April 15, 2015
- Council Statement to Senate Finance Committee Working Group: Proper Perspective Needed When Evaluating Retirement Plan Tax Incentives
- Senate Approves ‘Doc Fix’ After Rejecting Several Amendments; President to Sign
- House Subcommittees Examine PPACA Five Years After Enactment
Council Statement to Senate Finance Committee Working Group: Proper Perspective Needed When Evaluating Retirement Plan Tax Incentives
The Council filed a comprehensive 17-page written statement with the U.S. Senate Finance Committee’s Tax Reform Working Group on Savings and Investment on April 15. The statement urges the committee to acknowledge the importance of current tax incentives supporting employer-sponsored retirement plans and to not allow legislation that incorporates retirement-related provisions to be driven by considerations unrelated to retirement policy.
Generally, the Council’s statement describes the successes of the employer-sponsored retirement system and demonstrates the true value of tax-deferred retirement savings on personal financial security, broader economic growth and future tax revenues.
“Eliminating or curtailing the current tax incentives on retirement plans would result in American workers saving less for retirement when we need to encourage them to save more,” the statement said.
The statement provides a broad perspective on retirement policy including targeted recommendations that are included in the Council's recently released strategic plan, A 2020 Vision. But it also includes a very extensive analytical examination of issues that are often at the forefront of retirement-related measures developed by Congress concerning such matters as the value of the tax expenditure associated with employer-sponsored retirement plans and the distributional nature across the income spectrum.
Also included with the Council’s statement were two lengthy appendices providing technical background on how the tax incentives for retirement savings work (15 pages) and the challenges of measuring employer-sponsored retirement plan coverage (5 pages). These appendices are also now available as:
- Benefits Blueprint 2015-4: Tax Incentives for Retirement Savings: A Better Understanding of the Numbers
- Benefits Blueprint 2015-5: Putting Private Retirement Plan Coverage Numbers Into Perspective
As described in the January 15 Benefits Byte, Finance Committee Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR) established five bipartisan tax working groups within the committee to facilitate comprehensive tax reform. The Savings & Investment working group, which is examining retirement policy, is co-chaired by Senators Mike Crapo (R-ID) and Sherrod Brown (D-OH).
The committee’s stated goal is to have a single comprehensive report featuring recommendations from each of the five categories completed by the end of May. The report recommendations will then serve as a foundation for the development of bipartisan tax reform legislation.
For more information, contact Diann Howland, vice president, legislative affairs, at (202) 289-6700.
Senate Approves ‘Doc Fix’ After Rejecting Several Amendments; President to Sign
The U.S. Senate voted to approve The Medicare Access and CHIP Reauthorization Act (H.R. 2) on April 14, establishing a permanent “doc fix” by addressing the “sustainable growth rate” (SGR) – the payment formula used to determine Medicare reimbursements to physicians. The final vote was 92-8, with a handful of Republicans objecting to the lack of a full federal revenue offset. President Obama has indicated he will sign the bill into law.
H.R. 2 gradually changes the way Medicare pays doctors by replacing the SGR formula with new payment systems. Beginning in 2019, amounts paid to individual providers would be subject to adjustment through one of two mechanisms, depending on whether the physician chose to participate in the Merit-Based Incentive Payment System (MIPS) or an Alternative Payment Model (APM) program. The bill also extends the Children’s Health Insurance Program (CHIP) through 2017.
According to the Congressional Budget Office (CBO) estimate of H.R. 2, the measure is only partially paid for (through Medicare beneficiary changes and other spending adjustments) and will increase the deficit by $141 billion over ten years. Unlike most legislation approved by Congress in recent years, H.R. 2 was exempted from the prevailing “pay-as-you-go” rules, which meant that Congress did not need to come up with additional revenue or spending cuts to offset the full $141 billion cost estimate.
Enactment of a fix was necessary to stave off a 21 percent cut to Medicare provider payments after the expiration of the 2014 one-year patch – the last in a series of 17 temporary patches dating back to 2003. Passage of a permanent fix is a significant achievement, not only because it represents a rare instance of bipartisan agreement in both the House of Representatives and Senate, but also because it removes from the legislative calendar one of the annual scrambles for federal revenue raising measures which has, at times, threatened to pull-in employee benefits matters.
Before approving the measure, the Senate rejected a number of amendments, most notably Amendment No. 1114, offered by Senator John Cornyn (R-TX), repealing the individual mandate of the Patient Protection and Affordable Care Act (PPACA), and Amendment No. 1117, offered by Senator Patty Murray (D-WA) “to improve women’s access to quality health care.”
House Subcommittees Examine PPACA Five Years After Enactment
Five years after enactment of the Patient Protection and Affordable Care Act (PPACA), two congressional subcommittees in the U.S. House of Representatives continued their scrutiny of the law on April 14, focusing on its impact on employers.
While both hearings followed a familiar pattern in which Republicans criticized PPACA as costly and ineffective and Democrats defended it as a social imperative, there was substantial discussion of specific provisions that require further examination and improvement. These include the employer mandate, the 40 percent excise tax on high-cost plans and the definition of “full-time” employment.
