House Ways & Means Committee Issues Report on Broader Options for Americans Act

WASHINGTON, June 10 -- The House Ways and Means Committee issued a report (H.Rpt. 115-160) on legislation (H.R. 2579) to amend the Internal Revenue Code of 1986 to allow the premium tax credit with respect to unsubsidized COBRA continuation coverage. The report was advanced by Rep. Kevin Brady, R-Texas, on June 2.

Excerpts of the report follow:

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

The bill, H.R. 2579, as reported by the Committee on Ways and Means, amends section 214 of H.R. 1628, the American Health Care Act of 2017, as passed by the House of Representatives on May 4, 2017, which provides a tax credit under the Internal Revenue Code ("Code")1 for the purchase of health insurance in the individual market, so that the credit is available also with respect to unsubsidized COBRA continuation coverage under an employer-sponsored health plan.

1All section references herein are to the Internal Revenue Code of 1986, as amended, unless otherwise stated.

B. Background and Need for Legislation

Under section 214 of the American Health Care Act of 2017, effective for months beginning after December 31, 2019, in taxable years ending after that date, individuals who purchase health insurance in a State individual insurance market may receive a refundable tax credit. Under the rules for COBRA continuation coverage, an individual may continue to receive coverage under an employer-sponsored health plan after an event that would otherwise end coverage, such as a termination of employment. Although employers generally subsidize the cost of health coverage for active employees, employer subsidies generally are not provided to individuals receiving COBRA continuation coverage. Instead, the individual must pay the full cost of the COBRA coverage. The bill amends the American Health Care Act of 2017 to allow such an individual to receive the refundable tax credit with respect to unsubsidized COBRA continuation coverage.

On March 8, 2017, in fulfillment of the reconciliation instructions included in section 2002 of the Concurrent Resolution on the Budget for Fiscal Year 2017 (S. Con. Res. 3), the Committee marked up Budget Reconciliation Legislative Recommendations Relating to Repeal and Replace of Health- Related Tax Policy. This submission allowed eligible individuals to receive the refundable tax credit with respect to unsubsidized COBRA continuation coverage. However, that language was later removed at the Committee on Rules in order to comply with Senate guidance regarding the Reconciliation process.

C. Legislative History

Background

H.R. 2579 was introduced on May 19, 2017, and was referred to the Committee on Ways and Means.

Committee action

The Committee on Ways and Means marked up H.R. 2579, the Broader Options for Americans Act, on May 24, 2017, and ordered the bill, as amended, favorably reported (with a quorum being present).

Committee hearings

Since the 112th Congress, the Committee on Ways and Means and its subcommittees have held a number of hearings on health reform that explored various parts of the health system and informed policy contained in the American Health Care Act. These hearings include:

March 5, 2013--Hearing on Tax-Related Provisions in the President's Health Care Law

December 4, 2013--Hearing on the Challenges of the Affordable Care Act

March 14, 2016--Hearing on the Tax Treatment of Health Care

May 17, 2016--Member Day Hearing on Tax- Related Proposals to Improve Health Care

II. EXPLANATION OF THE BILL

A. Premium Tax Credit Allowed With Respect to Unsubsidized COBRA Continuation Coverage

PRESENT LAW

Premium assistance credit

A refundable tax credit ("premium assistance credit") is provided for eligible individuals and families to subsidize the purchase of health insurance plans through an American Health Benefit Exchange ("Exchange"), referred to as "qualified health plans."2 In general, advance payments with respect to the premium assistance credit are made during the year directly to the insurer.3 However, eligible individuals may choose to pay their total health insurance premiums without advance payments and claim the credit at the end of the taxable year.

2Sec. 36B, effective for taxable years ending after December 31, 2013. Under the Affordable Care Act, an American Health Benefit Exchange is a source through which individuals can purchase health insurance coverage. As used herein, the Affordable Care Act (or "ACA") refers to the combination of the Patient Protection and Affordable Care Act ("PPACA"), Pub. L. No. 111-148, and the Healthcare and Education Reconciliation Act of 2010 ("HCERA"), Pub. L. No. 111-152. Qualified health plan is defined in PPACA section 1301.

3PPACA sections 1411-1412 provide rules relating to eligibility for and receipt of advance payments.

