Editor’s note: This post has been edited to correct the change in effective dates for the ACA “Cadillac” tax. The effective date for this tax has been delayed from 2018 to 2020, not from 2017 to 2019 as originally stated.
Late in the day on December 15, 2015, House Republicans released the $1.1 trillion Consolidated Appropriations Act for 2016 and a $650 billion tax extenders package. The legislation embodies an agreement among Congressional leaders that will keep the government open through September 2016.
Effects On The ACA
The legislation delays taxes enacted to fund the ACA and limits the effectiveness of some of the ACA’s operational provisions. The bills do not, however, fundamentally change the ACA, although a continued restriction on risk corridor funding included in the legislation could reduce insurer participation in the marketplaces and raise prices for consumers.
‘Cadillac’ Tax Delayed
First, the spending bill would delay for two years from 2018 to 2020 the effective date of the excise tax on high-cost employer-sponsored coverage (the “Cadillac plan tax”). This delay has received strong support both from Republicans who oppose the ACA generally and from Democrats who are concerned about the effect of the tax on employee benefits, particularly benefits provided union members who have bargained for more generous health benefits in lieu of other forms of compensation. The excise tax was intended to be a significant source of revenue for funding the ACA, and delaying it for two years reduces the amount of revenue raised by the ACA. The excise tax is also a significant element of the ACA’s cost control strategy, as it is believed that the tax imposes on employee benefits will in turn reduce those benefits and thus expenditures on health care.
The bill not only delays the effect of the excise tax, it also repeals a provision of the ACA that provided that the excise tax is not deductible as a business expense. This should have the effect of significantly reducing the effect of the tax even if and when it goes into effect. The bill also requires a study of the appropriateness of the age and gender adjustments under the excise tax. The current excise tax provision allows for adjustment upwards of the dollar threshold at which the tax attaches for specific employers based on the age and gender composition of those employers’ workforce.
This provision bases the adjustment, however, on experience in the federal employee Blue Cross Blue Shield Standard Option plan. The average age of federal workers is about four years older than the general workforce, so these adjustments are likely to underestimate the actual differences that age has on the cost of coverage for specific employers. The spending bill requires the Comptroller General, assisted by the National Association of Insurance Commissioners, to consider more suitable options for adjustments.
Employers have been since the enactment of the ACA justifying increases in employee cost sharing and cuts in employee benefits based on the impending implementation of the tax. Whether cost sharing will be reduced or benefits increased with the delay of the tax remains to be seen. If the delay of the tax is seen, however, as an indication that it will in fact finally be repealed and never go into effect—as is in fact likely given the opposition to the tax across the political spectrum—the spending bill provision may in fact have an effect on employee benefits going forward.
Moratoriums On Health Insurance Provider Fee, Medical Device Tax
A second provision imposes a moratorium for one year, 2017, on the collection of the ACA’s annual health insurance provider fee. This tax on health insurers has already been in effect since 2013 and will go back into effect for 2018. The moratorium will result in a loss in revenue to the federal government of about $12 billion. Health insurers claim that the tax increases premiums by $170 per individual and $530 per family. If state regulators or competitive conditions compel insurers to reduce their rates for 2017 by these amounts, this provision could be a real gain for consumers. It is possible, however, that this provision will simply increase insurer profits as it decreases federal government revenues.
The same is true for the medical device tax, which the tax extenders bill eliminates for 2016 and 2017. This tax was imposed on medical device manufacturers by the ACA, as they were expected to see increased revenue because of expanded coverage under the ACA. A recent GAO report has found that profits and sales of medical device manufacturers have in fact continued to increase after the imposition of the tax. Medical device manufacturers are located throughout the country, however, and have a powerful lobby. Even some liberal Democrats have opposed the tax. The moratorium will reduce federal revenues by about $2 billion a year for two years.
Although the tax delays are being billed as legislative defeats for the ACA, it is important to note that they do not delay or undermine any of the substantive benefits of the ACA. The ACA’s Medicaid expansions and tax subsidies are supported by permanent appropriations (although the question of whether or not the cost-sharing reduction payments are appropriated permanently is now being litigated in House v. Burwell). The tax delays do not affect these benefits, they simply increase the federal budget deficit.
