Welcome the 116th Congress

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“Probably the best solution for the country would be . . . bipartisan legislation that loosens the federal grip on benefit design, increases choices, covers more Americans, gives states meaningful incentives to manage their Medicaid populations, and attacks the true drivers of medical costs.”

William G. (Bill) Stuart

Director of Strategy and Compliance

Jan. 10, 2019

We’ve entered a new era last week when the 116th Congress convened Jan. 3. Democrats assumed control of the House of Representatives by a count of 235 seats to 199 (with the outcome of one election still in dispute). The Democrats’ 40-seat gain in November’s election gave them much more than merely enough votes to pass legislation in the lower chamber.

They also set the agenda through the speaker and committees – all of which they now chair. Democrats can advance any bill, stall it, or kill it before it receives a hearing in a committee of jurisdiction, never mind advances to the floor for a full vote.

Divided government often emboldens a party because the likelihood that it can pass legislation reflecting its priorities alone is small. So leaders often push legislation on issues that they think will define the next election. These bills have no chance at passage, so elected officials can cast philosophical votes without worrying that they’ll have a subsequent mess to clean up.

Recall that in 2016 the Republicans engaged in one of their few efforts to repeal the Affordable Care Act. They passed the legislation knowing that President Obama would veto it. They knew that the bill wouldn’t become law, but 2016 was an election year, and the GOP wanted to send a clear (and ultimately incorrect) message to voters: “If we retain both chambers of Congress and win the presidency, the ACA will be repealed.” The House passed a bill that amended portions of the law, but the GOP fell one vote short of passage in the Senate.

When the House turns to substantive issues, we’re likely to see efforts to amend to the Tax Cut and Jobs Act of 2017, curtail the president’s power to impose tariffs without congressional approval, and reform immigration.

Then again, we may not. Both Democrats and Republicans are positioning their parties for the 2020 presidential election. They may be reluctant to agree to any deal – even one that gives them a victory on an issue important to them – if it also gives the other party a perceived victory that it can exploit politically.

Medical Care, Coverage, and Finance

Where do medical care, coverage, and finance reform fit on the congressional agenda? Probably pretty high. The 2018 election cycle was the first since passage of the ACA in 2010 that polls showed more voters in favor of the landmark law than against. Democrats took advantage of that positive public perception by bringing up related issues during the campaign.

The new Democrats in the House fall into two categories. Some, like Alexandria Ocasio-Cortez of New York, are very left-of-center forces who favor much greater government spending and involvement in the private sector. Others are more traditional, particularly military veterans who won in districts that previously were represented by Republicans. These new members fall into the more traditional center of the political spectrum. How this dynamic influences proposed legislation is anyone’s guess, though the party’s leadership remains well left of center.

You can expect to see the following topics at the forefront of the debate:

Medicare for All. What is Medicare for All? It’s a rebranded version of government-financed medical care after consumer research found that Medicare for All polled better than single-payer health care. A number of Democrats – more than 100 in the 115th Congress – have endorsed a single-payer system. And in polls, a slight majority of Americans support the concept when the benefits alone are presented.

Medicare for All presents a dilemma for Democrats on several levels. Any single-payer proposal passed by the House won’t see the light of day in a GOP-controlled Senate. And it certainly will generate considerable opposition among insurers, pharmaceutical and device manufacturers, and providers – all of whom are major employers and political donors.

On the first day of the session, Democrats signaled that they’ll draft single-payer legislation by the end of January. Interestingly, they made no mention of action by the two House committees -Ways and Means and Energy and Commerce – with jurisdiction. Neither new incoming chair has endorsed the concept.

The path is very uncertain, and a passage is unlikely before Democrats consolidate control of the Senate and White House (and prospects are iffy even then). But merely introducing a version of single-payer may play well with some voters in the 2020 election – though it may strengthen the traditional Democratic base without expanding the party’s appeal and even generate opposition among independent voters.

Pharmaceutical prices. Expect a lot of action around this issue. It’s low-hanging political fruit. Given the dramatic price increases of existing drugs in recent years and the introduction of new drugs that are priced based on their performance (if it eliminates a $90,000 hospital stay, pricing a course of treatment at only $80,000 may seem “fair”) rather than actual development, manufacturing, and distribution costs, politicians can score points with voters by attacking Big Pharma.

The Trump administration has proposed that the federal government purchase prescriptions based on the average price of the drug in certain other developed countries – a form of price controls. Democrats are likely to support reimportation of drugs (prescriptions almost always cost less in other countries, where governments are the largest purchaser or low standards of living force manufacturers to price based on ability to pay). And they probably can pass legislation in the House to allow the federal government to negotiate prices it pays for drugs distributed through Medicare, Medicaid, and the Department of Veterans Affairs.

These efforts alone won’t change the landscape, but they could yield some bipartisan legislation to address the issue.

