TRUMP HEALTHCARE REFORM GOP’s Repeal & Replace efforts

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Today’s Speaker

Patrick Haynes Education Temple University School of Law, LL.M. Rutgers University School of Law, J.D. Rutgers University School of Business, M.B.A. Rutgers University College of Arts & Sciences, B.A.

As Crawford Advisors’ GC and Vice President – Compliance, Mr.

Haynes advises employers and plan sponsors in a variety of health and welfare benefit plan compliance matters, including, but not

limited to, tax qualification and other Internal Revenue Code issues,

PPACA, ERISA, COBRA and HIPAA portability, security and privacy issues. Mr. Haynes lectures frequently and has published many

articles on health and welfare benefit plan compliance topics.

Practice Areas

Employee Benefits & Exec Comp, ERISA, COBRA, HIPAA, IRC §125, and §§ 105, 106, 129, and 132

Admitted to Practice • U.S. Supreme Court • Federal and State Courts of

• New Jersey • Pennsylvania • Connecticut • District of Columbia

• Repeal/Replace Activities

– Executive Order(s)

– Reconciliation Activity to Date

– Continuing on through tonight

• Health Care Reform Proposals

– Trump Campaign proposals

– Empowering Patients First (Price)

– Patients’ Choice Act (Ryan, et al)

– Other Proposals

• Similarities/Broad Brush Conclusions

• The “Dirty Dozen of ACA” and How they may Fare

• Change is difficult…

Agenda

• “To the extent permitted by law”, the heads of tri-agencies will:

– Exercise all authority to waive, defer, grant exemptions

from or delay the implementation of any provision of ACA

that imposes a fiscal burden

– Exercise all authority to give flexibility to States

– Encourage development of free and open market for health

insurance

• Agencies must comply with APA where required.

• What exactly does the order do?

ACA Executive Order (1/20/17)

• “Freeze” Memo (1/20/17)

– Send no regulation to OFR

– Withdraw regulations sent but not published

– Postpone regulations published but have not taken “effect”

• Regulatory Costs Order (1/30/17).

• What health plan related regulations/rules are affected?

Other Executive Action

• President Trump’s Campaign Proposal

• 2015 Reconciliation Bill (vetoed by President Obama)

– 2017 Reconciliation bill not yet introduced

• Patient Freedom Act of 2017 (S 191)—Cassidy/Collins

• A BetterWay: Health Care (2016 Ryan Outline of proposal)

• Obamacare Replacement Act (S. 222)-Rand Paul’s proposal

• Empowering Patients First (2015 Price proposal)

• AHCA – American Health Care Act

Health Care Reform Proposals

1/3 of US Counties have only 1 Carrier offering Exchange coverage

Why change anything?

• Highlights:

– Repealed premium tax credit/subsidies after 2 years

– Eliminated penalties for individual mandate and employer

shared responsibility provisions

– Repeals optional Medicaid expansion

– Repeals Cadillac Tax

– Reduces HSA distribution excise tax from 20% to 10%

– Repeals Health FSA salary reduction limitation

– Removes prescription requirement for OTC drugs

– Reverses tax changes made to RDS program

– Eliminate Transitional Reinsurance Contribution and

prohibit distribution of reinsurance

2015 Reconciliation Bill (where we were)

• Improve/expand HSAs

• Refundable tax credit for all Americans (adjusted for age)

except those eligible for employer sponsored health

coverage/excess can be contributed to HSA

• Cap on 106 tax exclusion for employer provided accident and

health coverage

• Purchase individual market coverage across state lines

• Expand “association” plans

• No pre-existing condition exclusions

• Coverage for dependent children to age 26

A Better Way – Paul Ryan

• Repeal ACA ENTIRELY

• Refundable tax credit (excess can be applied to HSA)

• Cost sharing subsidies to certain individuals—one time credit to HSA

• Expand/improve HSAs

• Pre-existing condition exclusions permitted absent continuous coverage

• Expand association health plans

• Purchase individual coverage across state lines

• Cap IRC Sect. 106 exclusion

• Dependent coverage to age 26

Empowering Patients First Act – HHS Sect. Tom Price

• Maintains essential consumer protections (no pre-ex, dependent coverage

to age 26, no annual or lifetime dollar limits on EHBs, etc.)

• State flexibility:

– Obamacare

– Market based system using federally funded Roth HSAs

• Funded through refundable, tax credits

• State or Feds may administer

– Self-guided system with no federal funding

• Price Transparency

– Limits cost for OON emergency services

– Limits the cost of prescription drugs provided

by OON hospitals

– Providers must post prices for services

Patient Freedom Act - Cassidy/Collins

Senator Susan Collins & Senator Bill Cassidy

• Repeals:

– Individual and employer mandates

– Community rating restrictions

– EHB requirement

– MLR

– “Other” insurance mandates

• Pre-ex permitted absent continuous coverage (One time, 2 year open enrollment window)

• Universal deduction on both income and payroll taxes for health coverage (regardless of whether individual or group coverage)