The Council issued a news release in conjunction with the two hearings, citing specific recommendations from its public policy strategic plan, A 2020 Vision: Flexibility and the Future of Employee Benefits. “The two House subcommittee hearings held today on the Patient Protection and Affordable Care Act (PPACA) underscore the continuing and emerging implementation challenges posed by the law as it turns five years old,” said Council President James Klein. “Congress should fix what isn’t working and help make the law more administrable.”
Ways and Means Subcommittee on Health
The House Ways and Means Committee’s Health Subcommittee held a hearing on the individual and employer mandates in the health care law.
Subcommittee Chairman Kevin Brady (R-TX) expressed concern about the stringent mandates included in PPACA and suggested “empowering families and patients” by providing a tax credit for the purchase of health care insurance, or by expanding the availability of high-deductible health plans or health savings accounts.
Representative Jim McDermott (D-WA), the subcommittee’s ranking Democrat, argued that the individual and employer mandates are essential to ensure maximum health insurance coverage in the absence of a single-payer system.
The subcommittee heard testimony from the following witnesses:
- Douglas Holtz-Eakin, president of the American Action Forum, argued that the individual mandate, intended as a measure to maximize coverage, has been ineffective. Not only have the individual and employer mandates failed to improve coverage significantly, he argued that certain mandates within the law have worked to drive up costs: the essential health benefits requirements, the guaranteed issue mandate and the community rating rules.
- Scott Womack, president of Womack Restaurants, testifying on behalf of the U.S. Chamber of Commerce, described his experience as a small employer and franchisee trying to provide coverage to his employees. He said that after experiencing a 60 percent increase in premiums, he has had to raise deductibles and out-of-pocket limits and cut back on dependent coverage, even though only three to four percent of his employees have enrolled. The cost of offering coverage to all his employees, he said, has reduced the quality of coverage provided to his staff and prevented many of his employees from qualifying for subsidies to receive coverage on the health insurance exchanges.
- Sabrina Corlette, faculty member at the Georgetown University Center on Health Insurance Reforms, suggested that PPACA has been effective at alleviating the shortcomings of an “inhospitable” individual market. She argued that the individual mandate “is needed to prevent people from waiting until they are sick to sign up for insurance” and the employer mandate ensures that “all stakeholders contribute to a sustainable health system.” She also disputed claims of soaring costs and job losses, noting that growth of health care prices have slowed to the lowest point in 50 years while unemployment rates have been unaffected.
Brady began the question and answer period by asking whether there were alternatives to PPACA’s “coercive” model, such as arrangements that provide for a lower deductible based on continuous insurance coverage. Holtz-Eakin suggested that carefully designed incentives would be able to achieve similar results without imposing mandates.
McDermott and Representative Mike Thompson (D-CA) each pressed Holtz-Eakin on the cost of uncompensated care, and whether that was a sufficient justification for the imposition of an individual mandate. Holtz-Eakin argued that uncompensated care accounts for only three percent or so of cost increases within the health care system and represents a delivery system problem, not an insurance problem.
Thompson also asked Corlette how many employers are actually affected by the employer mandate. She stated that because most small employers are exempt from the mandate, and because many large employers already offer qualifying coverage, “we’re really talking about a small number of employers that would actually have to pay [a penalty].” Very notably, even as a supporter of the PPACA, Corlette acknowledged that employers would probably continue to offer coverage even without a mandate.
Rep. Sam Johnson (R-TX) strongly criticized the employer mandate, suggesting that “association health plans” (AHPs), which allow employers in a similar industry to join together to offer insurance to their employees, would help mitigate health insurance costs for small businesses. Holtz-Eakin agreed that AHPs are one way to achieve a larger pool of individuals and thereby spread the risks.
Rep. Todd Young (R-IN) raised the matter of the law’s 30-hour full-time workweek standard, noting that many employers are cutting workers’ hours to stay under the threshold. Womack indicated that he hasn’t done so thus far, though in his experience it is widespread in his industry.
Rep. Diane Black (R-TN) asked about the reporting requirements under the law, noting that PPACA requires employers to provide “pretty significant amounts of information about your employees on a monthly basis.” Womack described how his organization needed to invest in new software and infrastructure to manage the data. While Womack acknowledged that the Internal Revenue Service (IRS) has been slow in producing guidance on employer reporting, he said that the law itself had put the agency in a difficult position.
Rep. Ron Kind (D-WI) criticized the growing trend of cost-shifting to employees and noted that “as long as we have an employer-based system, we will always have employers complaining.” He asked the witnesses to identify possible areas of bipartisan agreement on changes to the law. Holtz-Eakin cited the recent fix to the sustainable growth rate (SGR, commonly known as the “doc fix”) as a way to strengthen the social safety net. Corlette suggested that additional efforts are needed to further reduce health care costs.
Education and the Workforce Subcommittee on Health, Employment, Labor and Pensions
The House Education and the Workforce Committee’s Health, Employment, Labor and Pensions (HELP) Subcommittee held the hearing “Five Years of Broken Promises: How the President's Health Care Law is Affecting America's Workplaces” on April 14.
