November 2, RE: Supplemental Notice of Proposed Rulemaking on Minimum Value of Eligible Employer- Sponsored Health Plans

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1 November 2, 2015 Submitted Via Federal Rulemaking Portal: CC:PA:LPD:PR (REG ) Room 5203 Internal Revenue Service P.O. Box 7604 Ben Franklin Station Washington, D.C RE: Supplemental Notice of Proposed Rulemaking on Minimum Value of Eligible Employer- Sponsored Health Plans To Whom It May Concern: The U.S. Chamber of Commerce (the Chamber ) submits these comments in response to the Supplemental Notice of Proposed Rulemaking ( Supplemental NPRM ) which withdraws in part a notice of proposed rulemaking published in the Federal Register on May 3, 2013, and replaces the withdrawn portion with new proposed regulations that provide guidance on determining whether health coverage under an eligible employer-sponsored plan provides minimum value. 1 This Supplemental NPRM, which was published in the Federal Register on September 1, 2015, by the Department of Treasury ( Treasury ) and the Internal Revenue Service ( IRS ), relates to the health insurance premium tax credit enacted by the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 ( ACA ). 2 It affects participants in eligible employer-sponsored health plans and employers that sponsor these plans. The Chamber is the world s largest business federation, representing the interests of more than three million businesses and organizations of every size, sector and region, with substantial membership in all 50 states. More than 96 percent of the Chamber s members are small businesses with 100 or fewer employees, 70 percent of which have 10 or fewer employees. Yet, virtually all of the nation s largest companies are also active members. Therefore, the Chamber is particularly cognizant of the problems of smaller businesses, as well as issues facing the business community at large. Each major classification of American business manufacturing, retailing, 1 Supplemental Notice of Proposed Rulemaking, 80 Fed. Reg. 52,678-52,680. (September 1, 2015) (to be codified at 26 C.F.R. pt. 1) [hereinafter referred to as the Supplemental NPRM ] 01/pdf/ pdf. 2 The Patient Protection and Affordable Care Act, Pub. L. No , amended by Health Care and Education Reconciliation Act of 2010, Pub. L. No (2010). [hereinafter referred to as ACA ]. 1

2 services, construction, wholesaling, and finance is represented. These comments have been developed with the input of member companies with an interest in improving the health care system. OVERVIEW As the Chamber has articulated in prior comments on the minimum value determination, we dispute the allegation that minimum value must be assessed based on the coverage of any specific benefits, much less be tied indirectly to the Essential Health Benefits. Further, we do not believe that the ACA gives the Treasury and the IRS (or any Agency) the authority to mandate that inpatient hospital and physician services must be covered by self-insured plans or those plans offered in the large group market. Moreover, we remind the Treasury Department and the IRS of the precise phrase used repeatedly in relevant sections to define the coverage required to be offered to satisfy the employer shared responsibility provision. The ACA s Section 1401 amends the Internal Revenue Code s Section 36B and discusses premium tax credits and stipulates what coverage employers must provide uses the phrases: coverage must provide minimum value 3 and the plans share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs. 4 Synonyms for minimum include: least, lowest, slightest, and merest. Nearly all large group and self-insured health plans do provide substantial in-patient coverage; however, the ACA does not mandate that all plans do. Any regulatory declaration that decrees that all large group and selfinsured health plans must substantially cover inpatient hospital and physician services would be improper and would constitute regulatory overreach. It is up to Congress to enact a law that would specifically mandate that all such plans provide inpatient hospital and physician coverage and to establish how much coverage of these services they must provide. APPROPRIATE MINIMUM VALUE DETERMINATION Our concerns with the Supplemental NPRM reflect on-going wariness with the regulatory overreach and evolving expansion of the statutory text in the ACA due to unanticipated implementation challenges. For example, as we discussed in prior comments on the minimum value regulations, we continue to worry about the discrepancies between the statutory language and the regulatory extrapolation. In the Supplemental NPRM, Treasury and the IRS reiterate the statutory language under Section 1302 (b) by stating that only individual market and insured small group market health plans are required to cover the essential health benefits. 5 Similar statutory language was reiterated in the prior Notice and the Proposed NPRM just before it was negated by the regulatory text: Employer sponsored self-insured and insured large group plans are not required to conform their plans to any of the essential health benefit benchmarks that HHS intends to propose to apply to (a) inserts 36B (c)(2)(c)(ii) into the Internal Revenue Code. 4 Ibid. 5 Supplemental NPRM, 80 Fed. Reg. at 52,679. 2