The premium assistance credit is generally available for individuals (single or joint filers) with household incomes between 100 and 400 percent of the Federal poverty level ("FPL") for the family size involved.4 Household income is defined as the sum of: (1) the individual's modified adjusted gross income, plus (2) the aggregate modified adjusted gross incomes of all other individuals taken into account in determining the individual's family size (but only if the other individuals are required to file a tax return for the taxable year). Modified adjusted gross income is defined as adjusted gross income increased by: (1) any amount excluded from gross income for citizens or residents living abroad,5 (2) any tax- exempt interest received or accrued during the tax year, and (3) the portion of the individual's social security benefits not included in gross income.6 To be eligible for the premium assistance credit, individuals who are married must file a joint return. Individuals who are listed as dependents on a return are not eligible for the premium assistance credit.

4Federal poverty level refers to the most recently published poverty guidelines determined by the Secretary of Health and Human Services. Levels for 2017 and previous years are available at https:// aspe.hhs.gov/prior-hhs-poverty-guidelines-and-federal-register- references.

5Sec. 911.

6Under section 86, only a portion of an individual's social security benefits are included in gross income.

COBRA continuation coverage requirements

Employer-sponsored health plans (referred to as "group health plans"7) generally are required to offer an employee, spouse or dependent child covered by the plan the opportunity to continue coverage under the plan for a specified period of time after the occurrence of certain events that otherwise would have terminated the coverage ("qualifying events").8 These continuation coverage requirements are often referred to as "COBRA continuation coverage" or "COBRA" requirements.9 The premium charged an individual for COBRA continuation coverage cannot exceed 102 percent of the "applicable premium," that is, it cannot exceed 102 percent of the cost to the plan of providing coverage to a similarly situated individual who has not experienced a qualifying event. In the case of a failure to comply with the COBRA continuation coverage requirements under the Code, an excise tax may apply to the employer maintaining the group health plan or, in the case of a multiemployer group health plan, to the plan.

7A group health plan may include a health flexible spending arrangement, under which medical care expenses of an employee (and family members, if applicable) that are not covered by insurance may be paid or reimbursed.

8Sec. 4980B. Section 4980B(d) provides exceptions for plans maintained by employers with fewer than 20 employees, plans of governmental employers, and church plans.

9The COBRA requirements were originally enacted as part of the Consolidated Omnibus Budget Reconciliation Act of 1985, Pub. L. No. 99- 272.

COBRA continuation requirements generally apply also under the Employee Retirement Income Security Act of 1974 ("ERISA") to group health plans covering employees of private employers, other than church plans, and under the Public Health Service Act ("PHSA") to group health plans covering State or local government employees. Similar requirements (referred to as "temporary continuation coverage" or "TCC") apply with respect to coverage under the Federal Employees Health Benefit Program ("FEHBP").10 In addition, some State laws apply similar continuation coverage requirements with respect to employer-sponsored health plans. In some cases, church plans provide for similar continuation coverage, regardless of whether legally required.

105 U.S.C. sec. 8905a.

Responsibility for the administration of an employee benefit plan, including a group health plan, generally lies with the plan administrator. Plan administrator is defined as the person specifically designated as plan administrator by the terms of the plan, or, in the absence of a designation, (1) in the case of a plan maintained by a single employer, the employer, (2) in the case of a plan maintained by two or more employers or jointly by one or more employers and one or more employee organizations, the association, committee, joint board of trustees, or other similar group of representatives of the parties who maintained the plan, or (3) in any other case, the person prescribed by regulations.11

11Sec. 414(g). In some cases, a plan sponsor or plan administrator may contract for administrative services by a separate service provider, often referred to as a third-party administrator or "TPA." However, a TPA does not necessarily assume the legal status of plan administrator.

THE AMERICAN HEALTH CARE ACT OF 2017

The American Health Care Act of 2017, as passed by the House of Representatives on May 4, 2017 (the "AHCA"), amends various health-related provisions of the Code.12 Effective for months beginning after December 31, 2019, in taxable years ending after that date, the AHCA replaces the present-law premium assistance credit with a new credit and provides a new definition of "qualified health plan" to which the new credit applies.13 Under the AHCA, qualified health plan means health insurance coverage14 that is offered in the individual health insurance market within a State and that meets certain other requirements.15 In order for an individual to be eligible for the new credit, the health insurance coverage must be certified by the State in which the insurance is offered as meeting the qualified health plan requirements.16 A State certification will not be taken into account for this purpose unless the certification is made available to the public and meets such other requirements as the Secretary of the Treasury ("Secretary") may provide.17

12H.R. 1628, as passed by the House of Representatives on May 4, 2017.

