Newly elected state AGs outline enforcement priorities

Eighteen new state attorneys general will take office in 2019. There will be new AGs in Alaska, Colorado, Connecticut, Delaware, Florida, Hawai`i, Illinois, Maine, Michigan, Minnesota, Missouri, Nevada, New York, Ohio, Rhode Island, South Dakota, Wisconsin and Wyoming. Politically speaking, the impact of the 2018 midterm elections on the AG landscape was decidedly mixed, with Democrats flipping four AG seats previously held by Republicans, and the GOP maintaining their strongholds in Florida and Ohio. Overall, the midterms shifted the balance of state AG seats nationwide to a Democratic majority. Democrats now occupy 27 AG seats (including in Washington, DC) and Republicans, 24.

Companies should be aware that the newly elected AGs are expected to be as aggressive, or more so, than their predecessors. In Connecticut, for example, AG William Tong is succeeding AG George Jepsen, who led some of the largest bipartisan multistate investigations, including into opioid manufacturing and distribution, alleged price fixing in the generic drug market, and data privacy issues. Tong has signaled his intention to continue with these efforts, recently declaring: “I’ve always been activist in the legislature and I’m going to be activist as an attorney general because that’s what you need right now.”[

Other new AGs have started identifying their enforcement priorities. Some newly elected Democratic AGs have announced plans to investigate President Trump’s various business organizations. Others are targeting the administration’s policies. Illinois AG Kwame Raoul is challenging a recent ruling by a federal judge in Texas striking down the Affordable Care Act[, while Nevada AG Aaron Ford has indicated that he will reverse the course set by his predecessor, Republican Adam Laxalt, a staunch opponent of the ACA.

In Colorado, AG Phil Weiser, a Democrat, has outlined his intention to join a lawsuit against opioid manufacturers for allegedly misleading users as to the drugs’ addictive qualities, defend against federal overreach Colorado’s right to decide how it legislates and manages marijuana use, and protect consumers against financial scams. Minnesota AG Keith Ellison, a former Democratic congressman from the state’s 5th District, has pledged to address drug-pricing issues and allegations of anti-competitive activity in the nation’s agricultural sector. “We want to stand with Minnesotans against the big entities in this world as you are trying to make a go in this economy,” he recently told his constituents. “The middle class, I believe, is hanging on barely, and I think the attorney general ought to stand up against the fraudsters, against the monopolies, against these folks who would make your life so much more difficult to afford.”

New elected Republican AGs, for their part, are expected to continue their party’s stalwart defense of the Trump administration through the filing of amicus briefs in high-profile lawsuits challenging his executive orders and final agency actions. But they will also ramp up state enforcement actions in certain areas. For example, Ohio Republican AG Ted Yost is expected to continue his scrutiny of pharmacy benefit managers (PBMs), an industry that he focused on during his time as Ohio State Auditor.

State attorneys general will continue to combine their resources in an ever-growing number of multistate and multi-defendant investigations and civil and criminal enforcement actions, raising the stakes for both individual companies and entire industries. In addition to the issues the AGs campaigned on in the midterm elections, there’s no telling what new issues they will involve themselves in, given the unpredictability of the Trump administration. More relevant to assessing and addressing a business’s regulatory risks is understanding the scope of a particular AG’s authority, its level of activity and the political dynamics framing its choices.

As Congress returns: health care fixes

After the Senate failed to pass a version of repeal and replace in late July, Senator Lamar Alexander (R-TN), chair of the Senate Committee on Health, Education, Labor and Pensions (HELP), announced there would be bipartisan hearings in September to try to develop legislation that would address some of the problems in the individual market in state exchanges. The first week after Labor Day, the committee will hear testimony from five governors and five state insurance commissioners on how Congress can help their states. The following week, the committee will hear from other stakeholders.

It is possible that Senator Alexander, along with the committee’s top Democrat, Patty Murray (WA), could craft legislation and try to insert it into a short-term appropriations extension or some other must-pass legislative vehicle that would continue federal payments for cost-sharing subsidies and provide states with the flexibility to attempt to bring down the cost of certain health care plans.

Medicare Extenders

Absent legislative action, certain health care-related provisions will lapse on September 30, 2017, and December 31, 2017. The expiring provisions relate to Medicare, Medicaid, the joint federal-state Children’s Health Insurance Program (CHIP), and private health insurance programs and activities.

Two broad categories of programs are at risk should Congress not act. The first type provides temporary funding, such as Medicare provider payments. The second type authorizes government agencies to act.

Funding for the CHIP program will be foremost among these issues, accompanied by a batch of additional expiring provisions expected to cost around $6 billion. Among these “extenders” is the physical, occupational and speech-language pathology (SLP) therapy cap exception process created by Congress in 2006. Others include funding for community health centers, diabetes programs at the Indian Health Service, teen HIV/STD prevention, and infant and early childhood visitation programs, among others.

CHIP

Mandatory funding for the Children’s Health Insurance Program (CHIP) is scheduled to expire on September 30, 2017. Congress created the program in 1997 and it currently covers over 8 million children. CHIP gives states financial support to expand publicly funded coverage to uninsured children who are not eligible for Medicaid. As a block grant, it provides states with a set amount of funding that must be matched with state dollars. If Congress does not reauthorize the program before October 1, the federal government will no longer be able to provide its payments to states. However, it is possible for states to continue to provide CHIP coverage for another two or three months beyond the expiration date.

 

Washington’s week ahead: July 17

In the latest of a string of setbacks, ObamaCare reconciliation vote delayed in the Senate as Arizona Senator John McCain is treated for a blood clot… Don Jr., and others, met with Russian promising “very high level and sensitive information”… Approps Omnibus package gains steam – pre whip count – in House… POTUS celebrates Bastille Day in Paris with French President Macron… Federal Judge in Hawaii loosens Trump temporary travel ban… CBO says Trump ’18 budget will not balance in a decade, contrary to WH estimates… FBI nominee Wray testifies before Senate Judiciary Committee… House Appropriations Committee releases spending bill with $1.6 bill for border wall… Former FBI Director Comey signs book deal… POTUS approval rating after six months in office is the lowest of any president in the past 70 years, according to a new poll… And K Street scrambles to rebook flights out of town as Leader McConnell takes back 2 weeks of recess…

THE WEEK AHEAD:   The White House dubs this “Make in America Week”… CBO score due for repeal 2.0..House Budget Committee to mark up… House whips Approps Omni package…

POTUS:   POTUS  announced the appointment of Ty Cobb–no not that one: a veteran Washington lawyer with experience as a federal prosecutor and defense attorney–as special counsel at the White House

CONGRESS:  The House Dress Code gets an update. The conservative firebrand credited with pressuring then-Speaker John Boehner (R-Ohio) to resign in 2015 issued a warning Thursday to Senate Majority Leader Mitch McConnell (R-Ky.) and his establishment allies.. Rep. Brad Sherman (D-Calif.) formally introduced an article of impeachment against President Trump on Wednesday.