3 qualified health plans ( QHP s). These employer-sponsored plans need not offer all of the EHBs or even cover each of the ten statutory EHB categories. 6 The proposed regulations do not require employer-sponsored selfinsured and insured large group plans to cover every EHB category or confirm their plans to an EHB benchmark that applies to the qualified health plans. employer sponsored group health plans are not required to offer EHBs unless they are health plans offered in the small group market. 7 However, this Supplemental NPRM maintains the regulatory language in 1.36B-6 (c) which improperly requires all employer-sponsored coverage to tie back to the essential health benefits by making the essential health benefits the benchmark against which minimum value is determined: Minimum value is measured based on the provisions of essential health benefits to the standard population. 8 As in prior related regulations, this Supplemental NPRM repeats the regulatory pattern of clearly affirming the ACA s statutory distinction between the benefit mandates imposed on plans offered in the individual and small group market versus other employer-sponsored coverage, and then proceeds to eliminate the distinction. Not only does this Supplemental NPRM propose to maintain the problematic language in 1.36B-6 (c), it inserts additional language with little statutory basis for doing so into the original language in 1.36B-6(a). Again, the evolving regulatory language in this Supplemental NPRM began with a legal basis in the ACA and then veers off course by adding additional benefit mandates with no statutory basis: 1.36B 6 Minimum value. (a) In general. An eligible employer-sponsored plan provides minimum value (MV) only if (1) The plan s share of the total allowed costs of benefits provided to an employee (the MV percentage) is at least 60 percent; and (2) The plan provides substantial coverage of inpatient hospital services and physician services. (b) MV standard population. The MV standard population is a standard population developed and described through summary statistics by the Department of Health and Human Services (HHS). The MV standard population is based on the population covered by typical self-insured group health plans. (c) MV percentage (1) In general. An eligible employer-sponsored plan s MV percentage is 6 Notice , page 3. ( 7 Notice of Proposed Rulemaking, 78 Fed. Reg. at 25,910. (May 3, 2013) (to be codified at 26 C.F.R. pt. 1) [hereinafter referred to as the NPRM ] 8 NPRM, 78 Fed. Reg. at 25,910. 3

4 (i) The plan s anticipated covered medical spending for benefits provided under a particular essential health benefits (EHB) benchmark plan described in 45 CFR (EHB coverage) for the MV standard population based on the plan s cost-sharing provisions; (ii) Divided by the total anticipated allowed charges for EHB coverage provided to the MV standard population; and (iii) Expressed as a percentage. Section 1.36B-6(a) is based in the statute only to the extent that it defines minimum value as the plan s share of the total allowed costs of benefits provided under the plan. 9 We do not believe there is any statutory basis for redefining allowed costs of benefits provided under the plan to mean something entirely different. RELEVANT BACKGROUND TO CONSIDER To understand why some employers in 2014 began offering coverage that did not provide inpatient hospital and physician services, it might be helpful to remember the history behind the drafting of the ACA. When the ACA was drafted, it was widely recognized that by and large the coverage provided voluntarily by employers through health plans in the large group market and self-insured coverage were stable, appropriate and valuable. As such, the drafters of the ACA were most concerned with the volatility and dysfunction of the coverage provided in the individual and small group markets where benefit exclusions were common, rate variations were significant and individuals were often deemed uninsurable following common, often modest health claims or diagnoses. As a result, the drafters imposed significant new benefit mandates (essential health benefit package) and rating restrictions on the individual and small group markets, while it only slightly modifying the rules in the large group and self-insured markets. The problem arose when the employer shared responsibility provision turned the offering of coverage in the large group and self-insured markets from a voluntarily offered benefit into a mandate. By requiring all applicable large employers to offer coverage in the large group or selfinsured markets, businesses that had historically not offered health coverage became forced to offer affordable, minimum value health coverage. This created a somewhat unfortunate dynamic where some businesses struggling to afford the cost of this mandated coverage explored ways to offer the most modest minimum value coverage that they needed to provide for purpose of satisfying the mandate. While we agree that even the most basic minimum value health coverage should provide some financial protection against inpatient hospital and physician costs, there is no statutory basis for mandating this benefit or tying the minimum value determination back to the essential health benefit package. Certainly, we dispute the assertion that minimum value coverage must provide substantial coverage of inpatient hospital and physician services. Recall, the synonyms for minimum: at least, lowest, slightest, and merest. The Chamber stands by the assertion that the 9 Section 1401 amends the Internal Revenue Code by adding Section 36B(c)(2)(c)(ii) Coverage must provide minimum value. 4

