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The Clarity on Repeal is Ripening…or is it?

by Joel Kopperud, VP, Government Affairs

The best line we’ve heard from one of the most influential health staffers in the Senate this week: If somebody is saying they know what’s going to happen, they’re lying. In our effort to continue keeping you up to date on the latest developments, here’s a download of what we know today, all of which of course, is subject to change.

Last week, we reported that Leader Mitch McConnell promised the first vote in the Senate would be to repeal Obamacare. Following dozens of receptions, coffees, cocktails and meetings with members and their staff, we have a sliver more of intelligence on the nuances that will determine what and how this unfolds.

The Senate has the liberty of passing two budgets next year, a 2017 and a 2018 budget (2017 was never passed this year). That allows reconciliation, the maneuver bypassing the Senate’s usual 60-vote threshold with a simple majority, to be used twice. We’ve confirmed that last year’s Obamacare repeal bill will again be used as the basis for the repeal effort in the first budget reconciliation vote. But we’ve learned that the package might be expanded to include several other provisions that are listed in Title I of the ACA. That notably could include the repeal of the Medical Loss Ratio. We’re optimistic that the MLR will make it in the final package, but anything could change.

We’ve also learned that repealing the Cadillac Tax is nearly certain, but it will likely be compromised with a hit to the employer tax exclusion to recoup lost revenue. The Cadillac Tax was scored at $87 billion by CBO, a score that we’ve long challenged as it predicted an unlikely increase in taxable income as employers reduced benefit packages. We’ll continue to challenge that score and defend the tax exclusion.

It also looks increasingly likely that the employer mandate penalty will be reduced to zero dollars, essentially repealing the mandate. Unfortunately, reconciliation rules won’t allow for a repeal of the associated employer reporting requirements to also be repealed. We’ve been advised there will be a two-step process on this—one legislative and one regulatory—whereby the Administration would work in tandem with Congress and issue a notice that the reporting requirements would not be enforced. History tells us that relying on regulatory actions in tandem gets complicated and tricky, but we’re optimistic that this gets done and solves the complicated reporting requirements.

We’ve also learned that Congress is looking to the new Administration to solve our EEOC wellness compliance issues with executive authority, and we would expect this to happen in Administration’s first 100 days. We’ve separately heard a lot of noise from members on drug pricing and various solutions being floated to rein in costs for employer plans. We can report that any drug pricing measures will not be included in reconciliation, and there will be a separate legislative vehicle intended to address the pharmaceutical industry later in the spring.

Looking Ahead

As you can see, the clarity on repeal is ripening. And so is the confusion on replace (or delay). With the individual markets imploding and competition waning, congressional staff is getting desperate to find workable solutions to save face while strengthening the markets. It’s becoming clear that pressure is building within the Republican caucus to continue offering incentives to carriers to stay in the individual market in the short term (a remarkable 180 from the caucus’s unified noise against insurer bailouts two months ago), while finding workable solutions to strengthen the individual market so its implosion doesn’t bleed into employer markets. Questions abound on a possible role for private exchanges, high risk pools, a national benchmark plan and buying across state lines (though the momentum for eviscerating state borders is quickly shrinking as critics refer to it as “choose your regulator”).

The Bottom Line: The confusion around the replace package is driving confusion on the process. Without a clear replace policy, the GOP caucus is torn on whether to cram as many replace priorities along with the repeal items into the first reconciliation budget vote, or to have a clean repeal bill in the first vote and a clean replace bill in the second vote. Driving the argument for both strategies is the repeal of the subsidies and replacement with tax credits, expanded HRAs and other items in the second reconciliation vote (which, by the way, will also probably include comprehensive tax reform). The case can be made that after dismantling subsidies, mandates and exchanges in the first vote, there could be a bipartisan effort to fix what was just undone in the second vote. Senator Chuck Schumer has publicly warned that Senate Democrats won’t play that game, arguing if they break it, they bought it.

There’s a lot at play in these weeks leading up to the inauguration of the 115th Congress. We’re in the thick of it and working hard on our priorities. We’re also always eager for guidance and feedback. So please share any comments you have with me at or my colleague Joel Wood at at your convenience. We will also be hosting perhaps one of our most critical Legislative Summits in February, and we will need your help to press Congress on our issues. Click here to register for the Legislative Summit.

ESI Tax Exclusion: Cap, Limit or Eliminate?

Employer-provided health insurance has been excluded from income and payroll taxes for more than 60 years. The American Health Policy Institute provides an analysis in this 2016 report of the significance of the tax exclusion for employer-sponsored benefits. For example, the preferred tax-treatment reduces the cost of health insurance by nearly 32 percent for the 177 million Americans who receive health care benefits through their employers. Employers are critical in facilitating market-driven innovation and creativity in both driving down health care costs and improving wellness plans. Despite the importance of the tax-treatment of employer-sponsored health insurance, there are significant efforts underway from both sides of the aisle to either cap, limit or completely eliminate the tax preference.

Limiting the tax-exclusion will have a severe impact on increasing out-of-pocket expenses for average Americans, while also creating a large tax increase for middle-class employees. In fact, it’s not only middle-class employees who will feel the impact of a limitation to the tax exclusion. The AHPI study shows that over time many more employees will see their health benefits taxed. Capping the exclusion at 90 percent would increase costs on the average employee by $520 between the years 2020 and 2026, while completely eliminating the tax exclusion altogether would impose a $5,263 tax on the average employee.

As a basis for comparison, the American Health Policy Institute compares any adjustment to the tax exclusion to the current Cadillac Tax, which is set to take effect in 2020. The Cadillac Tax has been wildly unpopular, with about 300 members of the House of Representatives and about 40 members of the Senate cosponsoring legislation to repeal it completely. Limiting the tax exclusion will be as unpopular (and maybe even more so) as the Cadillac Tax, with groups ranging from business trade associations, the U.S. Chamber of Commerce and the AFL-CIO, all in strong opposition. We anticipate the tax exclusion to face similar problems as the Cadillac Tax in that both do not account for geographical and demographical differences without creating complexities far too great for employers to administer.

The Bottom Line: Because the preferred-tax status of employer-sponsored health plans is one of the largest tax expenditures for the federal government, it has continually been a target for budget hawks. These efforts fail to fully grasp the consequences that average Americans will face as a direct result of any change to the tax exclusion. Employers have proven to be the most efficient at getting people covered.

Joel Kopperud, VP, Government Affairs: