Law360, (July 31, 2018)
On July 24, the House passed a series of tax-related health care bills, repealing the medical device tax and expanding the scope of Health Savings Accounts. The lower chamber's consideration of these bills comes
at a time when health care is an increasingly contentious issue.
Since the GOP's failed attempt to repeal the Affordable Care Act last year and the elimination of the individual mandate in the Tax Cuts and Jobs Act, Republicans and Democrats have struggled to find common ground on health care issues, instead playing a dangerous game of hot potato, passing blame back and forth. Though both parties have attempted to outline policies that address escalating health care costs for consumers, they are ultimately unable to reach a consensus on how to address this and the other obvious gaps in the system.
The House's most recent actions are no exception. Of the three bills passed by the House last week, the Protect Medical Innovation Act, repealing the ACA's 2.3 percent tax on medical device manufacturers, enjoyed the most bipartisan support, with nearly 30 percent of Democrats and almost all Republicans voting in favor. For the two HSA-related measures, about 24 percent of Democrats voted for the Restoring Access to Medication Act and only 6 percent of Democrats voted in favor of Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018. While individual provisions within the bills may have had more bipartisan support, ultimately both parties once again disagreed on whether this package of bills will address current issues with health care, such as the rising cost of care.
As the debate now moves to the Senate, given the partisan nature of the issues, these bills face an uphill road to passage. With a $94 billion price tag attached to the measures, and a deficit that will balloon to $29 trillion by 2028, senators must consider whether advancing these reforms will actually be worth the cost to American taxpayers.
The Current Health Care Landscape
After last year's attempt to repeal the ACA, the fate of the health care law remains in limbo. Many Republicans continue to call for its repeal, with the administration and Congress taking piecemeal action to dismantle aspects of the law. Last year, congressional Republicans repealed the individual mandate through the TCJA. As a result, the Congressional Budget Office estimated that average premiums in the non-group market would increase by about 10 percent, in part because healthier people would be less likely to obtain insurance. This has had a ripple effect on risk pools -- with more unhealthy people remaining, premiums continue to increase.
With increasing premiums and fewer enrollees, more insurance companies have pulled out of the individual market, leading to a lack of competition and consumer choice. In an attempt to remedy the situation, the Trump administration has tried to take various actions.
In June, officials released a final rule on association health plans, or AHPs, which can be formed by trade groups or other businesses joining together to sell coverage in a region or even nationwide. The rule exempts AHPs from certain ACA requirements, including essential health benefits, or EHB, coverage and the ban on allowing insurers to charge higher rates for people with preexisting conditions. Democratic attorneys general from 12 states have filed suit, questioning whether dampening consumer protections is permissible. The AGs also argue that the AHP rule shifts big groups of small employers and individuals into the large group market to subvert the ACA's protections, which do not apply to that market. This undermines the single risk pool Congress envisioned when passing the ACA. As a result, critics argue that AHPs will have the unintended consequence of further destabilizing the individual market, leading to even higher premiums for those who remain in exchange plans.
Perhaps recognizing the dire straits of the individual market, in an uncharacteristic move, the Trump administration recently said it would restart the ACA's risk adjustment program, which pays billions of dollars to insurers to stabilize health insurance markets. The administration suspended the program earlier this summer. In a statement accompanying its reversal, the administration said that it would restore the program because otherwise health plans could become insolvent or withdraw from the market, causing chaos for consumers.
The examples of recent actions taken by Congress and the administration are emblematic of the hodgepodge approach both parties now take on health care issues. Given the problems policy makers are grappling with in the health care space, without wholescale reform, both Republicans and Democrats will continue to contemplate piecemeal and often costly proposals to fix aspects of the system. These temporary bandages may help certain segments of the population, but generally fail to address the underlying issues in the health care marketplace.
As the Senate considers the House-passed HSA proposals, it will have to decide whether these bills are simply a temporary solution that continues a fragmented approach to health care, or whether it will actually give Americans more affordable health care choices.
A Closer Look at the House-Passed Health Tax Bills
The three House-passed health tax bills combine several bills marked up by the House Ways and Means Committee in early July.
Medical Device Tax. The repeal of the medical device tax is one of the few measures with bipartisan support in both chambers. Supporters of the measure argue that a repeal of the tax does little to undermine the ACA -- the tax was put in place to help pay for ACA-created subsidies that allow individuals to afford purchasing insurance. Repealing it will increase the deficit but will not impact the effectiveness of the ACA. Proponents of repeal also argue that this is a major jobs issue. Medical device manufacturers have maintained that the tax hinders the development of technology, with the extra costs ultimately being passed down to the consumer.