5 statute does not impose any benefit mandates on coverage provided by employers through a selfinsured health plan or through a large group market plan. 10 ECONOMIC ANALYSIS The Treasury and IRS do not provide any analysis of the economic impact of the Supplemental NPRM, as required by Executive Orders and In fact, the Treasury and IRS specifically state on page of the Supplemental NPRM that Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order Therefore, a regulatory impact assessment is not required. 11 However, there is no citation to the Executive Orders or any other source for their asserted exemption. In fact, a review of both Executive Orders reveals no provision that could be interpreted as specifically exempting the IRS rulemaking from regulatory impact analysis requirements. Section 3 (d) of Executive Order provides four bases for exemption: (d) Regulation or rule means an agency statement of general applicability and future effect, which the agency intends to have the force and effect of law, that is designed to implement, interpret, or prescribe law or policy or to describe the procedure or practice requirements of an agency. It does not, however, include: (1) Regulations or rules issued in accordance with the formal rulemaking provisions of 5 U.S.C. 556, 557; (2) Regulations or rules that pertain to a military or foreign affairs function of the United States, other than procurement regulations and regulations involving the import or export of non-defense articles and services; (3) Regulations or rules that are limited to agency organization, management, or personnel matters; or (4) Any other category of regulations exempted by the Administrator of OIRA. 12 None of the three listed regulatory categories appears remotely applicable to this Supplemental NPRM, and a search of OMB and OIRA public records did not reveal any memorandum from the OIRA Administrator providing exemption to IRS. The only agency exemptions by the OIRA Administrator on record were contained in a memorandum by OIRA Administrator Sally Katzen dated October 12, 1993, and attached to a memorandum to heads of executive departments, et al., by OMB Director Leon E. Panetta on the same date. 13 Copies of both Executive Order and of the referenced Panetta/Katzen 1993 memoranda are attached. 10 To the extent that the Treasury and IRS proceed with imposing additional benefit mandates on large group plans and self-insured plans by way of regulations, we urge modest, methodical and measured action only after appropriate analysis and feedback from all stakeholders. 11 Supplemental NPRM, 80 Fed. Reg. at 52, Executive Order Section 3(d) at 13 Available at 5

6 Appendix A of the Katzen memorandum lists 31 agencies as specifically exempted from the provisions of Executive Order 12866, none of which includes the Internal Revenue Service. 14 The Treasury and IRS statement seems to arise from a confused reading of Appendix C of the Katzen 1993 memorandum, which lists agency rulemakings exempted from the centralized review provision of Executive Order The relevant section states that that exemption from OIRA centralized review applies to Internal Revenue Service; Bureau of Alcohol, Tobacco, and Firearms; and Customs Service--Revenue rulings and procedures, Customs decisions, legal determinations, and other similar ruling documents. Major legislative regulations are covered fully. The context is NOT exemption from the general requirement to conduct regulatory impact analyses, but only exemption from the subsidiary requirement to submit analyses regarding significant regulations to OIRA for review. Furthermore, the exemption statement explicitly states that the exemption does not apply to major legislative regulations which are covered fully. Since the Supplemental NPRM in question is a major legislative regulation (relating to interpretation and enforcement of the ACA), it is clear that no exemption applies, even from OIRA review of regulatory impact analysis. Denying the obligation to conduct (and to present to the public for comment) any analysis of regulatory impact in this instance continues an error that the Treasury and IRS have made previously in regulations implementing the ACA. The Treasury and IRS routinely and mistakenly assert that if a rule is believed to have an annual economic impact of less than $100 million the agency is absolved of any obligation under Executive Order to conduct a regulatory impact analysis. As has been explained multiple times in previous comments in response to IRS regulations, the significant impact provision applies only to submission of the agency s completed regulatory impact analysis to OIRA for review. It does not exempt the agency from the underlying obligation to conduct such an analysis. Indeed, simple logic reveals that it is not possible to determine whether or not a regulation meets the $100 million annual impact threshold unless some sort of economic cost impact analysis has been conducted. Economic Impact Is In Fact Significant Furthermore, the $100 million annual impact threshold is not the only basis in Executive Order for determining that a regulation is significant and subject to OIRA review: The Executive Order also lists three other triggers for significant rule status: (f) Significant regulatory action means any regulatory action that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) Create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) Materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) Raise novel legal or 14 Ibid, p