• HSA expansion/improvements

• Purchase individual coverage across state lines

• Association health plans—treat as large, single employer plans

• Stop loss is not health insurance

Obamacare Replacement Act – Rand Paul

• HSAs given a big boost

• More flexibility with regard to employer plan design

• Less “dependence” on employer based coverage – Tax credits

– Tax incentives for individual policies

– Cross state insurance marketing

• Likely cap on employee exclusion for employer provided health care – Cadillac tax repeal may be delayed as bargaining chip

Similarities/Broad Brush Conclusions

Parts of ACA repealed – Individual and employer mandate,

– Exchange coverage and premium tax subsidies (but likely delayed)

Parts of ACA retained – Age 26, lifetime caps, age rating (modified to 5:1)

– Prohibition on pre-existing conditions (modified for coverage continuity)

• Individual Mandate

• Premium Tax subsidies

• Employer Mandate (IRC 4980H)

• ACA Reporting (IRC 6055/6056)

– When can we stop counting hours?

• Market Reform Coverage Mandates (IRC 4980D)

• Risk Redistribution

• Cadillac Tax (IRC 4980I)

• ACA 1557 and Required Notices

• Limitations on Employer Funded Individual Policies and HRA Design

• FSA Limitations Under ACA

• Wellness Program Rules

• Other Requirements (PCORI, etc.)

Dirty Dozen of ACA and How They May Fare

ACA Repeal/Replace Update: The American Health Care Act (AHCA) AHCA is a budget reconciliation bill – Need only 51 Senate votes (Republicans have 52 seats), unlike 60 for other bills – Provisions are limited to those with significant budgetary impact (Byrd rule) • E.g. Guaranteed availability, guaranteed renewability, age 26 rule, Pre-Ex ban,

Oopmax cap, prohibition on annual/lifetime limits Timing/process – House Ways & Means and Energy & Commerce committees completed mark-ups – Passed House Budget Committee with 3 Republican “no” votes – On to House Rules Committee (changes might be proposed)…Today! Tonight! – House floor vote, then to Senate… CBO “score” (estimate of bill’s budgetary effects) – Would reduce federal deficit by $337 billion over 2017-2026 (mainly due to Medicaid reductions and eliminating ACA subsidies) – In 2018, 14 million more uninsured than under current law, with 24 million more being uninsured by 2026

ACA Repeal/Replace Update: The American Health Care Act (AHCA)

• Individual and Employer mandate penalties – Eliminated

• Allows imposition of 30% premium surcharge for year following a coverage break exceeding 63 days (but PPACA’s Pre-Ex ban remains in place)

• Improves HSAs, HRAs, and HealthCare FSAs

• Delays Cadillac tax until 2025

• Starting in 2018, changes ACA’s 3:1 age rating to 5:1

• Starting in 2020, eliminates ACA subsidies and replaces with tax credits

• Starting in 2020, repeals “metal-level” coverage

• Medicaid changes

• Exchange repeal timing will be tricky as Congress will attempt to

avoid a massive loss of coverage

– Phase-in

– Adverse selection and minimal coverage headaches

• House “Stop-Gap” proposals: Exchange Stabilization Bills

– Health Coverage State Flexibility Act of 2017 (shorten 90 day grace period)

– State Age Rating Flexibility Act (expand underwriting spread from 3:1 to 5:1)

– Plan Verification and Fairness Act (Verifies special enrollment eligibility)

– Preexisting Conditions Protection and Continuous Coverage Incentives Act

• Premium tax subsidy likely will be replaced by tax credit for those

who elect qualifying coverage

– Voluntary choice (“backpack” for health care)

– Likely capped

– Unclear how “qualifying coverage” will be determined

Individual Mandate/Premium Tax Subsidies

AHCA credits would be Age-based vs ACA’s income-based subsidies • Under age 30: $2,000 • Age 30 to 39: $2,500 • Age 40 to 49: $3,000 • Age 50 to 59: $3,500 • Over age 60: $4,000 • No adjustment for geography • Phased out at incomes above $75,000 (single) or $150,000 (joint) Refundable and Advance-able Not eligible if offered any ER-coverage (no Min Value/AV standards) or if eligible for government coverage May be used for purchase of individual coverage or unsubsidized COBRA • Including catastrophic coverage • States determine qualified insurance policy

AHCA Tax Credits

• So-called pay or play rule will likely see its demise as part of Reconciliation

– More freedom with respect to:

• Eligibility determinations

• Contribution determinations

• Benefits provided under plans (less onerous MV requirement)

– But not really carte blanche with regard to eligibility/contributions

• IRC 105(h) for self insured plans

• VEBA nondiscrimination rules

• Cafeteria plan nondiscrimination rules

• Insurance carrier limitations on

– MEC only plans not likely necessary any longer

• What about pesky reporting (next slide)

Employer Mandate (IRC 4980H) gone or reduced?