H.R. 6199 -- Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018. The other two bills, H.R. 6311 and H.R. 6199, both of
which expand HSAs, are far more controversial. H.R. 6199 consolidated five bills previously marked up by the House Ways and Means Committee. Specifically, it would allow:
HSA funds to be used to purchase over-the-counter medicines, including "menstrual care products."
High deductible health plans, or HDHPs, to provide up to $250 a year in coverage for individuals and $500 a year for families before the deductible is met.
Employers to offer free or discounted services, such as immunizations, vision screenings and drug tests, at on-site or retail medical clinics without disqualifying a HDHP enrollee from contributing to an HSA, as long as significant medical benefits or services are not provided.
An individual to be reimbursed for health care expenses through a spouse's flexible spending account, or FSA, without losing HSA eligibility, as long as the aggregate expenses reimbursed from the FSA are limited to what the FSA enrollee would have been entitled to absent the spouse.
Individuals, at an employer's discretion, to convert FSA and health reimbursement account, or HRA, balances into an HSA contribution upon enrollment in an HDHP.
Certain amounts paid for physical fitness to be treated as a qualified medical expense up to a limit of $500 per year for an individual and $1,000 per year for a joint return. This includes gym memberships and exercise classes.
Direct primary care, or DPC, service arrangements to no longer be treated as health plans that disqualify an individual from contribution to an HSA.
The focus of H.R. 6199 is increasing access to primary care and other high-value services as a way to decrease long-term health care costs. For example, allowing employers to provide vaccinations and basic vision testing at work promotes early detection, increases access and can lower costs down the road. Similarly, allowing HDHPs to provide up to $500 in services before families meet their deductibles encourages enrollees to maintain chronic care services -- e.g., blood pressure and hypertension checkups.
Detractors of the bill point to other provisions such as the expansion of the medical deduction to include costs of gym memberships and certain sports equipment. Some have questioned the value of using taxpayer dollars to subsidize certain leisure and sports activities, often pursued by high-income earners. For example, a previous version of this provision would have allowed exemptions for activities like golf. While costs associated with golfing may no longer be deducted, horseback riding and other similar activities may still qualify. Some Democrats have also noted that the House GOP approved an expansion of the medical expense deduction only months after it proposed its elimination through the TCJA. Critics have pointed to these inconsistencies to characterize this bill as another tax cuts messaging ploy for members ahead of November elections.
H.R. 6311 Increasing Access to Lower Premium Plans and Expanding Health Savings Accounts Act of 2018. H.R. 6311 was the most controversial and expensive of the three House-passed bills. With a nearly $50 billion price tag, H.R. 6311 repealed the health insurance tax, an annual fee on insurance providers, and combined five other measures previously marked up by the House Ways and Means Committee. Specifically, H.R. 6311 would:
Increase HSA contribution limits to an amount equal to the combined annual limit on out-of-pocket and deductible expenses under an HSA-qualified plan -- $6,650 for an individual and $13,300 for a family in 2018.
Allow individuals age 55 or older to make catch-up contributions into one HSA account. Enable individuals to use HSAs to pay medical bills incurred up to 60 days prior to the
establishment of an account. Allow individuals over the age of 65 enrolled in Medicare Part A to continue to
contribute to HSAs, as long as they are participating in a HDHP. Allow anyone, not just those under the age of 30 or those qualifying for a hardship
exemption, to purchase a lower-premium catastrophic plan. Allow bronze and catastrophic plans to be offered in connection with HSAs. End the segregation of the risk pool for catastrophic enrollees by combining it with the
risk pool for all other plans in the individual market. Eliminate the "use it or lose it policy" by allowing the carry-forward of FSA balances to
the next plan year, with certain limits.
Most of the provisions in H.R. 6311 focus on the expansion of HSAs. These accounts are paired with HDHPs and were originally introduced to encourage health care savings through a triple tax preference: Contributions are excludable from income, withdrawals used for qualified medical expenses are tax-free and investments through an HSA account grow taxfree. Unlike other types of health savings accounts, HSAs do not have a "use-it-or-lose-it" policy, so individuals who do not use the funds for immediate health care costs can use these accounts as another savings vehicle.