7 policy issues arising out of legal mandates, the President s priorities, or the principles set forth in this Executive order. 15 The Supplemental NPRM regarding Minimum Value of Eligible Employer-Sponsored Health Plans arguably qualifies as significant because of the novel legal issue that arises under it. Namely, the assertion that coverage provided by plans offered in the large group market and selfinsured plans are required to provide substantial coverage of inpatient hospital and physician services even though no such language is found in the relevant text of the statute. Aside from the novel legal issues argument, there is also good reason to conclude that the Supplemental NPRM will have an economic impact in at least one year in excess of $100 million, and therefore qualify as economically significant. As Treasury and IRS state, The proposed regulations affect participants in eligible employer-sponsored health plans and employers that sponsor these plans. 16 There are at least 80 million primary participants in employer-sponsored plans and many more if covered dependents are counted. The Supplemental NPRM provides important information that potentially affects rights and liabilities of each of these 80 million individuals, and thereby imposes on each of those 80 million individuals the cost of taking time to read and comprehend the rule and to assess whether or not its terms have a direct effect. This imposed obligation includes taking the time to review the terms of the employer-sponsored plan in which he/she participates and/or inquiring of their employer for relevant information to determine whether or not their plan meets the proposed minimum value definition and further to assess what impact that determination has on choices or decisions that the individual might make. The Treasury and IRS should credibly estimate and consider this cost of initial regulatory familiarization as part of its process for regulatory design and decision making for this and for all regulations. In particular, consideration of initial familiarization cost can be valuable to encourage agencies to make the language of regulations plain and less burdensome to read and understand. In the case of this Supplemental NPRM, the cost difference between the proposed approach that includes substantial coverage of in-patient hospital charges in the definition of minimum value and one that does not include that specification may significantly affect the time an effort required for an individual participant to understand the rule and to access how it may affect her individual situation, choices and possible liabilities. A single word, such as substantial, may contribute significantly to the individual cost burden of understanding and applying the rule. The meaning of substantial seems ambiguous, and that ambiguity may lead to unnecessary time and effort for individual understanding and application of the rule compared to some alternative specification that makes the regulatory concept less ambiguous. Even if the time burden for an individual employee who is a plan participant or potential participant were a mere 15 minutes to read the rule and to acquire additional information to apply 15 Executive Order 12866, Section 3(f) at 16 Supplemental NPRM, 80 Fed. Reg. at 52,678. 7

8 it (e.g., information about what is covered by the subject plan), the equivalent time opportunity cost, about $10 per affected participant, would total $800 million when applied to 80 million (or more) affected employees. The cost burden for initial familiarization by the affected employers would be an additional significant amount. The suggested amount of $800 million is merely an example based on minimal possible values for time burden and opportunity cost, and the likely actual familiarization component of the economic cost that the Supplemental NPRM will impose may be much more. The point of the example is to illustrate the importance that the agency undertake a serious research effort to determine what are the values of the relevant cost parameters, familiarization time and opportunity cost per unit of time. This is research that the Treasury and IRS clearly have the resources and the capacity to do through experiments, surveys and other valid research methods. The Treasury and IRS should compare these costs for each of several alternative formulations of the proposed regulation, and select the alternative that results in the least cost for a given benefit outcome, as explicitly required by Executive Order Obviously, when different approaches entail different benefits, the relevant benefit parameters should be estimated and considered also. The failure of the Treasury and IRS to undertake this most elementary aspect of regulatory analysis results in the serious risk of arbitrarily and capriciously imposing an ill-conceived rule that creates needless cost with little or no credible benefit. Cost-Benefit Analysis of Regulatory Alternatives Required Beyond the familiarization cost question, IRS should also consider other aspects of the costs and benefits of the Supplemental NPRM and of feasible alternatives that could have been proposed. These include the effect on the supply price of employer-sponsored health insurance coverage resulting from the rule s incentive for adoption of coverage elements that plan sponsors would not adopt otherwise. The Treasury and IRS should consider the social welfare effects of these incentives, including the dead-weight welfare loss to consumers and others that the rule as proposed will generate by its effect on the employer-sponsored health insurance market. These adverse social welfare effects will arise because the Supplemental NPRM including substantial inpatient hospital coverage will likely raise the cost to affected employers of offering minimum value coverage, and thereby discourage some from offering such coverage. Such a cost supply impact on self-insured plans and those plans offered in the large group market covered by this Supplemental NPRM is likely because a similar impact has already been observed with respect to the small plan and individual markets where this formulation of the 60% actuarial value of EHBs concept is explicitly written into the statute. For the Supplemental NPRM as it applies to larger employer-sponsored plans and self-insured plans, the authority of the agency to add the substantial inpatient coverage requirement to the minimum value definition by regulation when it is not present in the statute is questionable, but even if the authority to do so exists under some interpretation, it is clearly not required. From that perspective, setting aside the authority question, the inclusion of the substantial inpatient hospital coverage requirement in the minimum value definition can be viewed as a matter of regulatory discretion. Under Executive Order 12688, the agency is required to compare the costs and benefits of alternative formulations of the rule with and without that discretionary element added, and to choose the alternative that clearly provides the greatest net advantage of benefit over cost. 8

9 CONCLUSION In issuing a final rule, we urge the Treasury and IRS to recognize that the ACA bases minimum value on the plan s own payment of the total allowed costs, and that there is no statutory language to support additional benefit mandates. Finally, before a final rule is issued, we urge that the Treasury and IRS provide appropriate economic analysis regarding alternative regulatory approaches and the likely economic impact of the approach they take, in order to fulfill their obligations under the Executive Orders and We look forward to continuing to work together in the future. Sincerely, Randel K. Johnson Senior Vice President Labor, Immigration, & Employee Benefits U.S. Chamber of Commerce Katie Mahoney Executive Director Health Policy U.S. Chamber of Commerce 9