House Ways & Means Committee Issues Report on Promoting High-Value Health Care Through Flexibility for High Deductible Health Plans Act

WASHINGTON, July 27 -- The House Ways and Means Committee issued a report (H.Rpt. 115-845) on legislation (HRorS) to amend the Internal Revenue Code of 1986 to provides that a high deductible health plan may permit certain coverage up to a dollar limit without satisfaction of the minimum deductible. The report was advanced by Rep. Kevin Brady, R-Texas, on July 19.

Excerpts of the report follow:

I. SUMMARY AND BACKGROUND

A. Purpose and Summary

The bill H.R. 6301, as reported by the Committee on Ways and Means, expands access and enhances the utility of health savings accounts (HSAs) by offering health plans a certain amount of flexibility in their plan design while still maintaining eligibility for HSA contributions. This flexibility will allow insurers to offer coverage for high-value, low-cost services like telehealth, chronic disease management (e.g. diabetic testing strips), or primary care visits below the deductible.

B. Background and Need for Legislation

According to a survey of 52 health insurers conducted by America's Health Insurance Plans (AHIP), 21.8 million people were covered by a High Deductible Health Plan (HDHP) with an HSA as of January 2017. These plans and accounts are an increasingly popular option for workers, and enrollment growth shows no sign of slowing. A survey of employer-sponsored health benefits found that 17 percent of all employers offered a HDHP with an HSA in 2017 compared to 2 percent in 2005.

HSA account holders are diverse. According to WageWorks, Inc., the administrator of benefits for more than 7 million people, the median household income for an HSA accountholder is $57,060.

In addition, a JCT analysis found that of the tax returns that took an HSA deduction in 2015, 71 percent of the returns reported an income of $200,000 or less, and 28 percent reported an income of $75,000 or less. Account holders are also distributed across age groups, with nearly a third between the ages of 25-44 and another third of account holders between the ages 45-64.

Most critically, research has consistently found that such coverage, which empowers individuals and families to be more engaged health care consumers, is capable of significantly reducing health care costs. As Congress considers how to modernize and expand access to this type of consumer directed health care coverage, it is essential that such reforms preserve the structural integrity to bend the cost curve and ensure lower premiums.

H.R. 6301 allows plans to modernize the benefit in a way that promotes high-value care on the front end, without upending the underlying economic incentives. HDHPs will still empower individuals to shop around, unleashing the powers of choice and competition to lower costs and increase quality.

C. Legislative History

Background

H.R. 6301 was introduced on June 29, 2018, and was referred to the Committee on Ways and Means.

Committee action

The Committee on Ways and Means marked up H.R. 6301, "Promoting High-Value Health Care Through Flexibility for High Deductible Health Plans Act of 2018," on July 11, 2018, and ordered the bill, as amended, favorably reported (with a quorum being present).

Committee hearings

The policy issues associated with Health Savings Accounts (HSAs) and need for legislative response were discussed at three Ways and Means hearings during the 114th and 115th Congress:

Full Committee Hearing on the Tax Treatment of Health Care (April 14, 2016)

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

Subcommittee on Health Hearing on Rising Health Insurance Premiums Under the Affordable Care Act (July 12, 2016)

Subcommittee on Health Hearing on Lowering Costs and Expanding Access to Health Care through Consumer-Directed Health Plans (June 6, 2018)

II. EXPLANATION OF THE BILL

A. First Dollar Coverage Flexibility for High Deductible Health Plans

PRESENT LAW

Health savings accounts

An individual may establish a health savings account ("HSA") only if the individual is covered under a plan that meets the requirements for a high deductible health plan, as described below. In general, HSAs provide tax-favored treatment for current medical expenses as well as the ability to save on a tax-favored basis for future medical expenses. In general, an HSA is a tax-exempt trust or custodial account created exclusively to pay for the qualified medical expenses of the account holder and his or her spouse and dependents.

Within limits,1 contributions to an HSA made by or on behalf of an eligible individual are deductible by the individual. Contributions to an HSA are excludible from income and employment taxes if made by the employer. Earnings in HSAs are not taxable. Distributions from an HSA for qualified medical expenses are not includible in gross income. Distributions from an HSA that are not used for qualified medical expenses are includible in gross income and are subject to an additional tax of 20 percent. The 20-percent additional tax does not apply if the distribution is made after death, disability, or the individual attains the age of Medicare eligibility (age 65).