Subcommittee Chairman Phil Roe (R-TN) said in his opening statement that there needs to be a shift “toward a more patient-centered health care system” and noted several issues affecting employer-sponsored health care, including the PPACA definition of “full-time employee” as someone working, on average, 30 hours per week and the impending 40 percent excise tax on high-cost health plans.
The subcommittee heard testimony from the following witnesses:
- Tevi Troy, president of the American Health Policy Institute, testified on the impact of PPACA on large employers, including the 40 percent excise tax on high-cost health plans, the overall cost of PPACA on employers and affordability for employees. He said that the excise tax is already causing employers to examine their health plans and find ways to avoid the tax and noted that due to continued medical inflation, the tax, intended to target high-cost plans, will inexorably affect a significant number of employees. He urged Congress to address the tax sooner rather than later.
- Rutland Paal, Jr., owner of Rutland Beard Floral Group, testified on the numerous challenges he has faced as an employer complying with PPACA, including confusion over record keeping, reporting and other compliance requirements. He also noted the “looming” unknown cost of PPACA on his business and how this concern has dissuaded him from expanding his business and hiring additional employees.
- Michael Brey, owner of Hobby Works, testified that as a small business owner, PPACA improved his experience providing health care to his employees by reducing premium increases and increasing insurer options and competition in the small business exchanges. He said that while PPACA isn’t perfect, Congress should be strengthening it instead of “chipping away at it.”
- Sally Roberts, director of human resources at Morris Communications Company, LLC, testifying on behalf of the Society for Human Resource Management (SHRM), detailed the challenges her organization has faced since implementation of PPACA, including efforts to mitigate the effect of the 40 percent excise tax, the confusion from the Equal Employment Opportunity Commission (EEOC) over employer wellness programs, employer reporting requirements and the inconsistency of PPACA’s definition of “full-time employee.” She voiced support for a number of House bills that would address these issues, including the Ax the Tax on Middle Class Americans' Health Plans Act (H.R. 879) to repeal the 40 percent excise tax, the Preserving Employee Wellness Programs Act (H.R. 1189) to provide clarification on wellness programs and the Save American Workers Act (H.R. 30) to redefine the definition of “full-time employees” to employees working 40 hours a week.
During the question-and-answer session, a number of members, including representatives Joe Wilson (R-SC), Luke Messer (R-IN), Joe Courtney (D-CT) and Tim Walberg (R-MI), discussed the 40 percent excise tax, how employers were planning for it and how it would affect employees. Roberts responded that her company is considering converting to a High Deductible Health Plan (HDHP), which would constitute a $2 million cost shift to employees. She noted that they are hesitant to do so because of the negative consequences for their employees, but that it will be the only way for the company to avoid paying the excise tax.
Troy emphasized that even though the tax does not go into effect until 2018, employers are already looking that far down the road about benefit offerings and many are making cost-sharing changes now. He also noted how the shift to HDHPs really makes health care unaffordable, as many individuals would not be able to pay the high deductible.
Messer specifically addressed how because the excise tax is based on the gross cost of health care of an individual employee, the tax will likely disproportionally affect unintended populations, such as those in rural areas or employees in unions. He also noted that he will soon be introducing legislation redefining the employer mandate and the definition of large employers.
Courtney noted that the House passed PPACA without the excise tax and that it was later added by the Senate. He stated it is not an “intrinsic pillar of the law” and can be repealed without dismantling the law.
In closing the hearing, Roe noted the bipartisan concerns with the 40 percent excise tax and the need to address it now and not in 2017, after many employers may have already made changes. Tax policy is not directly within the jurisdiction of the Education and the Workforce Committee. However, the committee does share jurisdiction over health policy and so the bipartisan recognition of the challenges posed by the tax represent valuable progress.
The Council remains concerned about the effects of the excise tax on employer-sponsored health coverage, and recently released an updated Benefits Blueprint summarizing the statutory requirements of the 40 percent excise tax as well as an updated companion document with answers to certain “Frequently Asked Questions” regarding the excise tax. The Council has also been collaborating closely with other private sector and public sector employer groups and organized labor groups to push for repeal of the 40 percent excise tax.
In other news, the Senate Homeland Security and Government Affairs Committee held an April 15 hearing on IRS implementation of PPACA. During the hearing, “IRS Challenges in Implementing the Affordable Care Act,” IRS Commissioner John Koskinen testified regarding the 2015 tax filing season. The 40 percent excise tax did not come up during the Senate hearing.
In the question-and-answer session, Senator James Lankford (R-OK) expressed concerns that employers are prohibited under PPACA from reimbursing or otherwise providing tax-favored financial support to employees to purchase individual coverage. Koskinen replied that the policy is set by the U.S. Department of the Treasury, not the IRS. This concern was also voiced in a recent House Ways and Means hearing by Rep. Charles Boustany (R-LA) (see the February 6 Benefits Byte) and Treasury Secretary Jacob Lew indicated that he agreed the prohibition on employers providing financial support in this manner was not consistent with the goal of PPACA to “make sure that affordable health care is available to all.”
For more information, contact Katy Spangler, senior vice president, health policy at (202) 289-6700.