Proponents of HSAs also note that pairing these accounts with HDHPs encourages users to research health care decisions. According to the 2018 HSA Participant Profile survey published by Alegeus Technologies LLC, one of the largest administrators of health care benefit accounts, HSA participants are 38 percent more likely to make cost- or value-based decisions than the general population and 46 percent are more likely to research and compare costs than the average worker.
While the considerable benefits associated with HSAs make them an attractive savings tool for those with disposable income, their usage is still limited. According to the U.S. Treasury Department, about half of the $23 billion in 2014 contributions were made by households with incomes between $100,000 and $500,000, well above the average national family income. Those earning under $60,000 account for only 18 percent of total HSA contributions.
Given the contribution statistics for HSAs, critics note that these accounts are regressive, benefitting higher-income workers more than households with lower incomes. As a result, many Democrats question whether further expansion is a prudent use of taxpayer dollars. The provisions in H.R. 6311 would nearly double the contribution limit and allow those over the age of 55 to make additional "catch-up" contributions, despite the fact that over 85 percent of Americans do not currently contribute up to the maximum allowable amount. These two provisions alone would account for about 30 percent of the overall cost of the bill.
Critics of HSA expansions also note that these accounts do little to address broader issues with health care, including skyrocketing cost of care, rising premiums and lessened consumer choice.
In addition to HSA-expansion measures, H.R. 6311 would allow all individuals to purchase catastrophic insurance plans and combine the risk pool for these plans with all other plans in the individual market. Some critics note that opening up catastrophic insurance to those over 30 will result in unhealthy individuals purchasing insurance that was never intended for those with multiple chronic conditions. Those who are unhealthy may rack up huge medical bills that they are unable to pay. However, proponents believe that opening up these plans will allow more Americans greater access to affordable coverage and protect individuals from unforeseen accidents that might have otherwise left them bankrupt. Additionally, since people on catastrophic insurance are traditionally younger and healthier, combining this limited catastrophic risk pool with the individual market risk pool may help drive the cost of care down. Of course, if eligibility for catastrophic plans is expanded, combining risk pools may not have the same effect.
WWMD (What Will Mitch McConnell Do?)
With just over 50 days left in the legislative calendar before the November elections, it is unclear whether the upper chamber will push a vote on the House-passed bills.
The success of these bills in the Senate will depend on how the individual provisions are packaged. For example, the repeal of the medical device tax, along with a few other provisions, such as expanding qualified medical expenses to include "menstrual care products" and allowing employers to provide limited on-site medical services, may garner sufficient bipartisan support. While these provisions may not address systemic issues in the health care system or lower the cost of care, they are largely noncontroversial.
Other provisions, such as the HSA-expansion measures will be more difficult to push through the Senate. While powerful Republicans, like retiring Senate Finance Committee Chairman Orrin Hatch, R-Utah, would like to see an increase in contribution limits, without some support from Democrats, many of these provisions are unlikely to go anywhere. For Democrats it will boil down to cost -- is an expensive expansion of HSAs the best use of taxpayer dollars if it will not address cost of care or increase consumer choice?
The provisions that are least likely to gain any traction in the Senate expand the availability of catastrophic plan coverage and merge this risk pool with the individual market. Senators are sharply divided on whether these measures will actually decrease the cost of care and increase access in the long-term or have the opposite of the desired effect. With hotly contested elections looming, it is unlikely that either party will want to risk making the wrong move on this issue.
Of course, there is always Option B: Leader McConnell could package the bills in a partisan manner, forcing Democrats to once again vote against tax cuts right before November elections.
What will Mitch McConnell do?
Radha Mohan is a policy adviser at Brownstein Hyatt Farber Schreck LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc. or any of its or their respective affiliates. This
article is for general information purposes and is not intended to be and should not be taken as legal advice.  H.R. 184  H.R. 6199  H.R. 6311  H.R. 184, repealing the medical device tax, is the only bill passed by the House on July 24 that was not marked up by the House Ways and Means Committee on July 11 and 12.  According to JCX-66-18, this provision will cost about $4 billion over the next 10 years. This is about 20 percent of the total cost of the H.R. 6199.  U.S. Department of Treasury, Office of Tax Analysis, Jan. 6, 2017, https://www.treasury.gov/resource-center/tax-policy/tax-analysis/Documents/HSATables.pdf