13AHCA section 214. AHCA sections 201 and 202 amend the present- law premium assistance credit for periods before the new credit becomes effective.

14Health insurance coverage is defined in section 9832(b) and means benefits consisting of medical care (provided directly, through insurance or reimbursement, or otherwise) under any hospital or medical service policy or certificate, hospital or medical service plan contract, or health maintenance organization contract offered by a health insurance issuer. Health insurance issuer means an insurance company, insurance service, or insurance organization (including a health maintenance organization) that is licensed to engage in the business of insurance in a State and which is subject to State law regulating insurance. A group health plan is not a health insurance issuer.

15Section 36B(f) as amended by AHCA section 214.

16Section 36B(d)(1) as amended by AHCA section 214.

17Section 36B(g)(8) as amended by AHCA section 214.

REASONS FOR CHANGE

COBRA continuation coverage provides a transition period during which an individual can continue, under an employer's health plan, to receive the same coverage and care from the same providers, rather than immediately having to research and enroll in coverage available from another source. However, individuals enrolled in COBRA coverage generally do not receive an employer subsidy for the cost of the coverage and must instead pay the entire cost themselves. Such cost may make it difficult for the individual to afford COBRA continuation coverage. The Committee therefore wishes to facilitate the purchase of COBRA continuation coverage by expanding the AHCA credit to apply with respect to unsubsidized COBRA coverage.

EXPLANATION OF PROVISION

The provision amends the definition of qualified health plan under the provision of the AHCA relating to the new premium assistance credit to include unsubsidized COBRA continuation coverage. For this purpose, COBRA continuation coverage generally means continuation coverage provided under the Code, ERISA, the PHSA, or the FEHBP. It also includes coverage under a State law or program that provides comparable continuation coverage and continuation coverage under a church plan that is comparable to COBRA coverage. It does not include coverage under a health flexible spending arrangement. Unsubsidized COBRA continuation coverage means COBRA continuation coverage, the payment of the applicable premiums for which is solely the obligation of the taxpayer. In the case of COBRA continuation coverage, the plan administrator of the group health plan must certify that the coverage meets the qualified health plan requirements, and the certification must meet requirements provided by the Secretary.

EFFECTIVE DATE

The provision is contingent on enactment of the AHCA and will apply (if at all) to months beginning after December 31, 2019, in taxable years ending after that date.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the Rules of the House of Representatives, the following statement is made concerning the vote of the Committee on Ways and Means in its consideration of H.R. 2579, the "Broader Options for Americans Act," on May 24, 2017.

The legislation was ordered favorably transmitted to the House of Representatives as amended by a roll call vote of 23 yeas and 15 nays (with a quorum being present). The vote was as follows:

(TABLE OMITTED)

IV. BUDGET EFFECTS OF THE BILL

A. Committee Estimate of Budgetary Effects

In compliance with clause 3(d) of rule XIII of the Rules of the House of Representatives, the following statement is made concerning the effects on the budget of the bill, H.R. 2579, as reported.

The bill, as reported, is estimated to have no effect on Federal fiscal year budget receipts for fiscal years 2017-2027.

Pursuant to clause 8 of rule XIII of the Rules of the House of Representatives, the following statement is made by the Joint Committee on Taxation with respect to the provisions of the bill amending the Internal Revenue Code of 1986: The gross budgetary effect (before incorporating macroeconomic effects) in any fiscal year is less than 0.25 percent of the current projected gross domestic product of the United States for that fiscal year; therefore, the bill is not "major legislation" for purposes of requiring that the estimate include the budgetary effects of changes in economic output, employment, capital stock and other macroeconomic variables.

B. Statement Regarding New Budget Authority and Tax Expenditures Budget Authority

In compliance with clause 3(c)(2) of rule XIII of the Rules of the House of Representatives, the Committee states that the bill involves no new or increased budget authority. The Committee further states that the revenue provisions of the bill do not increase or decrease tax expenditures.