Cadillac Tax. Is this the Congress that finally kills the excise tax on high-premium medical plans? It’s possible but unlikely. Both Democrats (their union allies detest the law because it compromises one of the key benefits that they deliver to membership) and Republicans (businesses don’t want to be punished for offering rich benefits in a tight market for talent) oppose the 40% excise tax on premiums above a certain indexed ceiling. And both parties have supported repeated attempts to delay the tax.

The problem is that although both major parties oppose the tax, neither wants to offer its support to a true appeal without negotiating concessions from the other party. Both parties have used this issue as leverage to deal in exchange for another priority that they valued. That’s resulted in a stalemate that has delayed, but not repealed, the tax. As of now, the levy won’t go into effect until 2022.

The fiscal impact of outright repeal is a barrier as well. The parties are unlikely to agree on offsetting budget cuts or tax increases to replace the projected revenue loss associated with outright appeal.

Cost-Sharing Reduction (CSR) subsidies. The ACA offers a program to help low-income Americans manage their out-of-pocket costs. Individuals with incomes below 250% of the poverty level who enroll in Silver-level coverage (actuarial value of 70%) don’t have to pay their entire deductible and coinsurance costs. Rather, their insurer reduces their exposure and then receives a payment from the government to offset insurers’ lost revenue.

But the authors of the ACA didn’t make CSR subsidies an entitlement that didn’t require budget authorization. Instead, the program isn’t funded unless Congress explicitly appropriates funds each year. And since 2014, Congress hasn’t authorized funding. The Obama administration reimbursed insurers with funds that Congress appropriated for other activity.

Republicans in Congress took the Obama administration to the federal district court in 2016 and won a ruling declaring that the payments weren’t permitted without congressional appropriation. The judge allowed CSR subsidies to continue temporarily to give the executive branch time to present an appeal or Congress time to appropriate funds. Neither has happened.

A Senate-driven bipartisan effort in early 2017 failed to gain passage. So insurers are no longer reimbursed and have built the cost of bearing the subsidies into Silver plan premiums (the so-called “Silver loading” phenomenon that in some cases makes Gold-level plans, with an actuarial value of 80%, less costly to consumers than Silver plans).

Funding SCR subsidies isn’t likely to pass as stand-alone legislation, but a divided Congress and the need to compromise to pass legislation makes it more likely that funding the program will become part of a larger spending bill.

Other ACA repairs. Republicans must make a key strategic decision: Continue to oppose the ACA and dream of repeal, or accept it and work with Democrats to improve it.

This decision will have huge implications. The ACA isn’t sustainable in its current form, as both Democrats and Republicans understand. Probably the best solution for the country would be to repeal the ACA and replace it with bipartisan legislation that loosens the federal grip on benefit design, increases choices, covers more Americans, gives states meaningful incentives to manage their Medicaid populations, and attacks the true drivers of medical costs.

Although the prospects for a genuine bipartisan replacement have been dim, a recent court case may provide a spark for change. In 2012, the Supreme Court was asked to rule on the constitutionality of forcing Americans to purchase medical coverage or face a penalty (the individual mandate). The Obama administration argued that this provision was permitted under the Constitution’s commerce clause (which gives Congress authority to regulate commercial transactions). Five of the nine justices ruled against that argument. But Chief Justice Roberts then revived an argument that the Obama administration had rejected, claiming the mandate was constitutional under Congress’s power to tax since the penalty took the form of a tax.

Then, in late 2017, Congress passed the Tax Cut and Jobs Act of 2017. This legislation didn’t repeal the individual mandate, but it set the penalty at zero, thus eliminating any government revenue from individuals’ failure to purchase insurance.

Last year, 20 states filed a lawsuit in federal district court in Texas claiming that since the penalty generated no tax revenue, the individual mandate no longer could be defended constitutionally under Congress’s power to tax. And since the Obama administration had argued in 2012 that the individual mandate was an essential component of the law, without which the ACA was unsustainable, the entire ACA was thus unconstitutional.

That case is now on appeal and likely to end up at the Supreme Court in 2020. House leaders recognize the threat. One of the chamber’s first actions, when the session convened, was to pass a resolution that includes a provision giving Speaker Pelosi the authority to intervene on behalf of the House (see Title III at the end of H. Res. 6 here). And the speaker singled out this issue in remarks at the close of the first day of the session.

Many observers think it’s unlikely that the ACA will ultimately be declared unconstitutional. But the threat may be enough to spur members of Congress to sit down and design a better system. Or maybe not.

There’s one thing that we can predict with confidence: It’s impossible to predict what politicians will do.

What We’re Reading

The Kaiser Family Foundation has studied the effect that the Texas court decision, referred to above, would have if the ACA is ultimately declared unconstitutional and no new law replaces it.

Kiplinger offers some very useful tips on how to manage your HSA.

And speaking of managing your HSA, do you follow me on LinkedIn? If so, you see my weekly HSA Wednesday Wisdom column in which I share tips of managing your account. Here’s a recent example.

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