Risk Corridor Funding Remains Limited
There are provisions of the spending bill that do affect the implementation of the ACA, however. The spending bill would once again limit funding of the risk corridor program to the fees that the program collects from insurers that have excess profits. It is likely that this will again mean, as it did for 2014 payments in 2015, that the payments required by the law to insurers with excess losses will not be fully funded. In 2015 this was a contributing cause to a number of small insurers going out of business. To the extent that the cuts in the risk corridor program reduce competition in health insurance markets or increase the risks born by insurers, this provision will increase the cost of health insurance. The risk corridor program has become an election-year political issue, however, and limitations on the program were inevitable.
No IPAB In 2016
The spending bill also effectively defunds the Independent Payment Advisory Board for 2016. The IPAB was supposed to be a panel of experts that would recommend spending cuts if Medicare spending was predicted to exceed certain limits. Medicare spending has not yet exceeded these targets and the IPAB has not yet been established. Presumably it will not be established during 2016, but the ACA gives the HHS Secretary authority to take action for the IPAB if it cannot make recommendations so this might not make much difference.
Other ACA-Related Provisions
The remaining ACA provisions of the spending bill impose restrictions and reporting requirements on various ACA programs. Several provisions require detailed public reporting of expenditures under the ACA’s Prevention and Public Health Fund and limit transfers of funds under that program. The explanatory statement issued with the bill requires that the money appropriated for this fund to be spent on specific public health programs. The bill also prohibits expenditures from this fund for lobbying, including lobbying for gun control, for tax increases, or for restrictions on consumer products.
Another spending bill provision requires reporting in the 2017 fiscal year budget and on the web of information concerning the employment of full-time equivalent employees and contractors for the purposes of implementing, administering, enforcing, or carrying out provisions of the ACA for 2016, and for each fiscal year since the ACA’s enactment. The report is supposed to identify the section of the ACA under which funds were appropriated; the program, project, or activity receiving such funds; the federal office administering the program; the amount of funding received under discretionary and mandatory appropriations; and the number of full-time equivalent or contracted employees assigned to each of the programs.
The spending bill further requires HHS to publish, as part of the 2017 budget, detailed information regarding funds used for the health insurance exchanges for 2017 and for each year since the enactment of the ACA. The explanatory statement sets out the information that must be included in this report and also requires the HHS Inspector General to ensure that states are not using federal grants to fund operations after 2015. HHS must also provide the House and Senate Appropriations Committee with detailed figures on monthly marketplace enrollment and enrollments during the open enrollment periods, as well as information on new or competitive grant awards to federal community health centers. This information is supposed to be provided to the committees at least two days before its public release.
The explanatory statement instructs the GAO to review the coordination between HHS and the IRS to ensure that tax subsidies are not paid improperly under the ACA. It also asks CMS to explain why insurers are allowed to refuse to accept third-party payments for health insurance premiums from non-profit organizations. Finally, HHS is supposed to include the in the 2017 budget justification an analysis of how the preventive services coverage requirement of the ACA affects eligibility for discretionary HHS programs.
ACA program expenses will presumably continue to be funded through the $3.7 billion CMS program administration budget. The bills specifically prohibits the expenditure of an additional $305 million appropriated for Medicare program management or $290 million appropriated for IRS customer service for supporting ACA programs.
Marketplace Deadline For January 1 Coverage Extended
December 15, 2015, was supposed to be the final day that individuals could enroll through the federally facilitated marketplace for coverage effective January 1, 2016. Because interest in the program has overwhelmed the capacity of the marketplace to process applications, the deadline has been extended to 11:59 p.m. on December 17. At one point on the evening of December 14 there were 185,000 consumers shopping simultaneously on the website and numbers on December 15 were reported even higher. Individuals unable to get through at the website or call center can leave contact information to ensure their place in line and will be contacted by the marketplace. Over a million individuals have already done so.
Several state marketplaces have also extended the deadline for coverage for January 1. Open enrollment, of course, continues through January 31, 2016.