeal of the Cadillac Tax. Can the Senate come up with – and agree on – spending reductions and/or tax increases to offset the $193 billion? In my opinion, NO. Even if the Senate could come up with – and agree on – the offsets, I would find it hard to believe that the House would be okay with the Senate’s spending reductions and/or tax increases. Now, many of my friends who are reading this right now are cringing. And/or they are cursing my name. Why? Because there are a lot of people out there that want full repeal of the Cadillac Tax. And the last thing they want to hear is someone like me suggesting that it’s not going happen. But look, I am NOT saying that it is not going to happen. I am, however, saying that it is unlikely to happen. Actually, what I am really trying to do here is to talk in realistic terms. Yes, the reality is that – in a vacuum – there are likely 400+ House members who support full repeal of the Cadillac Tax. And yes – in a vacuum – I believe you could find at least 60 Senators to support full repeal as well. But the reality is that we do NOT live in this vacuum. The reality is that – according to CBO – full repeal of the Cadillac Tax costs a TON of money (actually, the latest estimate I heard was $201 billion over 10 years). The reality is also this: While full repeal of the Cadillac Tax is important to a lot of people, full repeal of the Cadillac Tax is NOT as important as other priorities that require spending reductions and/or tax increases (e.g., health care policy changes like the “Medicare extenders” or spending on domestic programs like infrastructure, education, entitlement programs, etc.). Yes, a strong argument can be made that Congress should just increase the deficit by enacting an UNoffset full repeal of the Cadillac Tax. And, a strong argument can be made that the deficit increase won’t be that much because CBO’s estimate is “phantom” money. BUT, I cannot see 60 Senators buying those arguments and agreeing to an UNoffset full repeal of the Cadillac Tax. Stranger things have happened though. But don’t worry, when we get closer to 2022, Congress will delay the Cadillac Tax again, probably for another 2 years. So at least Cadillac Tax repeal supporters have that going for them, which is nice (p.s., I will give you a $1 if you can identify that movie reference).
ACA Update
The 5th Circuit Court of Appeals Hears Oral Arguments on the Latest Challenge to the ACA
- Texas v. Azar – the court case in which the “individual mandate” penalty tax and the entire ACA are being challenged – is back in the news. This time, on account of the 5th Circuit Court of Appeals holding oral arguments in the case. Reports of the proceedings speculate that 2 of the 3 judges hearing the case seemed to agree with the Plaintiffs that the “individual mandate” penalty tax is now unconstitutional, and thus, should be struck down.
- Analysis: As a quick refresher, at the end of 2017, Republicans in Congress enacted Tax Reform. As a way to pay for a portion of the revenue loss associated with Tax Reform, Republicans zeroed out the penalty tax (i.e., the penalty was reduced to $0). How is repealing a tax a “revenue-raiser”? Well, the Congressional Budget Office (CBO) said, yes, the Federal government will lose revenue because the government will no longer be collecting taxes associated with the “individual mandate” penalty tax. BUT, CBO also estimated that without the penalty tax, people who would otherwise be eligible for a premium subsidy will forego health coverage, thus saving the Federal government billions upon billions of dollars because the government would be paying out a far lower amount of premium subsidies to consumers. Shortly after Tax Reform was enacted, some Republican Attorneys General (AGs) got the bright idea that if the “individual mandate” penalty tax is NOT collecting any tax revenue – because the penalty tax was reduced to $0 – then Justice Roberts’ conclusion that the “individual mandate” is constitutional because of Congress’s ability to enact a tax is NO longer valid. As you may recall, Justice Roberts found that the “individual mandate” penalty tax was collecting tax revenue, and Justice Roberts further found that because the “individual mandate” was generating tax revenue for the government, the “individual mandate” is constitutional (because the Constitution gives Congress the exclusive “power to tax”). You have heard my thoughts on this before: While I agree with the argument that the “individual mandate” penalty tax is NOT collecting any tax revenue anymore – because the penalty tax is now $0 – the “individual mandate” is STILL a part of the law. In other words, the “individual mandate” still lives under section 5000A of the Internal Revenue Code. Yes, the penalty amount under Code section 5000A is now $0, but the “individual mandate” was itself NEVER repealed. Why? Because the Senate’s “reconciliation process” did NOT allow full repeal of the “individual mandate.” Soooo, Republicans got creative and asked the Senate Parliamentarian whether they could at least zero out the penalty tax. The Senate Parliamentarian said yes, and the rest is history. Now – at least in my opinion – because the “individual mandate” penalty tax is STILL a creature of current law, I could very well see Justice Roberts continuing to believe that the “individual mandate” remains constitutional. Yes, the current “individual mandate” penalty tax is NOT collecting any tax revenue, but I could see Justice Roberts opining that the penalty tax simply lies dormant until a future Congress increases the penalty to something higher than $0 (even $1). I believe that fully repealing the “individual mandate” penalty tax would have produced a different result. But that didn’t happen. I will admit, 2 of the 3 judges on the 5th Circuit Court of Appeals may NOT agree with me, and they may find that the “individual mandate” penalty tax is indeed unconstitutional. Their holding might go something like this: The “individual mandate” penalty tax is NO longer collecting any tax revenue, and therefore, the “individual mandate’s” constitutionality CANNOT rest on Congress’s “Taxing Power,” rather, the fact that the Justice Roberts and a majority of the Supreme Court found that the “individual mandate” violated the Constitution’s “Commerce Clause” now leads to the conclusion that the “individual mandate” is indeed unconstitutional. Stay tuned…
Aside from Effectively Repealing the “Individual Mandate,” Did the Republican Congress Intend to Keep the Rest of the ACA?