C. Cost Estimate Prepared by the Congressional Budget Office

In compliance with clause 3(c)(3) of rule XIII of the Rules of the House of Representatives, requiring a cost estimate prepared by the CBO, the following statement by CBO is provided.

U.S. Congress,

Congressional Budget Office,

Washington, DC, June 1, 2017.

Hon. Kevin Brady,

Chairman, Committee on Ways and Means,

House of Representatives, Washington, DC.

Dear Mr. Chairman: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2579, the Broader Options for Americans Act.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Mark Booth.

Sincerely,

Keith Hall, Director.

Enclosure.

H.R. 2579--Broader Options for Americans Act

H.R. 2579 would amend certain health-related provisions of the Internal Revenue Code, contingent upon enactment of the American Health Care Act of 2017 (AHCA). Under current law, employment-based health plans are generally required to offer employees and their families the option to continue coverage, without any subsidy from the employer, for a period of time following certain events that would have terminated the coverage, such as the employee no longer working for the employer. Under AHCA, the premium assistance tax credit allowed under current law would be replaced by a new credit and a new definition of qualified health plans to which the new credit would apply. H.R. 2579 would amend provisions of AHCA to include unsubsidized continuation coverage under the new definition of qualified health plans, allowing people covered by such a plan to receive the new credits.

Because the effects of the bill would be contingent upon enactment of subsequent legislation, the staff of the Joint Committee on Taxation estimates that the bill would in isolation have no effect on revenues or direct spending relative to current law; therefore pay-as-you-go procedures do not apply. However, if the American Health Care Act of 2017 was enacted prior to this legislation, then relative to the new law the enactment of this bill could affect revenues or direct spending and, as a result, subsequent estimates of the effects of this legislation could change.

CBO and JCT estimate that enacting the bill would not increase on-budget deficits or net direct spending by more than $5 billion in any of the four 10-year periods beginning in 2028.

JCT has determined that the bill contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act.

The CBO staff contact for this estimate is Mark Booth. The estimate was approved by John McClelland, Assistant Director for Tax Analysis.

V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE

A. Committee Oversight Findings and Recommendations

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the Committee advises that the findings and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated into the description portions of this report.

B. Statement of General Performance Goals and Objectives

With respect to clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the Committee advises that the bill contains no measure that authorizes funding, so no statement of general performance goals and objectives for which any measure authorizes funding is required.

C. Information Relating to Unfunded Mandates

This information is provided in accordance with section 423 of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104- 4).

The Committee has determined that the bill does not contain Federal mandates on the private sector. The Committee has determined that the bill does not impose a Federal intergovernmental mandate on State, local, or tribal governments.

D. Applicability of House Rule XXI 5(b)

Rule XXI 5(b) of the Rules of the House of Representatives provides, in part, that "A bill or joint resolution, amendment, or conference report carrying a Federal income tax rate increase may not be considered as passed or agreed to unless so determined by a vote of not less than three-fifths of the Members voting, a quorum being present." The Committee has carefully reviewed the bill and states that the bill does not involve any Federal income tax rate increases within the meaning of the rule.

E. Tax Complexity Analysis

Section 4022(b) of the Internal Revenue Service Restructuring and Reform Act of 1998 ("IRS Reform Act") requires the staff of the Joint Committee on Taxation (in consultation with the Internal Revenue Service and the Treasury Department) to provide a tax complexity analysis. The complexity analysis is required for all legislation reported by the Senate Committee on Finance, the House Committee on Ways and Means, or any committee of conference if the legislation includes a provision that directly or indirectly amends the Internal Revenue Code of 1986 and has widespread applicability to individuals or small businesses.

Pursuant to clause 3(h)(1) of rule XIII of the Rules of the House of Representatives, the staff of the Joint Committee on Taxation has determined that a complexity analysis is not required under section 4022(b) of the IRS Reform Act because the bill contains no provisions that amend the Internal Revenue Code of 1986 and that have "widespread applicability" to individuals or small businesses, within the meaning of the rule.

F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff Benefits

With respect to clause 9 of rule XXI of the Rules of the House of Representatives, the Committee has carefully reviewed the provisions of the bill and states that the provisions of the bill do not contain any congressional earmarks, limited tax benefits, or limited tariff benefits within the meaning of the rule.

G. Duplication of Federal Programs

In compliance with Sec. 3(c)(5) of rule XIII of the Rules of the House of Representatives, the Committee states that no provision of the bill establishes or reauthorizes: (1) a program of the Federal Government known to be duplicative of another Federal program, (2) a program included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111-139, or (3) a program related to a program identified in the most recent Catalog of Federal Domestic Assistance, published pursuant to section 6104 of title 31, United States Code.

H. Disclosure of Directed Rule Makings

In compliance with Sec. 3(i) of H. Res. 5 (115th Congress), the following statement is made concerning directed rule makings: The Committee advises that the bill requires no directed rule makings within the meaning of such section.

VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, and existing law in which no change is proposed is shown in roman):

VII. DISSENTING VIEWS

H.R. 2579 (Tiberi, R-OH) amends H.R. 1628, the American Health Care Act (AHCA), to allow people to receive tax credits for Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA) coverage if they have elected their COBRA coverage upon separation from employment and are paying the entire premium out of pocket. H.R. 2579 amends a bill that has not yet passed the Senate or become law.

COBRA requires employers to offer eligible employees who lose their health benefits due to a qualifying event (e.g., loss of a job) to continue group health insurance benefits for up to 18 months at the employee's own cost. Under COBRA, an individual pays the full cost of the premiums plus a two percent (2%) administrative fee. Most individuals eligible for COBRA do not select this coverage option because of the high, unsubsidized cost at a time when income is often declining. Prior to the Affordable Care Act (ACA) market reforms, COBRA was important for individuals leaving a job who were often unable to access affordable individual market health insurance because of pre-existing conditions and underwriting. While COBRA remains important for some families, because individuals separating from their employers have had access to coverage in the individual market without concerns about underwriting, pre- existing condition discrimination or outright denial of coverage, coupled with the availability of premium subsidies, COBRA coverage has declined in importance.

Under current law, individuals separating from their employer may be eligible for financial assistance to purchase coverage through the ACA exchanges. The advanced premium tax credits are adjusted for the cost of the insurance, as well as income. Individuals who separate from their employer and are eligible for unsubsidized COBRA are eligible for premium tax credits for marketplace plans as they no longer have an offer of employer-sponsored coverage.

H.R. 2579 does not address the underlying harm and inadequacies in the AHCA. H.R. 2579 does nothing to improve the inadequate tax credits under AHCA, which are unlikely to provide meaningful assistance for the individual market or for COBRA plans. AHCA also repeals the cost-sharing assistance that helps Americans afford the out-of-pocket costs associated with medical visits. AHCA allows insurance companies to discriminate against older workers by charging five times or more what they charge younger people; the result is lower quality coverage and higher out of pocket costs for older Americans by nearly 70 percent. Middle-class families could be particularly hard hit by this bill, while millionaires and billionaires would get a tax cut.

Potential for harm of employer group health insurance risk pools. The underlying Republican bill, AHCA, passed without a hearing or any opportunity for public comment. Employer and their current employees and retirees could be negatively impacted by this proposal as it could encourage older sicker workers to remain in the risk pool for longer periods of time. For a large employer this might not present a burden, but for a smaller employer, retaining former employees on the insurance plan could increase premiums. However, the Committee does not know whether this is the case because the proposal was not examined prior to Committee action.

H.R. 2579 is another Republican attempt to distract from the underlying problems with the AHCA. The AHCA would cause 23 million Americans to lose health insurance coverage, erode important consumer protections and raise costs for countless more Americans. Higher costs and less coverage. All the while the AHCA provides a huge tax giveaway to the wealthiest. In fact, the 400 wealthiest Americans would get a $7 million tax cut every year. The Republicans put billionaires ahead of working families, and H.R. 2579 does nothing to fix the underlying bill's significant problems. For these reasons we oppose the AHCA, H.R. 2579, and any amendments that do not address the underlying problems with the legislation.

Richard E. Neal,

Ranking Member.

The full text of the report is found at: https://www.congress.gov/congressional-report/115th-congress/house-report/160/1?r=1

Myron Struck, editor, Targeted News Service, Springfield, Va., 703/304-1897; editor@targetednews.com; http://www.targetednews.com