1For 2018, the basic limit on annual contributions that can be made to an HSA is $3,450 in the case of self-only coverage and $6,900 in the case of family coverage. (The 2018 limitation for family coverage was revised by the IRS to permit taxpayers to disregard the $6,850 limitation under the modified inflation adjustment of Pub. L. No. 115-97. Rev. Rul. 2018-27, 2018-20 I.R.B. 591, May 14, 2018.) The basic annual contributions limits are increased by $1,000 for individuals who have attained age 55 by the end of the taxable year (referred to as "catch-up" contributions).

High deductible health plans

A high deductible health plan is a health plan that has an annual deductible which is not less than $1,350 (for 2018) for self-only coverage and twice this amount for family coverage, and for which the sum of the annual deductible and other annual out-of-pocket expenses (other than premiums) for covered benefits does not exceed $6,650 (for 2018) for self-only coverage and twice this amount for family coverage.2 These dollar thresholds are subject to inflation adjustment, based on chained CPI.3

2Sec. 223(c)(2).

3Sec. 223(g).

An individual who is covered under a high deductible health plan is eligible to establish an HSA, provided that while such individual is covered under the high deductible health plan, the individual is not covered under any health plan that (1) is not a high deductible health plan and (2) provides coverage for any benefit (subject to certain exceptions) covered under the high deductible health plan.4

4Sec. 223(c)(1).

Various types of coverage are disregarded for this purpose, including coverage of any benefit provided by permitted insurance, coverage (whether through insurance or otherwise) for accidents, disability, dental care, vision care, or long- term care, as well as certain limited coverage through health flexible savings accounts.5 Permitted insurance means insurance under which substantially all of the coverage provided relates to liabilities incurred under workers' compensation laws, tort liabilities, liabilities relating to ownership or use of property, or such other similar liabilities as specified by the Secretary under regulations. Permitted insurance also means insurance for a specified disease or illness, and insurance paying a fixed amount per day (or other period) of hospitalization.6

5Sec. 223(c)(1)(B).

6Sec. 223(c)(3).

Under a safe harbor, a high deductible health plan is permitted to provide coverage for preventive care (within the meaning of section 1861 of the Social Security Act, except as otherwise provided by the Secretary) before satisfaction of the minimum deductible.7 IRS guidance provides a safe harbor of the types of coverage that constitute preventive care for this purpose.8

7Sec. 223(c)(2)(C).

8Notice 2004-23, 2004-15 I.R.B. 725 (April 12, 2004). See also Notice 2004-50, 2004-33 IRB 1 (Aug. 9, 2004); Notice 2008-59, 2008-29 I.R.B. 123 (July 21, 2008); Notice 2013-37, 2013-40 I.R.B. 293 (Sept. 30, 2013).

REASONS FOR CHANGE

The Committee believes that the provision would add value to high deductible health plans by giving such plans the flexibility to provide benefits (beyond preventive care services) up to a specified dollar cap before satisfying the plan's deductible.

EXPLANATION OF PROVISION

The provision provides that a high deductible health plan is permitted to provide certain coverage ("specified services") up to a dollar threshold for each plan year without satisfaction of the plan's minimum deductible. Thus, under the provision, a health plan will not fail to be treated as a high deductible health plan merely by reason of failing to require a deductible for specified services up to a dollar threshold for each plan year. The dollar threshold is $250 for self-only coverage (twice this amount for family coverage) for a plan year, and is subject to inflation adjustment based on chained CPI. The coverage permitted for this purpose is for services other than preventive care (to which the statutory safe harbor applies), which are identified under the terms of the plan as being services to which this plan option applies. Thus, the provision expands the rules on benefits available without satisfaction of the plan's minimum deductible that do not impact the availability of HSAs to individuals covered under a high deductible health plan.

EFFECTIVE DATE

The provision applies to plan years beginning after December 31, 2018.

III. VOTES OF THE COMMITTEE

In compliance with clause 3(b) of rule XIII of the House of Representatives, the following statement is made concerning the vote of the Committee on Ways and Means during the markup consideration of H.R. 6301, "Promoting High-Value Health Care Through Flexibility for High Deductible Health Plans Act of 2018," on July 11, 2018.

H.R. 6301 was ordered favorably reported to the House of Representatives as amended by an amendment in the nature of a substitute offered by Chairman Brady by a roll call vote of 24 yeas to 14 nays. 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. 6301, as reported.

The bill, as reported, is estimated to have the following effect on Federal fiscal year budget receipts for the period 2019-2028:

(TABLE OMITTED)

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-increasing tax provision involves no new tax expenditure.

C. Cost Estimate Prepared by the Congressional Budget Office

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. 6138, as reported. As of the filing of this report, the Committee had not received an estimate prepared by the Congressional Budget Office (CBO).