THE COURT:   Partisan map makers beware, the Supreme Court is set to take a serious look at partisan gerrymandering with a case that could jeopardize voter maps across the country and help Democrats regain control of Congress

APPROPRIATIONS:  House GOP leaders will return to Washington this week with hopes of passing a budget resolution and a 12-bill omnibus before leaving town for the August recess.

CYBER:  Major technology companies and tech advocacy organizations are banding together in a last-ditch effort to save the Federal Communication Commission’s net neutrality rules.

ENERGY:  House appropriators diverged from President Donald Trump’s budget proposal by minimizing cuts to the Interior Department and the EPA’s budget as part of the energy and water appropriations bill.

ENVIRONMENT:  The Environmental Protection Agency asked for a 52-day delay from having to enforce the Obama-era regulation for the venting and flaring of methane, a critical greenhouse gas, after a court ruled against the agency. The U.S. Court of Appeals for the District of Columbia Circuit granted a 14-day stay while the EPA considers further legal action.. A bipartisan group on the House side protected the need to study climate change as part of national security as part of the National Defense Authorization Act, striking down an amendment that opposed it.

HEALTH:  It’s unclear whether Senate Republicans have the votes to win on a key procedural motion that would allow them to debate the new healthcare bill they released on Thursday.  Here is what has changed in the new version and a look at who got what. 

RUSSIA INVESTIGATION: Trumpland lawyers up… Calls for Kushner to loser his security clearance have mounted, as congressional investigators probe whether the Trump campaign’s digital operation — run by the president’s son-in-law — coordinated efforts with Russian bots spreading fake news about Hillary Clinton.  The Federal Election Commission (FEC) is sharply divided over how the election watchdog agency should respond to Russian interference in the U.S. election as more revelations come to light about foreign meddling during 2016.

RUSSIAN SANCTIONS:  Lawmakers are growing increasingly frustrated with a series of procedural spats that are stalling new Russia sanctions in the House amid mounting concerns about Moscow’s election meddling.

TRADE:  Energy Department Secretary Rick Perry visited his counterpart in the Mexican government to discuss trade relations and cross-border electricity transmission as part of a broader discussion on North American energy strategy.

TRAVEL BAN: The Trump administration asked the Supreme Court on Friday to block a federal judge’s ruling that grandparents of U.S. citizens and refugees already being processed for resettlement are exempt from President Trump’s travel ban. 

CONFIRMATION UPDATE: Office for Regulatory Affairs  PREVIOUSLY CONFIRMED- FEMA Administrator  Deputy Secretary of State, Associate Attorney General, Deputy Secretary of Transportation,  Sec. of Air Force, FDA Commissioner, US Trade Representative Chairman of the SEC,  Sec of Agriculture, Sec of Labor   Associate Justice of the Supreme Court , Amb. To Israel  Admin of CMS, Director of National Intelligence, Sec. of HUD, Sec. of Energy, Sec of Interior,  Sec. of Treasury, OMB Director,  Attorney General, Sec. of Education, Sec of Veteran’s Affairs , EPA Administrator, Small Business Admin, Sec. of HHS, Sec. of State, Sec of Transportation, Director of CIA, Sec. of Defense, Amb. to the UN, Sec. of Homeland,  Sec. of Commerce  

PRESIDENTIAL MEMORANDUM & EXECUTIVE ORDER TRACKER:   Presidential Memoranda Cuba  Jerusalem Embassy Act  Stabilization of Iraq  Aluminum Imports    Offshore Drilling, VA Accountability, Local Control of Education, Review of Antiquities Act, Rural American Prosperity : Orderly Liquidation Authority, Financial Stability Oversight Council, Steel Imports and Threats to National Security  Executive Branch Re-Org    Travel Ban 2.0 Memo for USSS, USAG, USSHS     Fiduciary Duty RuleNational Security Council,  Defeat ISIL,   Pipeline Construction, American Pipe,  Domestic Manufacturing,  TPP, Hiring Freeze, Mexico City (Abortion), Memo to Executive Departments and Agencies  Executive Orders: North Korea   Western Balkans Cyber security    Election Integrity   Promoting Free Speech & Religious Liberty Identifying Tax Burdens, Buy American and Hire American  Principles for Reforming the Military selective Service Process  Climate,   Addiction & Opioid Crisis , Report on Trade Deficits,  Trade Enforcement Travel Ban 2.0  Regulatory Reform Task Forces,  Crime Reduction, Drug Cartels, Law Enforcement protection, DOJ Succession,  Dodd Frank,  2 for 1 Reg,    Border and Immigration Enforcement, ObamaCare, Public Safety, Expediting Environmental Review Process, Visa Restrictions

 

Where McConnell’s latest attempt to pass a health care bill stands

Senate Majority Leader Mitch McConnell’s latest attempt to pass the GOP’s health care agenda was revived this week with the release of an updated bill.

However, two Republican senators, Susan Collins of Maine and Rand Paul of Kentucky, quickly have said they would not support a procedural vote early next week that would bring the latest health care proposal to the floor. With no more votes to spare, leadership enters the weekend focused on their whip operation.