• Unclear if will be repealed immediately

– Reporting vehicle likely required if phase out premium tax subsidies

– Reporting vehicle likely necessary for tax credits

– Reporting vehicle may be needed to cap employee exclusion for health care

ACA Reporting (IRC 6055/6056)

• Possible simplified reporting

and/or relaxation of penalties

– Remember

Sledgehammer/Tackhammer under

IRC 4980H will likely be repealed

• Likely that mandated coverage packages will be revisited. Affecting

requirements such as

– Preventive care

– EHBs for fully insured plans (and MV for self funded plans)

– OOP limitations

• Action will foster growth for “less complete” benefit packages

– Mini-med plans may resurge

Market Reform Coverage Mandates

• ACA is full of risk shifting and subsidies

– Reinsurance fee (expired)

– Sector fee on insurance business

– Limitations on underwriting based rating

• Small group: geography, tobacco use, age 3:1

– Risk pooling in/out of exchanges

– Premium tax subsidies

• Some argue that some market subsidies necessary to transition market out

of ACA

• Redistribution mechanism likely repealed/modified

– With exception of some form of high risk pool maintained by states

Risk Redistribution

• Recap

– Effective 2020 a 40% excise tax imposed on excess cost of health

coverage imposed on health coverage providers

– Will either be eliminated completely or delayed until 2025 (AHCA).

– Applies to insurance, self insurance, FSA and HSA contributions

– Expected $80B+ revenue (unrealistic, will almost likely NEVER result in

revenue)

• Bipartisan and Business support repeal

• Repeal may be delayed/made contingent on cap on

employee exclusion for employer provided health coverage

($12,000/30,000)

– Impact very similar to Cadillac tax, with “cost” imposed

directly on employee

– HSAs likely exempt

Cadillac tax (IRC 4980I)

• Recap:

– Prohibition on “discrimination” with regard to age, national origin, sex,

gender, gender identity, etc. with respect to health care

– Rather onerous notice (15 taglines) and appeal requirements

• Substantive and procedural requirements may be subject to

repeal

– Underlying Civil Rights Act provisions would separately apply

ACA 1557 and Required Notices

• Recap: IRS guidance (Notice 2013-54 and final regulations)

prohibit employer involvement with individual major medical

coverage and restrict HRA plan design to certain integrated and

excepted benefit HRAs

• Cures Act allows certain non-ALE (under 50 EEs) employers to

adopt an HRA that can be used to fund individual medical policies

– Congress may consider broader expansion (increase coverage)

• Possible ACA limitations on HRAs that may be undone

– Prohibition on stand-alone HRAs

– Limitation on HRAs to those with MV coverage

Limitations on Employer Funded Individual Policies and HRA Design

• Following ACA-imposed changes will be affected under

AHCA

– $2,500 cap on health FSA salary reductions (current limit is

$2,600)

– AHCA will eliminate the cap

• Query: What is potential impact on $500 carryover?

• AHCA will also repeal

– Prohibition on OTC reimbursement without an Rx

– Prohibition on stand-alone general purpose FSA

– Imposition of Cadillac tax on health FSA benefits

Health FSA Limitations Under ACA vs AHCA

• Annual HSA contribution will be aligned with annual deductible and out-of-pocket maximum (2018)

– E.g. Currently the deposit limits are $3,400/ind and $6,750/fam

– Under AHCA, deposit Limits of: $6,550 per individual and $13,100 per family would be allowed

• – Allows both spouses to make HSA catch up contributions

– $1,000 per individual over age 55

– New HSA deposits will still end once you are enrolled in Medicare

• – Allows reimbursement of certain medical expenses incurred before the HSA was established

– Incurred up to Sixty (60) days prior to setting up their Health Savings Account

HSA changes under AHCA

• ACA rules codified and expanded HIPAA wellness

program rules

– 30% (rather than HIPAA’s 20%) cap on health

standard based wellness program incentive

– Unclear whether/how repeal/replace would

impact these rules

• EEOC Rules under ADA and GINA

– 30% cap on any disability based inquiry

– Additional notice and administration requirements

– Will the final bill repeal these rules?

Wellness Program Rules

• PCORI / CERF ($1 tax, became $2, now $2.17)

– Due to “sunset” in 2019/2020

• Within Congressional Review Act time frame

– Final disability claim regulations

– Proposed Form 5500 regulations (extensive & expensive)

• To hit for 2019’s reporting in 2020

– Final premium tax credit regulations

Other Provisions. . .

Change is difficult & slow…..

Employer Letter on the Tax Treatment of Health Benefits On Monday, 02/13/17, The Council of Insurance Benefits and Brokers (CIAB) was one of 27 organizations that signed onto a letter sent to the White House National Economic Council and Domestic Policy Council regarding the tax treatment of health benefits. Taxing health benefits by capping the individual tax exclusion constitutes a tax increase that will drive up out-of-pocket costs for employees and their families, risking disruption to the stable, employer-based system, and threatening the benefits working families enjoy and want to keep. This policy would discourage lower-wage workers from enrolling in employer-provided insurance, potentially leaving them vulnerable and uninsured or in unstable individual market plans.

Change is difficult & slow…..

Change is difficult….. President Trump A “no” vote means you will lose your seat. Koch Brothers Pledge millions to GOPers for mid-term election support if they vote no on this bill. Freedom Caucus (et al) lining up to vote no?

QUESTIONS?

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