- This question seems to be coming up again and again. Specifically, at the 5th Circuit’s oral arguments, the Defendants (a number of Democratic AGs) argued that that the 2017 Congress “did not intend for the entire law to collapse when it repealed the individual mandate penalty as part of Tax Reform.” In my opinion, this argument has NO basis whatsoever. Yes, I get that the Democratic AGs are trying to throw any and all arguments at the Circuit Court in hopes that something sticks. BUT, I believe this is a mis-informed argument.
- Analysis: Let me back-track a moment to say this: As you may recall, the District Court that initially heard this case felt that if the “individual mandate” was unconstitutional – which the District Court found it was – then the entire ACA must be unconstitutional. This ruling was based on the controversial conclusion that the “individual mandate” is NOT severable from the rest of the ACA, and thus, if the “individual mandate” falls, so too must the entire ACA. Now, I am NOT here to argue this controversial “severable” or “inseverable” issue. I am only here to contend that making the argument that Congress intended to keep the rest of the ACA while it was effectively repealing the “individual mandate” is just NOT a good argument. Here’s why: As I mentioned above, Republicans enacted Tax Reform through the “reconciliation process.” As I have told you time-and-time again, the “reconciliation process” is a constrained process. Specifically, the ONLY provisions that may be included in legislation that is being shepherded through the “reconciliation process” are provisions that impact spending or tax revenue. In other words, provisions that would be considered changing “policy” are NOT permitted in a “reconciliation” bill. Why is this important? Because attempts to include provisions that would have repealed all or a portion of the ACA, like the ACA’s insurance market reforms (e.g., the pre-existing condition protections, the prohibition against underwriting based on health status, and requirements like the “essential health benefits,” adjusted community premium rating, and single-risk pool requirements) are considered “policy” changes. And because a “reconciliation” bill can ONLY include provisions that impact spending or taxes – and because a “reconciliation” bill CANNOT include “policy” changes – the Tax Reform legislation could NOT include any provisions repealing all or portions ACA other than zeroing out the “individual mandate” penalty tax. Believe-you-me when I say that there were a lot of Republicans that had a burning desire to repeal all or a portion of the ACA, including the ACA’s insurance market reforms (for most, that desire burned white-hot). And if given the chance, I truly believe that Republicans could have at least repealed some of the ACA’s insurance market reforms. BUT, we don’t know if Republicans would have been successful in repealing the ACA’s insurance market reforms because Republicans NEVER got the chance to even try. Why? Because of…wait for it…the “reconciliation process.” More specifically, the Senate Parliamentarian ruled that provisions attempting to repeal the ACA’s market reforms were “policy” changes that are NOT permitted to be included in a “reconciliation” bill (which Tax Reform was). That all leads me to say this: Because Republicans were precluded from even attempting to repeal all or a portion of the ACA, including the ACA’s insurance market reforms, one CANNOT say that the Republican Congress intended to ONLY repeal the “individual mandate” penalty tax, while ALSO intending to keep the ACA in place. Again, if given the chance, the Republican Congress would NO doubt have tried to at least repeal some or all of the ACA’s insurance market reforms. Soooo, saying that the Republican Congress intended to keep all or a portion of the ACA in place misunderstands what the Republican Congress was able – and not able – to do back in 2017. Last comment: While I could see the 5th Circuit finding that the “individual mandate” is unconstitutional, I have NO idea whether the 5th Circuit will rule that the entire ACA must also be unconstitutional. I just hope that the Circuit Court does not base its decision on what the 2017 Congress intended or did not intend. If it does, I believe the Circuit Court’s decision will be vulnerable on appeal to the Supreme Court.
Health Care Policy Update
- Former Vice President Biden made some waves on Monday, announcing the health care proposal he intends to run on. Interestingly – and importantly – Former Vice President Biden’s proposal builds on the ACA. I say importantly because Candidate Biden’s proposal is NOT Medicare-for-All, which is what we have primarily been hearing from Democrats for about a year-and-a-half now. Actually, Candidate Biden went so far as to explicitly say that Medicare-for-All would eliminate the ACA. He further stated that pursuing Medicare-for-All is ill-advised. So instead of Medicare-for-All, Candidate Biden wants to keep the ACA around, substantially increase the premium subsidies for “individual” market plans, and allow a “public option” to compete with private insurance companies selling “individual” market plans in the “individual” market.
- Analysis: To me, it is not overly surprising that the Former Vice President – who was a part of the Administration that actually enacted the ACA – wants to build on the ACA instead of wanting to eliminate private insurance under a Medicare-for-All proposal. Candidate Biden knows that if private insurance is eliminated, the ACA would be eliminated. It’s just that plain and simple. I actually made this very point in a prior update when talking about Medicare-for-All, noting the irony in the fervent opposition to “repealing and replacing” the ACA, only to support…wait for it…“repealing and replacing” the ACA. Yes, the Democrats’ proposal to “repeal and replace” the ACA (i.e., Medicare-for-All) is 110% different from the Republican ACA “repeal and replace” proposals we saw in 2017. But the bottom-line is that Medicare-for-All would “repeal and replace” the ACA. It is also not surprising to me that Candidate Biden wants to build on the ACA – instead of supporting Medicare-for-All – because Mr. Biden is holding himself out as the “moderate” Democrat among a crowded field of Democratic Presidential Candidates who are much more left-leaning, “progressive” Democratic Candidates. And, as one of the lone “moderates” among a majority of the “progressives,” Candidate Biden is hoping to generate support not only among a shrinking cohort of “moderate” Democratic voters, but also from independent voters. Especially those independent voters that do not want to vote for President Trump again. Candidate Biden understands that the reality of Medicare-for-All is that hundreds of millions of people will lose their “employer” plan, which most – but not all – people generally like. In other words, Candidate Biden is saying – without actually saying it – if the Democrats nominate a Presidential Candidate that wants Medicare-for-All, President Trump is probably going to get re-elected because hundreds of millions of people do not want to lose their private insurance plan. Soooo, Candidate Biden is sticking with a health care proposal that people generally know about – the ACA. Interestingly – and importantly – for most Americans who get their insurance through their employer, these Americans were generally NOT impacted by the ACA. What I mean here is that the ACA did NOT significantly impact the “employer” market. Yes, the enactment of the ACA increased administrative costs and pushed up premiums a bit. BUT, no one can really tell me that the ACA has adversely impacted “employer” plans. After all, the most dreaded ACA provision that would have a significant impact on “employer” plans is the Cadillac Tax. And, the Cadillac Tax has NEVER gone into effect (and likely will NEVER go into effect because it will be fully repealed, but more likely, it will be delayed over-and-over-and-over again).
What Would Candidate Biden’s Health Care Proposal Do?
- In short, it would increase the ACA’s premium subsidies, which would be accomplished by pegging the premium subsidy amounts to “gold” plans, instead of “silver” plans. In addition, “individual” market planholders would only have to pay 8.5% of their income for their health plan, instead of the current 9.86% of their income. Candidate Biden would also incorporate a “public option” into the “individual” market, which would be sold through the ACA Exchanges. As you may recall, adding a “public option” to the ACA Exchanges was supported by President Obama, but not enough “moderate” Democrats in Congress would support it back in 2009, so a “public option” never made it into the law. Candidate Biden specifically said that “he will get it this time.” Candidate Biden also wants to allow people living in States that did NOT expand Medicaid to have “free” access to the “public option” in the “individual” market (i.e., premium-free buy-in to the “public option”).
- Analysis: Importantly, the “public option” is NOT available in the “employer” market, although it is unclear whether employers will be able to dump their less healthy employees into this “individual” market “public option.” In my opinion though, if the ACA’s rules on premium subsidy eligibility are preserved – which it sounds like they will be – employers would NOT be able to dump their less healthy employees into the “individual” market “public option” if an employer offers an “affordable/minimum value” group health plan to its “full-time” employees and their dependents. However, it sounds like the “affordability” test for qualifying for a premium subsidy would be lower than current law (i.e., it would be 8.5% of income instead of 9.86% of income), so more employees would likely be able to qualify for a premium subsidy. To me, this would also mean that the “affordability” test under the “employer mandate” would be pegged to 8.5% of income, instead of the current 9.86% of income test. Employers are NOT going to like that because employers are going to have to pay more for their employees’ health coverage or pay a penalty tax. But all-in-all, it is unlikely that employers will be shooting at Candidate Biden’s proposal like other health care stakeholders – namely, hospitals and providers – will be. That’s because employers and their plans generally won’t be affected, at least in the short-term. I say “short-term” because as the reimbursement rates for the “public option” move closer to Medicare reimbursement rates – and as hospitals and providers really start feeling the pain of receiving reimbursements that are lower than private insurance rates – “employer” plans will start feeling the pain too as hospitals and providers cost-shift more and more on to employers. Then, employers will reach that “tipping point” that I continually talk about – and viola – the “employer” market devolves into an unsustainable market that can only be replaced by Medicare-for-All or some “shade(s)” of single-payer. I know I sound like a broken-record on this, but I do believe that it is reasonable to suggest that if and when the politics shift in the future, we may be put on a path to Medicare-for-All or some “shade(s)” of single-payer. 2030 is not too far away.