Here’s a summary of the latest round of horse trading as illustrated in the newest version of the bill:

  • CassidyMedicaid base year: latest draft allows late expansion states to only use four quarters of data for their per capita base year and not eight. Important for Louisiana.
  • MurkowskiEnhanced FMAP: latest draft includes an enhanced 100% FMAP for eligible individuals who are members of an ‘Indian tribe’, which will be helpful in multiple states, but is written to also include individuals in Alaska.
  • RubioPublic health expenditures: latest draft exempts public health expenditures from both the Medicaid per capita caps and block grant funding. A priority for Sen. Rubio considering Florida’s experience with the Zika outbreak.
  • Portman/ CapitoOpioid Funding: latest draft includes an additional $45 billion for the opioid crisis, specifically for state grants for treatment and recovery programs as well as research money into pain and addiction with respect to the crisis.
  • Corker/ Thune and several GOP SenatorsIncrease affordability: latest draft includes additional $70 billion to the Long Term Stability fund to help individuals purchase health coverage at a lower price.
  • Moderate GOPKeep some ACA taxes: Latest draft maintains two ACA taxes against high income Americans (Medicare tax on high earners and net investment tax).
  • ConservativesMarket reform: latest draft allows HSA funds to pay for insurance premiums, allow catastrophic plans to be sold on exchanges and allows subsidies to be used to buy them; Medicaid: latest draft maintains Toomey’s slower per capita cap growth rate than in house-passed bill; Cruz proposal: latest draft includes bracketed language that would allow insurers that sell ACA compliant plans (at least one gold and silver) to also offer plans off the exchange that would be exempt from several ACA insurance requirements (including pre-existing conditions, community rating and guaranteed issue) but would allow federal subsidies to be used to purchase them.

Is it enough?

  • Sens. Rand Paul and Susan Collins reiterated their opposition almost immediately after the new draft was released; therefore GOP leadership cannot afford another no vote.
  • First vote will be a procedural vote– on the motion to proceed– that is a procedural vote to start debating the House-passed bill. GOP leadership has been working with Senators emphasizing the need for a Republican-led Senate to be able to vote to get on an Obamacare repeal bill so they can start debating the contents of the legislation.

What will the Parliamentarian say?

  • This week started the official litigation with the Senate Parliamentarian where majority and minority staff are both present to argue their case as to whether provisions of the draft legislation violate the Byrd rule. The process was focused on provisions in the first CBO score and this week focused on Medicaid provisions, tax provisions and the insurance provisions in Title II of the draft.
  • What the parliamentarian said this week about the insurance provisions, the Sec. 1332 waiver changes, etc will have an impact of the politics of the bill. Will the parliamentarian strike any of the provisions that the conservatives point to as repealing parts of the Obamacare.
  • These official litigations will continue next week to include the new provisions in the latest draft, including the Cruz proposal, next week.

What will the CBO say?

  • A new CBO score is due out early next week, as early as Monday. Originally, reports suggested CBO would have two scores, one with the Cruz proposal and one without. However, since the CBO didn’t receive legislative language until too late on the Cruz proposal, it is likely the CBO will not have the time to score that part of the newly released draft.
  • Leaving GOP Leadership of having to find another official body to do the analysis of the Cruz proposal, possibly OMB or CMS.

Compare latest version of Senate GOP health bill to first attempt

Below is a summary of the discussion draft released yesterday by Senate Majority Leader Mitch McConnell with those comments in PURPLE denoting changes that were made to the prior version.

Medicaid

The Senate bill ends the ACA Medicaid expansion and starts a three-year transition period for expansion states, commencing on January 1, 2020. Expansion states are limited to those that implemented the Medicaid expansion by March 1, 2017. The three-year transition period would see the enhanced federal match for those states reduced in stages as follows:

  • 2020 — 90 percent federal match
  • 2021 — 85 percent federal match
  • 2022 — 80 percent federal match
  • 2023 — 75 percent federal match
  • 2024 (and subsequent years) — standard state matching rate

No changes to policy in latest draft.

Eligibility redeterminations:  Like the House bill, the Senate bill requires states, starting on October 1, 2017, to redetermine Medicaid eligibility every six months (or more often, if the state chooses). It also provides for a five percent enhanced federal match to help states implement this. No changes to policy in latest draft.

Optional work requirement:  The Senate bill allows states, beginning in FY 2018, to include in their Medicaid program an optional work requirement for non-disabled, non-elderly, non-pregnant individuals. There is an increased match available for implementation activities. No changes to policy in latest draft.

Medicaid and CHIP quality performance bonus payments:  The Senate bill provides for $8 billion in performance-based payments for states that report on and meet quality indicators and whose spending is below benchmarks. No changes to policy in latest draft.

Retroactive eligibility: The Senate bill reduces retroactive eligibility from 90 days to the month in which the applicant applied. The latest draft provides an exception to the reduction in retroactive eligibility for blind and disabled.

Presumptive eligibility: The Senate bill eliminates presumptive eligibility. No substantial changes to policy in latest draft.

Home and Community-Based Services demo (brand new): The latest draft of the Senate bill establishes an $8 billion, 100 percent Federal Medical Assistance Percentage (FMAP) demonstration project for 2020 through 2023 for states to provide home and community-based services payment adjustments. Priority is given to the 15 least densely populated states.

Per capita caps

The Senate bill starts the transition from the current Medicaid program to per capita caps (PCCs) in FY 2020. No changes to policy in latest draft.

Baseline:  Instead of using FY 2016 as the base year (as in the House bill), the Senate version allows the states to choose any eight consecutive fiscal quarters within the period of 2014 through 2017 to calculate an average base year. HHS may adjust the base year if it determines the state has taken actions (e.g., through supplemental payment data retroactive adjustments) to “diminish the quality of the data” used in calculating the PCCs. There are also certain exclusions from the baseline period, such as disproportionate share hospital (DSH) payment adjustments, Medicare cost-sharing, and non-expansion state provider payment adjustments. Newest draft includes a change for late expansion states that allows them to pick only four fiscal quarters instead of eight. This was a concern raised by Sen. Cassidy (R-La.) on behalf of his state.  Latest draft also excludes from the PCCs up to $5 billion in spending for public health emergencies between 2020 and 2024. This was a priority for Sen. Rubio (R-Fla.), whose state has recently been impacted by Zika outbreak.

Growth rate:  From 2020 to 2024, the Senate bases their growth rate on the medical component of the consumer price index (CPI). Starting in 2025, the growth rate will be based on the CPI for all urban consumers (CPI-U). No changes to policy in latest draft.

PCC target adjustments:  States whose expenditure targets exceed the mean by at least 25 percent will be reduced by an HHS-determined amount of between 0.5 percent and 2.0 percent. If less than the mean per-capita expenditure for all states (but not by less than 25 percent), states will receive a corresponding HHS-determined increase. Federal payments must be budget neutral. The provision does not apply to “low population density” states. No changes to policy in latest draft.