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

B. Changes in Existing Law Proposed by the Bill, as Reported

In compliance with clause 3(e)(1)(B) of rule XIII of the Rules of the House of Representatives, changes in existing law proposed 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, existing law in which no change is proposed is shown in roman):

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):

INTERNAL REVENUE CODE OF 1986

MINORITY VIEWS

H.R. 6301 Promoting High-Value Health Care Through Flexibility for High Deductible Health Plans Act of 2018

H.R. 6301 (Roskam, R-IL and Thompson, D-CA) allows insurance plans to offer limited services up to $250 before the deductible with the goal of incentivizing high-value, low-cost services (e.g., follow-up care or generic pharmaceuticals).

At the beginning of the mark up, Mr. Doggett (D-TX) offered a motion to postpone the markup in light of the fact that the legislation under consideration would put forward $92 billion of tax cuts, with no offsets identified. The Republicans defeated this motion on party lines 22-16.

H.R. 6301 does not undo sabotage, premium hikes, and benefit cuts Republicans have caused over the past 18 months. This bill was one in a series of 11 bills this Committee marked up that Republicans claim will help lower health care costs for consumers. This legislation does not undo the disruption and sabotage the Republicans have continued to inflict on the American health care system. Instead of focusing on expansion of HSAs and HDHPs, Democrats encourage the Committee to redirect its attention to legislation that could actually ensure that uninsured, low-income, and vulnerable people have real access to care. For example H.R. 5155, sponsored by Reps. Pallone, Neal, and Scott, would protect people with preexisting conditions, lower premiums for Americans, and improve affordability of health coverage.

Legislation busts the deficit to benefit the wealthy, again. Altogether, the 11 bills that were marked up would add another $92 billion in unoffset tax cuts to the deficit. Republicans' attempts to expand HSAs (and encourage more enrollment in plans with high deductibles, covering very few up-front health costs) represent a continuation of their platform of shifting families into health plans that provide fewer health benefits and higher out-of-pocket costs--while providing greater tax benefits for higher-income individuals and corporate-special interests. According to 2014 Treasury data, only five percent of families with adjusted gross income of under $100,000 held money in an HSA, and those users' average account balances were $1,700.

High Deductible Health Plans (HDHPs) and Health Savings Accounts (HSAs) do not promote healthy behavior. It is widely acknowledged that HSAs and HDHPs lead consumers to delay care. They do not encourage individuals to make better health care decisions, as Republicans' "skin in the game" talking points assert. Decades of research shows that exposure to high out-of- pocket costs leads consumers to delay or forgo both necessary and unnecessary care. Delaying care and increasing costs run counter to Democratic policy goals of better coordinated, high- value affordable care for the American family. This legislation demonstrates why high-deductible health plans in their current format do not allow consumers to see value in their health insurance.

According to the American Hospital Association, "Hospitals and health systems report that increased enrollment in HDHPs over the past several years has reduced access to care and subjected patients to costs they cannot afford. In addition, patients enrolled in HDHPs appear to delay care until they have reached their deductible or are in an emergency situation, which could lead to poorer health outcomes."

HSAs mostly benefit high-income taxpayers while doing little to help moderate-income families or the uninsured. High- income people can best afford to save for health care expenses and are, therefore, the most likely to contribute to HSAs. Higher income filers are much likelier to establish HSAs than lower income filers--70 percent of HSA contributions come from households with incomes over $100,000, according to the Joint Committee on Taxation (JCT)--and they are likelier to max out their contributions. Additionally, high-income people receive the biggest tax benefit for each dollar contributed to an HSA because the value of a tax deduction rises with an individual's tax bracket. More than 44 percent of Americans can't afford a $400 emergency visit. For these families, it is unlikely that they have excess income to devote to a tax-preferred account.

JCT estimates the cost of this bill to be $3.8 billion over 10 years. With this bill, Republicans are adding more tax cuts and increasing the deficit. Republicans are using the deficit, which they keep making larger with cuts for the wealthy, to justify the deep cuts they plan to make to Medicare and Medicaid. Republicans already are proposing to cut Medicare and Medicaid by nearly a trillion dollars to try to pay for the tax cuts they have already enacted. This bill will only increase Republicans' call for further cuts to these critical programs.

Richard E. Neal,

Ranking Member.

The full text of the report is found at: https://www.congress.gov/congressional-report/115th-congress/house-report/845/1?r=9

TARGETED NEWS SERVICE: Myron Struck, editor; 703/304-1897; editor@targetednews.com; https://targetednews.com