Living up to his pledge to “clean out the barn” before handing his gavel to Rep. Paul Ryan, Speaker John Boehner and other congressional leaders have struck a deal to raise the debt ceiling and fund the government through March 2017, which would make this the last major piece of budget policy in the Obama presidency.
The big picture on the deal is that spending will increase by $112 billion over two years, both on defense and non-defense programs. While many conservatives (particularly in the House) have denounced the deal and will vote against it, many GOP members are expected to support the measure as it will head off draconian defense sequestration cuts in 2017.
Along with our legal team, we have done an evaluation of the legislation and identified a couple of significant provisions that impact the commercial insurance brokerage industry.
- First, the legislation would require that Standard Reinsurance Agreement for crop insurance be renegotiated by the end of 2016, which would cut an estimated $3 billion from the public-private crop insurance delivery system.
- Second, the legislation makes one change to the Affordable Care Act. It repeals the auto-enrollment provision of the ACA, which would require that all employers of more than 200 auto-enroll workers into compliant health insurance plans. Since the enactment of the legislation, the Administration has begun the process of establishing rules for such a requirement.
The deal would slow the rollout of scheduled hikes to Medicare premiums. To pay for the additional spending it would extend the sequester’s cuts to Medicare, sell off some of the country’s strategic petroleum reserve, do more telecommunications spectrum auctions, and change the crop insurance program.
Standard Reinsurance Agreement & Crop Insurance
The crop changes are drawing some fire from agriculture-centric Members of Congress. The crop insurance cuts are done by cutting the target rate of return for crop insurance companies from 14 percent to 8.9 percent. Previously, the Administration had proposed only a cut to 12 percent, which had also been opposed by agricultural groups.
Quoted in Feedstuffs, a major agribusiness newspaper, David Graves, president of the American Association of Crop Insurers, said should the budget proposal become law it will result in further reduction, if not the elimination, of private capital in the delivery of Federal crop insurance.
“In that case, if the program is continued, it would revert to the government delivery and servicing,” Graves said in the Feedstuffs article. “When given the choice in the 1980s, farmers ran to private sector delivery because of the service factor or value. Nothing has changed regarding the government’s ability to efficiently and effectively sell and service policies.”
The Standard Reinsurance Agreement is a cooperative financial assistance agreement that outlines the responsibilities of insurance companies in delivering the program and specifies the financial arrangements under which the companies operate.
We’ve had conversations with staff and key Members of Congress regarding this deal, which was swiftly negotiated among a relatively small group of congressional and Administration leaders. Democratic leaders, including Administration officials, have heralded the pact and are expected to vote overwhelmingly for it. Conservatives have complained loudly about the process, and even presumptive Speaker Ryan has expressed frustrations that mirror right-wing complaints.
“I think this process stinks. This is not the way to do the people’s business,” Ryan said to reporters today. “Under new management, we’re not going to do the people’s business this way.”
While those comments have received a good bit of press today, Boehner himself said that he largely agreed, that “this is no way to run a railroad.” Those comments aside, however, the agreement is very similar to a two-year pact that Ryan himself negotiated with then-Senate Budget Chairwoman Patty Murray in 2013.
Timing is Everything
The timing of the deal, assuming its passage, is perfect politically for Ryan, so that conservative outrage can be directed to Boehner on his way out the door. Then, once passed, Ryan has little in the way of “must-pass” legislation. (Congress still needs to pass a highway bill, but if that gets done, Ryan can spend the first year of speakership without major spending standoffs with the Administration.)
“That means he won’t be put in the position of having to keep the government open without pissing off House conservatives — the same impossible place that Boehner’s been in for years, and from which he’s currently fleeing,” wrote Dylan Matthews on Vox.com today. “If Hillary Clinton or Bernie Sanders wins in 2016, and Republicans keep the House, Ryan will have to negotiate then, but in the meantime he can focus on his true passions, like privatizing Medicare, slashing domestic spending, and cutting taxes.
Social Security Disability Insurance
One unexpected provision of the deal addresses the Social Security Disability Insurance (SSDI) program, whose trust fund is scheduled to be depleted by the end of next year, which would trigger an automatic cut to benefits of nearly 20 percent.
This is a fairly easy matter to fix; in the past, Congress has addressed similar shortfalls by simply redirecting more Social Security payroll taxes to the disability program as opposed to old-age payments. Congress is doing that again, alongside some relatively modest reforms to the program.
Negotiators are telling the press that they’ve extracted “$168 billion in long-term savings” through changes to the program, but the near-term savings are pretty modest: about $4 billion to $5 billion over 10 years, per the Huffington Post’s reporting.
As for specifics, the deal appears to include a provision requiring two doctors to certify that applicants are disabled, a restriction that is currently only in place in some states. HuffPo also reports that it will expand demonstration projects meant to make it easier for disability beneficiaries to work. Congress appears to have avoided more fundamental reforms to the program (like replacing much of it with private insurance), which critics have called for over the years.
Meanwhile, a bill meant to stall the Labor Department’s overhaul of investment advice standards for brokers serving retirement accounts is set to clear the House Financial Services Committee today. “My bill this week is in the House Financial Services Committee and will be passing,” said Rep. Ann Wagner (R-MO), the chief author of the measure, to Politico. “My hope is that Democrats will be willing to take a stand against this harmful proposal and support the bill.”
The bill would prevent the DOL from moving ahead with its regulatory effort until after the Securities and Exchange Commission issues its own fiduciary rule governing all retail investment advice. That would effectively kill the DOL’s rule, as SEC Chairwoman Mary Jo White has indicated the SEC, while actively working on it, isn’t close to issuing any such proposal. The president has been a supporter of the fiduciary rule — which would require brokers working with 401(k) and individual retirement accounts to act in their clients’ best interests — under his “middle-class economics” initiative.
The Council strongly supports Rep. Wagner’s legislation, which has attracted bipartisan support in both chambers. Even though the budgetary pact now appears set to be enacted, further appropriations battles will play out in the coming months, affording an opportunity to have the fiduciary rulemaking addressed as a part of broader legislation. As a standalone measure, however, the effort to rein in the Department of Labor would surely be vetoed by President Obama.
We’ll continue to keep you apprised of developments.