Excluded populations:  The Senate bill lists the following populations as excluded from PCCs: CHIP beneficiaries, Indian Health Service, breast and cervical cancer services-eligible enrollees, specified partial-benefit enrollees, and medically complex children. No changes to policy in latest draft.

Essential health benefits (EHBs):  Like the House-passed bill, the Senate bill sunsets Medicaid EHBs after Dec. 31, 2019. No changes to policy in latest draft.

Block grant option

Medicaid Flexibility Program:  The Senate bill, like the House bill, provides states the option beginning in FY 2020 to choose the “Medicaid Flexibility Program” instead of PCCs. The Senate bill imposes certain requirements on the states with respect to the application process, including a requirement to publish the application in the state along with at least a 30-day state notice and comment period. The Senate bill also includes required benefits and services, applies mental health and substance abuse parity and applies Medicaid rebates if outpatient drugs are covered. Premiums, deductibles and cost-sharing are permitted as long as they do not exceed 5 percent of family income. The latest draft expands the populations that states may include in the Medicaid Flexibility Program from the “other nonelderly, nondisabled, nonexpansion adult category” to also include the expansion category. Additional funds may be provided if there is a public health emergency, again a priority for Sen. Rubio.

Provisions for non-expansion states

Removes DSH cuts for non-expansion states:  The bill would remove ACA-implemented DSH allotment cuts for all non-expansion states. In addition, non-expansion states whose DSH allotments were below the national average in FY 2016 would receive an increase in their FY 2020 DSH allotment by the amount it would take to meet the FY 2016 national average. This one-time increase would not impact future calculations. The removal of DSH cuts would not apply to expansion states, whose ACA DSH cuts would stay in place. Latest draft includes a slight change in the methodology that would be used to determine states whose DSH allotments were below the national average. Latest draft clarifies that for the purpose of this provision, a non-expansion state is a state that does not cover expansion populations as of January 1, 2021 (rather than date of enactment).

Additional safety net funding for non-expansion states:  The Senate bill allows non-expansion states to provide additional “safety net” provider payments “so long as the payment adjustment to such an eligible provider does not exceed the provider’s costs in furnishing health care services” and also provides an increase in FMAP for such adjustments: 100 percent in FY 2018 through 2021 and 95 percent in FY 2022. No changes to policy in latest draft.

Other Medicaid-related provisions

Support for state response to opioid crisis:  The bill would appropriate to HHS $2 billion for FY 2018 “to provide grants to States to support substance use disorder treatment and recovery support services for individuals with mental or substance use disorders.” Latest draft boosts opioid-response funding by $45 billion to provide states grant money for treatment and recovery support services as well as research funds on addiction and pain as they relate to opioids.

Medicaid provider taxes:  Starting in FY 2021 and continuing over the next four years, the bill gradually reduces the threshold allowed for provider taxes from 6 percent in current law to 5 percent by 2025. No changes to policy in latest draft.

Planned Parenthood:  The Senate bill includes the House-passed policy defunding Planned Parenthood for one year in the Medicaid program. Also like the House-passed health bill, the Senate bill provides an additional $422 million for community health centers for one year. No changes to policy in latest draft.

Changes to the Affordable Care Act

Repeals the individual and employer mandates:  Like the House-passed health bill, the Senate bill also retroactively repeals both the individual and employer mandates, effective back to 2016. No changes to policy in latest draft.

Subsidies/tax credits

ACA subsidies:  The Senate bill continues through 2019 ACA subsidies as currently structured. Beyond 2019, the Senate bill modifies the eligibility of subsidies down from 400 percent Federal Poverty Level (FPL) to 350 percent FPL, and extends them down to 0 percent FPL from 100 percent FPL in the ACA. Also, the amount of the subsidy is based on income, age and geography, and is tied to a maximum percentage of income an individual can spend on the cost of his or her premium. No changes to policy in latest draft.

Definition of “lawful presence”:  The Senate bill makes modifications to the definition of lawful presence, such as replacing it with “qualified alien.” No changes to policy in latest draft.

Benchmark plan:  Instead of using the ACA’s second-lowest-cost silver plan as the benchmark for premium subsidies, the Senate bill defines the benchmark plan as median premium that has 58 percent actuarial value. Latest draft allows premium subsidies to be used to purchase catastrophic plans.

Small Business Tax Credit:  The Senate bill ends the small business tax credit, starting in 2020. For plans with abortion coverage, the credit ends starting in 2018. No changes to policy in latest draft.

Cost-Sharing Reduction (CSRs) Subsidies:  The Senate bill appropriates cost-sharing reduction subsidy payments for two years (through plan year 2019) and then repeals the cost-sharing subsidy program after Dec. 31, 2019. No changes to policy in latest draft.

Insurance market changes

Age rating:  Like the House bill, the Senate legislation changes age rating bands to 5:1 and would take effect for plan years beginning on or after Jan. 1, 2019. States are given the flexibility to set their own age rating bands. No changes to policy in latest draft.

MLRs:  The Senate bill sunsets the ACA’s medical loss ratio for plan years beginning on or after Jan. 1, 2019, allowing states to set their own MLR thereafter. Latest draft maintains the sunset of the MLR in 2019, and then requires states to set their own MLRs for group and individual coverage.

QHP definition:  The Senate bill specifically excludes from the definition of a “qualified health plan” (QHP) any plans that cover abortion (except for abortions “necessary to save the life of the mother” or undertaken to end “a pregnancy that is the result of an act of rape or incest”) as of Dec. 31, 2017.

1332 waivers:  The Senate makes changes to the ACA’s 1332 waiver process by allowing states to waive a variety of ACA requirements, including essential health benefits and regulations prohibiting subsidies off-Exchange. The Senate bill also removes the requirement that 1332 waivers must be budget neutral or achieve the same coverage rates as would otherwise be attained under federal law and instead requires that the waiver must not add to the federal deficit. HHS may also establish an expedited waiver approval process, if the waiver responds to “an emergency situation with respect to health insurance coverage” in the state. The Senate bill encourages states to apply by making available $2 billion in grant funding through 2019 for the application process. Latest draft adds to the description of the alternative means that a state’s application can use to meet the 1332 requirements to include “providing consumers the freedom to purchase the health insurance of their choice and increasing enrollment in private health insurance.” Latest draft also adds that the Secretary must approve the waiver unless the waiver adds to the federal deficit or is missing a required element of 1332 waivers. It also adds to the pass-through funding language those who would qualify for a reduction in the premium tax credits.

Small business health plans:  The Senate bill adds a section to include group health plans sponsored by trade associations within the definition of “small business health plan.” It establishes requirements for plan certification, sponsors, board governance and plan oversight, and includes a provision that preempts states laws that preclude issuers from offering trade association-sponsored plans. Latest draft makes changes to this section that would increase oversight of small business health plans, including certification requirements of both the plan and plan sponsors.

ACA Taxes

Cadillac tax:  Like the House bill, the Senate bill delays the Cadillac tax until 2025. No changes to policy in latest draft.

Medical device tax: Like the House-passed bill, the Senate bill repeals the 2.3 percent excise tax on medical devices. But it does so beginning in 2018, one year later than the House version. No changes to policy in latest draft.

Health insurance tax:  The Senate bill repeals the health insurance tax beginning in CY 2017. No changes to policy in latest draft.

Medicare tax:  The House-passed health bill repealed, effective January 1, 2023, the ACA’s 0.9 percent Medicare surtax on high-income earners. The prior draft of the Senate bill did as well, but the current version has removed this section, leaving the ACA Medicare surtax in place.

Net investment tax:  The prior draft of the Senate bill, like the House-passed bill, repealed the 3.8 percent net investment tax; retroactively effective January 1, 2017. The latest draft has removed this section, leaving the ACA Net Investment tax in place.

Tax on OTC medications:  The Senate bill, like the House-passed health bill, repeals the prohibition of paying for over-the-counter medicines with health savings accounts; retroactively effective January 1, 2017. No changes to policy in latest draft.

Tax on prescription medications:  The Senate bill repeals this tax effective in 2018, one year later than the effective date in the House-passed health bill. No changes to policy in latest draft.

Medicare Part D deduction:  The Senate bill repeals the ACA’s elimination of employers’ deduction for retiree drug costs; retroactively effective January 1, 2017. No changes to policy in latest draft.

Medical deduction tax:  Also known as the “chronic care tax,” it is repealed in the Senate bill retroactively effective January 1, 2017, and the medical deduction threshold is restored to its pre-ACA level of 7.5 percent. No changes to policy in latest draft.

Tanning tax:  The Senate bill repeals the ACA tanning tax effective Sept. 30, 2017. No changes to policy in latest draft.

Health savings accounts (HSAs):  The Senate bill lowers the additional tax on distributions not used for qualified medical expenses from HSAs from 20 percent increase in the ACA to a 10 percent increase, and for Archer medical savings accounts from 20 percent down to 15 percent; allows spouses each enrolled in a high-deductible health plan (HDHP) to make catch-up contributions to the same HAS; and increases maximum contributions to HSAs to the amount of the deductible and out-of-pocket limitation. The latest draft adds a provision that would allow HAS funds to be used to pay the premium of the HDHP.

Stabilization Fund

Short-term stability:  The bill would appropriate $15 billion for CY 2018 and 2019; and $10 billion for years 2020 and 2021 for CMS to fund arrangements with “health insurance issuers to assist in the purchase of health benefits coverage by addressing address coverage and access disruption and responding to urgent health care needs within States.” Funds remain available until spent. Latest draft amends purpose for funds in the short-term stability fund as noted above in red.

Long-term stability and innovation program:  The bill appropriates a total of $62 billion from CY 2019 to 2026, including $8 billion for CY 2019, $14 billion for CYs 2020 and 2021, $6 billion for CYs 2022 and 2023, $5 billion for CYs 2024 and 2025 and $4 billion for CY 2026. For CYs 2019-2021, HHS must ensure that states spend at least $5 billion each year on premium stabilization (e.g., reinsurance or high-risk pools). The Senate bill identifies a formula for redistributing unspent money among other states. Latest draft includes an additional $70 billion for the long-term stability fund, the money was added to CYs 2022-2026. The total for the long-term stability fund in the latest draft is $132 billion.

States can apply for funding for one of four purposes: (i) to establish a program or mechanism to fund high-risk individuals to purchase health coverage including by reducing premiums for those who don’t have access to coverage; (ii) to enter into arrangements with health insurance issuers to assist in the purchase of health coverage by help stabilizing premiums and promoting state health insurance market participation; (iii) to provide payments for health care providers;  and (iv) to provide health insurance coverage by funding assistance to reduce out-of-pocket costs, such as copayments, coinsurance and deductibles, of individuals enrolled in plans offered in the individual market. Starting in CY 2022, states will have to pay a specific match rate to receive 100 percent of the federal amount as follows: 7 percent for CY 2022, 14 percent for CY 2023, 21 percent for CY 2024, 28 percent for CY 2025, and 35 percent for CY 2026. Latest draft amends some of the parameters states can use the fund for, as noted above in red.

BRAND New Provisions in Latest Draft

Continuous Coverage: Latest draft includes a provision that requires that starting in 2019 a person must maintain continuous health coverage or they will be subject to a 6-month waiting period to buy health insurance in the individual market. A “gap in continuous coverage” is defined as a significant break of 63 days or longer within a 12-month period or, if applying during a special enrollment period, no creditable coverage at any point during the 60 days prior to application submission.

Catastrophic Coverage: Latest draft allows any individual to enroll in a catastrophic health plan and that those individuals would be included in the single risk pool under the ACA and as stated above allow the premium subsidy to apply to the cost of a catastrophic plan.

Sen. Ted Cruz’s proposal: Latest draft includes bracketed language (commonly referred to as the Cruz amendment) that would allow insurers who sell compliant plans (at least one gold and one silver level qualified plan on the exchange) to sell plans exempt from many of the ACA insurance requirements in off-exchange markets, starting in 2020. It would not allow ACA subsidies to be used to buy these off-exchange plans, but does allow HSA dollars to be used to pay the monthly premium for high-deductible health plans, unless the plan includes abortion coverage.

ACA provisions waived by the Cruz amendment:

  • ACA metal tiers, i.e. bronze, silver, gold
  • Community rating
  • Pre-existing conditions
  • Guaranteed issue
  • Essential health benefits
  • Cost-sharing reductions in group health market
  • MLR rebate requirement
  • Requirements around preventive health

Congress seeks elusive consensus before summer recess

Barring cancellation of a portion or all of the scheduled summer recess—an event not currently expected despite the requests of several Republican senators and House members, as well as conservative media personalities—the House, when it returns for legislative business on July 11, will be in session for only 13 days before leaving on July 28, not to return till September 5. The Senate returns a day earlier, on July 10, and is scheduled to be in session for 15 days before also leaving for summer recess on July 28 and returning on September 5.

Below is an overview of some of the matters that may receive Congressional consideration before the end of July and our assessment of their current prospects.

Health care reform legislation

Senate GOP leadership decided on June 27 to delay consideration of the Better Care Reconciliation Act (BCRA), their proposed legislation to repeal and replace Obamacare. After several GOP senators stated their opposition to the BCRA draft, Senate Majority Leader Mitch McConnell (R-KY) was short of the votes he needed to bring the bill to the Senate floor. He has now spent his 4th of July holiday on the very challenging task of threading the needle and making changes to the BCRA that can win the votes of 50 Republican Senators to bring such health care legislation to the Senate floor and pass it.

To do so, Leader McConnell must address the concerns of conservative Republican Senators who say that the current version of the BCRA does not repeal and replace enough of the Affordable Care Act. At the same time, Leader McConnell also must be responsive to those moderate Republican Senators who say, among other things, that the cuts to Medicaid under the bill ($772 billion) are far too severe.   In addition, the CBO score that the bill would result in an estimated 22 million additional uninsured persons by 2026 is an attention-grabbing headline that has stoked public opposition to the bill.

Leader McConnell wants to bring a revised repeal-and-replace bill to the floor as soon as possible after the July 4th recess   The Congressional Budget Office is currently reviewing legislative language sent by Leader McConnell and will score the fiscal impact of these potential changes to the BCRA bill. The Senate parliamentarian will also have to consider whether these proposed changes can properly be raised in a reconciliation bill. These factors are likely to push any roll call on a revised BCRA bill to the last half of July, either during the weeks of July 17 or July 24, rather than immediately after the July 4 recess.

It currently seems as if any overture that Leader McConnell makes to either the conservative or more moderate wings of his Conference in an effort to win votes for the bill threatens the willingness of the other wing to support it. The key open question is whether Leader McConnell, an extremely skilled legislative tactician and veteran horse trader, can craft a compromise that will attract enough votes from both conservative and moderate Republican Senators to get to 50 votes.

The passage, or the abandonment, of Affordable Care Act (ACA) repeal-and-replace legislation, and when these events occur, is likely to have an enormous impact on the timing, the terms, and the likelihood of success for many key elements of the Republican legislative agenda. If the status of ACA repeal-and-replace legislation is not resolved until the final week in July, it surely will delay consideration of many of the subjects that Congressional Republicans hoped to consider before leaving at the end of July for their summer recess.

FY18 budget resolution

Because adoption of a fiscal year 2018 budget resolution will vitiate the reconciliation process of the FY17 budget resolution under which ACA repeal-and-replace legislation currently is being considered, the House will not adopt an FY18 budget resolution until it is definitively determined whether ACA repeal-and-replace legislation can be enacted through use of the reconciliation process.

House Budget Committee Chair Diane Black (R-TN) has been unable to finalize a budget because conservatives are demanding huge cuts to mandatory programs, such as food stamps. No agreement presently exists on how to spread the pain of the $200 billion in mandatory spending cuts (down from $500 billion in Chairman Black’s initial draft) that are necessary to offset the cost of the additional military spending that Black proposes. Republican moderates with concerns about the budget resolution say passage of such a resolution will make it more difficult to pass tax reform. Even if the House Budget Committee manages to push through a budget resolution at some point in July, it’s unclear whether it will be able to attract enough support from Republican moderates to make it through the House.

The Tuesday Group (moderate Republicans), because of their concern about the impact of entitlement cuts, particularly to Medicaid, on the public, and their belief that these mandatory spending cuts could “imperil tax reform,” has asked House Speaker Paul Ryan to delay consideration of a budget until health care legislation is passed or abandoned so that the members have a clearer idea of what the fiscal picture looks like. They have threatened to oppose the curbs in entitlement spending unless there is a bipartisan deal to increase spending caps. At the other end of the spectrum within the House Republican Conference, Freedom Caucus members say that they will back an FY18 budget resolution only if it cuts mandatory programs, including Medicaid and food stamps. (The Freedom Caucus and the Tuesday Group each represent enough House Republicans that either group’s opposition to an FY18 budget resolution would be sufficient to bring about its defeat.)

Moderates say that the budget resolution’s proposed $621.5 billion in defense spending (not including war funds) also would violate the law by exceeding the $548 billion cap on defense spending for FY18 under the Deficit Reduction Act.

FY18 appropriations bills

The continuing struggle over ACA repeal-and-replace legislation has delayed consideration of an FY18 budget resolution. The failure to adopt an FY18 budget resolution has left the Appropriations Committees in the dark as to the overall level of resources that will be available for spending in FY18. As a result, the FY18 appropriations bills are being marked up without any section 301 overall spending limit or any section 302(b)s divvying up the overall spending limits among the various appropriations bills.

The foregoing factors have led to a backlog in the appropriations process. With only 25 legislative days remaining in the House before FY17 ends on September 30, the House Appropriations Committee has now marked up about half of the bills and has reported to the House only its version of the FY18 Military Construction and Veterans Affairs Appropriations bill. With 27 legislative days remaining in the Senate until the FY17 fiscal year expires on September 30, the Senate Appropriations Committee has yet to mark up and report to the Senate any of the FY18 appropriations bills.

This backlog has led some House Republicans to propose that some or all of the appropriations bills be packaged in a single bill to be taken up by the House before the August recess as a way to accelerate consideration of the FY18 bills. Whether the House Republican leadership elects to move forward with such an omnibus appropriations bill, the delays in the appropriations process and the inactivity to date in the Senate on appropriations bills make it highly likely that a continuing resolution will be required to fund the federal government’s operations after September 30 and avoid a government shutdown.

Debt ceiling increase

Treasury Secretary Stephen Mnuchin wants the debt ceiling raised before the summer recess and a vote on raising the debt limit may be held immediately before the long August recess if health care has been dealt with by the end of the month, though it could slip to September if Treasury offers reassurances to Hill leaders that such a timeline would work. (The Congressional Budget Office says that, currently, extraordinary measures can get Treasury to October before the debt ceiling is reached.)

Health care has to get done first says House Majority Leader Kevin McCarthy (R-CA). The unanswered question is whether a coalition of Democratic and Republican members can be mobilized to pass a “clean” debt ceiling increase or whether Congressional Republicans will attempt the far more difficult task of tying an increase in the debt ceiling to the adoption of further spending cuts.

Tax reform

Comprehensive tax reform legislation is not expected to be introduced and considered by Congress before the summer recess. The Big Six—Treasury Secretary Mnuchin, National Economic Council Director Gary Cohn, Speaker Ryan, Senate Majority Leader Mitch McConnell, House Ways and Means Committee Chairman Kevin Brady and Senate Finance Committee Chairman Orrin Hatch—have been meeting to discuss tax reform, with the goal of reaching agreement on a framework to be considered by the House and the Senate this fall.

Meanwhile, Ways and Means will hold tax reform hearings in July, with a hearing on how tax reform will help small businesses grow and create jobs already scheduled for July 13. The Senate Finance Committee, for its part, will begin considering comments it has received as a result of Chairman Hatch’s June 16 request for submissions and recommendations for tax reform (Chairman Hatch’s letter gave a deadline of July 17).

Perhaps the most significant event for tax reform in July will be how the Senate deals with health care reform, as passing or failing to pass health care legislation will directly impact both its likelihood of success and potential scope. The reconciliation process can’t be used for tax reform unless and until there is an FY18 budget resolution and an FY18 budget resolution can’t be addressed until ACA repeal-and-replace legislation is disposed of, one way or the other.

Conflict in Iraq and Syria: Debate on the 2001 Authorization of Military Force (AUMF)

On Thursday, June 29, the House Appropriations Committee approved an amendment to the FY18 Defense Appropriations Act from Congresswoman Barbara Lee (D-CA). The amendment would repeal the 2001 Authorization for the Use Of Military Force (AUMF) 240 days after enactment of the Department of Defense Appropriations bill. As of 2013, the AUMF had been invoked more than 30 times to authorize troop deployments and other military measures, including detentions at Guantanamo Bay and military trials for terrorism suspects.

According to the Congressional Research Service, the AUMF has been used more than 37 times in 14 countries to justify military action. Under Presidents George W. Bush and Barack Obama, the AUMF was used to justify the deployment of US forces to Afghanistan, the Philippines, Georgia, Yemen, Djibouti, Kenya, Ethiopia, Eritrea, Iraq and Somalia. President Obama also used it to justify military action against ISIS, a group that did not even exist when the AUMF was adopted in 2001.

While Rep. Lee’s AUMF language is expected to be stripped from the FY18 Defense Appropriations bill at some point before it becomes law, the inclusion of this language in the text of the Defense Appropriations Act, as adopted by the House Appropriations Committee, makes it likely that the House, and possibly the Senate as well, will have a debate on the relevance and propriety of the AUMF language at some point before the Defense Appropriations Act becomes law. GOP military veterans have voiced strong support for a debate on the AUMF.

Flood insurance

Authorization for the National Flood Insurance Program expires at the end of September. A dispute in the Senate Banking Committee over a privatization proposal offered by Senator Jon Tester (D-MT) is keeping the version of an NFIP reauthorization from moving forward to date in the Banking Committee.

The House version of an NFIP reauthorization is further along. On June 15 and June 21, the House Financial Services Committee approved a package of seven flood insurance bills. While the House has yet to take up these bills, the chamber is expected to vote at some point in July on a five-year reauthorization of the NFIP. That said, several members of the Louisiana delegation say that because of reductions in funding levels and several controversial privatization proposals, this package of bills currently lacks the votes to pass the House. (The National Association of Homebuilders, the National Association of Realtors and many members of Congress are said to oppose the House bill.).

Infrastructure

While many observers hoped and believed that a proposal to upgrade America’s roads, bridges and airports would be an early priority for the Trump administration—as well as one with the potential to attract bipartisan support—it now seems clear that infrastructure sits behind health care, tax reform, a debt ceiling, government funding and even an FAA reauthorization on the administration’s legislative wish list.

On June 29, with the White House still yet to unveil formal legislative text for its massive infrastructure proposal and not expected to do so until the fall, Senate Commerce Committee Chairman John Thune (R-SD) observed that congressional work on the president’s $1 trillion infrastructure package would likely slip to next year.

FAA reauthorization

The House and Senate committees of jurisdiction have marked up two separate versions of FAA reauthorization bills, the major difference being air traffic control reform. The Senate bill lacks the ATC reform language and is very similar to the comprehensive bill passed (with a bipartisan majority) in the Senate in the 114th Congress. Congressman Bill Shuster (R-PA), chair of the House Committee on Transportation and Infrastructure, wants to bring his bill to the floor in mid-July. However with the expectation of a highly contentious dispute over the ATC privatization proposal, the bill’s prospects in the House are uncertain. Meanwhile, consideration of the Senate FAA reauthorization bill may be delayed by the pendency of health care legislation in the Senate.

How the Better Care Reconciliation Act changes Section 1332 State Innovation Waivers

Section 1332 of the Affordable Care Act (ACA) permits a state to apply for a State Innovation Waiver to pursue innovative strategies for providing their residents with access to high quality, affordable health insurance through the state or federal health care marketplace. While at least 18 states have considered legislation related to the 1332 State Innovation Waiver application process, only five states (Alaska, California, Hawaii, Massachusetts and Vermont) have actually filed 1332 waiver applications with CMS under the structure setup in the ACA. And to date, HHS has only approved one (Hawaii’s) request for an Innovation waiver to waive the ACA requirement that a Small Business Health Options Program (SHOP) operate in the state.

Many health experts have contemplated the opportunity 1332 waivers may afford states, but the low take up rate during the Obama Administration limited its potential to implement innovation. With the Better Care Reconciliation Act (BCRA) released by Leader McConnell last week, the changes made to the 1332 waiver process in the Senate health bill is the Republican’s attempt to make these waivers not only more attractive to states, but also easier for them to actually opt-out of many of the ACA requirements Republicans have long bemoaned.

Due to the constraints of the budget rules imposed under reconciliation, Senate Republicans are constrained from directly making the kind of market changes to the ACA they have publicly discussed since the ACA was signed into law. So, in order to still try to deliver on those public promises, the BCRA beefs up the 1332 waivers by simplifying the process and therefore increasing the ability of states to actually opt-out of several ACA created federal regulations.

Current Section 1332 Waiver Requirements Under the ACA

Section 1332 of the ACA provides the Secretary of Health and Human Services and the Secretary of the Treasury with the discretion to approve a state’s proposal to waive specific provisions of the ACA. Specifically, the Secretaries are authorized to waive a broad array of ACA provisions related to the following:

  • Establishing qualified health plans
  • Consumer choices and insurance competition through health insurance marketplaces
  • Premium tax credits and cost sharing reductions
  • Employer mandate
  • Individual mandate

Some specific examples of ACA provisions that are allowed to be waived by 1332 under the ACA: the definition of a qualified health plan (QHP), what is an Essential Health Benefit (EHB), actuarial value requirements, requirements that exchanges must meet, premium subsidy design and eligibility requirements. However, the ACA does include an exhaustive list of requirements that any waiver application must prove that its plan will do, including:

  • Will provide coverage that is at least as comprehensive as the coverage that would be provided absent the waiver;
  • Will provide coverage and cost sharing protections against excessive out-of-pocket spending that are at least as affordable as would be available absent the waver;
  • Will provide coverage to at least a comparable number of its residents as would be provided coverage absent the waiver; and
  • Will be Federal deficit neutral.

Therefore, requiring that when a state submits an application under these ACA restrictions, it will also need to provide additional and resource intensive information, like: actuarial analyses and certifications, economic analyses, data and assumptions, targets, an implementation timeline, in order to support a state’s assertions that the waiver proposal complies with the requirements set forth above.

Trump Administration Touting 1332 Opportunities

In an effort to highlight to states that the new administration views 1332 waivers as a beneficial opportunity for them to innovate in their state markets, on March 13, 2017, Secretary Price sent a letter to state governors regarding 1332 waiver opportunities. Specifically, Secretary Price provided that State Innovation Waivers that implement high-risk pool/state-operated reinsurance programs may be an opportunity for states to lower premiums for consumers, improve market stability, and increase consumer choice. In addition to inviting states to pursue approval of waiver proposals that include high-risk pool/state-operated reinsurance programs, the Secretary encouraged states interested in applying for Section 1332 waivers to reach out to HHS and the Treasury Department for assistance in formulating an approach that meets the requirements of section 1332. , HHS in follow up even published a checklist for section 1332 State Innovation Waiver applications, including specific items applicable to high risk pool and state operated reinsurance program applications. The checklist is intended to help states pursuing section 1332 waivers as they develop and complete the required elements of the application.

The Better Care Reconciliation goes even farther

With Republican leadership in the Senate looking for ways to increase state flexibility to regulate their own insurance markets while not running afoul of the Senate budget rules, the BCRA draft suggests they have focused on using the 1332 waivers as the solution. While the BCRA does not increase the number of ACA provisions states may opt out of per a 1332 waiver, it does make several changes to the process so as to make it easier for states to apply for 1332 waiver authority. For example, the BCRA removes most of the ACA requirements that states have to meet in order to obtain a waiver, it also now directs that the Secretary must approve any complete waiver application as long as it doesn’t add to the federal deficit, it also increases the length of the waiver and restricts the ability of future administrations to cancel a waiver once it has been approved.

Specifically the BCRA would:

  • Waiver Requirements. As discussed above, currently under the ACA a waiver application must prove that it does not reduce the number of people with health coverage; not reduce the affordability of health coverage; not reduce the comprehensiveness of health coverage; and not increase the federal deficit. The BCRA effectively removes three of the four waiver requirements, thus allowing states to waive coverage, affordability and benefit requirements as long as the state plan does not add to the federal deficit. In place of the coverage, affordability and benefit requirements, the BCRA requires only that a waiver application include a description of how the proposal would “take the place” of the waived requirements as well as a description of “alternative means” for increasing access to comprehensive coverage, reducing average premiums, and increasing enrollment.
  • Deficit Neutrality. While the BCRA retains the requirement that a Section 1332 Waiver be deficit neutral, the legislation amends the requirement to provide that a waiver “not increase the Federal deficit” rather than requiring that a waiver be “budget neutral for the Federal government.”
  • State Legislative Authorization. Under the ACA, in order for a state to apply for a Section 1332 Waiver, the state must pass a law that gives the state the authority to apply for and implement an innovation waiver. However, the BCRA provides states with greater flexibility by including an option to either enact a law or execute a certification. For purposes of 1332 waiver authority, the bill defines a “certification” as “a document signed by the Governor and the State Insurance Commissioner that provides authority for state actions” under a Section 1332 waiver.
  • Secretary Discretion. The BCRA also significantly restricts the Secretaries’ discretion in approving Section 1332 Waivers. Under current law, the Secretaries “may” approve a waiver that satisfies the four statutory requirements – coverage, affordability, comprehensiveness and deficit neutrality. However, the BCRA removes that discretion and instead directs that the Secretaries “shall” approve the waiver unless it would increase the federal deficit. Therefore, the bill basically deems the waiver approved as long as it does not add to the deficit.
  • Expedited Review. The BCRA also provides the Secretaries with the authority to implement an expedited application and approval process if it is determined that an expedited process is necessary to respond to an urgent or emergency situation regarding health insurance coverage in a state. The legislation does not define what would qualify as an “emergency” or “urgent” situation.
  • Waiver Period. The BCRA extends the maximum waiver period from five years under the ACA to eight years.
  • Incentive Funds. The BCRA also includes a $2 billion fund for the next two years in order to incentivize states to apply for waivers. The funds are intended to remove the cost barrier on states imposed by the application process. The fund is to be used to give grants to states to help with the cost of submitting and implementing a Section 1332 waiver.

Looking Forward

Whether or not the BCRA, or a version of it, ultimately becomes law, we anticipate that states will increasingly take a look at the flexibilities offered in the 1332 process, especially considering the new Administration’s encouragement of states to do so. Even more so if these additional flexibilities and funds for the Section 1332 Waiver process are ultimately signed into law. We will continue to watch this space closely.