July 2, RE: Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit

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1 July 2, 2013 Submitted Via Federal Rulemaking Portal: CC:PA:LPD:PR (REG ) Internal Revenue Service P.O. Box 7604 Ben Franklin Station Washington, D.C RE: Minimum Value of Eligible Employer-Sponsored Plans and Other Rules Regarding the Health Insurance Premium Tax Credit To Whom It May Concern: The U.S. Chamber of Commerce (the Chamber ) submits these comments in response to the Notice of Proposed Rulemaking ( NPRM ) relating to the health insurance premium tax credit and the determination of whether health coverage under an eligible employer-sponsored plan provides minimum value. 1 This NPRM was published in the Federal Register on May 3, 2013 by the Department of Treasury ( Treasury ) and the Internal Revenue Service ( IRS ) to provide guidance on the application of Sections 4980H, 36B and 1302 of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 ( PPACA ). 2 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, we are particularly cognizant of the problems of smaller businesses, as well as issues facing the business community at large. Besides representing a cross-section of the American business community in terms of number of employees, the Chamber represents a wide management spectrum by type of business and location. Each major classification of American business manufacturing, retailing, services, construction, wholesaling, and finance is represented. These comments have been 1 Notice of Proposed Rulemaking, 78 Fed. Reg. 25,909-25,916. (May 3, 2013) (to be codified at 26 C.F.R. pt. 1) [hereinafter referred to as the NPRM ] 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 PPACA ]. 1

2 developed with the input of member companies with an interest in improving the health care system. OVERVIEW The Chamber is extremely concerned about many elements of the NPRM. First and foremost, we dispute the proposal that minimum value must be assessed based on the coverage of any specific benefits, much less be tied indirectly to the Essential Health Benefits. Second, we disagree with the proposal to disregard financial incentives (other than those relating to tobacco use) available to employees who participate in nondiscriminatory wellness programs that would reduce premiums thereby impacting affordability and reduce cost-sharing thereby impacting minimum value. Finally, we believe that it is inappropriate to adjust the value of employer contributions to health savings accounts and health reimbursement arrangements to reflect expected spending. MINIMUM VALUE DETERMINATION Backdoor Mandate: Requiring all Employer-Sponsored Plans to Cover Essential Health Benefits to Meet the Minimum Value Threshold Despite the repeated reiteration of the statute which only requires plans offered in the small group and individual markets to cover essential health benefits, the NPRM like the Final Rule issued by the Department of Health and Human Services ( HHS ) will improperly require all employer-sponsored coverage to cover essential health benefits in order to meet the minimum value requirement. 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 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. 3 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. 4 Notwithstanding this, the NPRM in effect imposes the essential health benefit requirement through the back door to plans to which that requirement does not apply by making the essential health benefits the benchmark against which minimum value is determined: Minimum value is 3 Notice , page 3. ( 4 NPRM, at 25,910. 2

3 measured based on the provisions of essential health benefits to the standard population. 5 The regulations have gradually shifted from clearly affirming the statutory distinction in Notice to the NPRM, which at first references this statutory distinction and then proceeds to contradict it. This gradual shift is illustrated in the proposed code language as well which starts with a legal basis in the statute and then veers off course as the NPRM provides as follows (emphasis added): 1.36B 6 Minimum value. (a) In general. An eligible employer-sponsored plan provides minimum value (MV) only if the plan s share of the total allowed costs of benefits provided to an employee (the MV percentage) is at least 60 percent. (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 employersponsored plan s MV percentage is (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. 6 We do not believe there is any statutory basis for redefining allowed costs of benefits provided under the plan to mean something entirely different. The NPRM substitutes the statute s plan-based benchmark which requires that a plan simply cover 60% of the total costs of the plan s benefits to a new requirement that the plan cover 60% of the costs of the EHB benchmark plan. If this only were a supplemental minimum value safe harbor, that would be fine but the statute certainly does not provide for this to be the exclusive rule. We urge the Treasury and IRS step back and promulgate a final rule that defines a minimum value plan as covering 60% of the costs of the benefits that the plan provides, as the statute dictates. There is no reference in the statute to what particular benefits a self-insured or employersponsored plan in the large group market must cover and we refute any circuitous regulatory attempts to create and impose such benefit requirements on these particular plans. Instead, the 5 NPRM at 25,910 6 Section 1401 amends the Internal Revenue Code by adding Section 36B(c)(2)(c)(ii) Coverage must provide minimum value. 3

4 PPACA clearly defines minimum value based on the plan s own allowed costs, not the allowed costs of a benchmark plan. The Department of Health and Human Services essentially confirmed that last fall when it concluded that [a]pproximately 98 percent of individuals currently covered by employer-sponsored plans are enrolled in plans that have an actuarial value of at least 60 percent. 7 This report was conducted when employers were still permitted to provide coverage for employees through so-called mini-med plans, which have low annual limits. Given that only two percent of individuals were then covered by plans which failed to meet the 60 percent actuarial value threshold, it will be an even smaller percentage now that these plans are outlawed. Presume Minimum Value In light of the Department of Health and Human Services conclusion that 98% of covered persons have minimum value coverage, we strongly recommend that a safe harbor minimum value be created that deems all self-insured plans and large group plans as satisfying the minimum value requirement and meeting the 60 percent actuarial value threshold if the employer in good faith believes that the plan meets this threshold. Given that nearly all individuals covered by employer-sponsored plans have this level of coverage, it is unreasonable to burden employers with proving in the affirmative what the report shows the overwhelming majority of employers already offer. INAPPROPRIATE TREATMENT OF EMPLOYER CONTRIBUTIONS Consumer-focused health care products like health savings accounts ( HSAs ), flexible spending accounts ( FSAs ), and health reimbursement accounts ( HRAs ), in conjunction with highdeductible health plans, provide businesses and employees with health insurance coverage options that provide high value at lower cost. These products are widely used and are increasing in popularity. Earlier this month, a report was issued indicating that 15.5 million individuals are enrolled in HSAs with High Deductible Health Plans ( HDHPs ) 8 and almost a third (31%) of employers offering health coverage provide their employees with either an HSA or HRA option. 9 These less expensive options are elected by consumers with varied demographic and health risk factors. They are an important coverage option for many Americans. The agencies should not interpret the minimum value requirement in a way that discourages HRAs/HSAs/HDHP arrangements, but that is just what the NPRM does. All Employer Contributions [SHOULD BE] Taken into Account Even though the preface to the NPRM states that All amounts contributed by an employer for the current plan year to an HSA are taken into account in determining the plan s MV, that is not what the NPRM itself says. Rather, the NPRM only takes the employer contribution into 7 Actuarial Value and Employer-Sponsored Insurance, APSE Research Brief, U.S. Department of Health and Human Services, November 2011 (available at: 8 AHIP Center for Policy and Research, 2013 HSA Market Census, (May 2013). 9 Kaiser Family Foundation/Health Research & Education Trust, Employer Health Benefits 2012 Survey, (September 2012). 4

5 account based on expected spending. 10 The NPRM needs to be conformed to the preface. While employees may only use a portion of HSA and HRA funds to pay for health care services in a given year, employees are entitled to use the full amount. Similarly, that entire contribution is paid by the employer to cover the costs of the employee s health benefits. Failure to include the entire employer contribution to an employee s HSA/HRA when determining minimum value will under-estimate the total number of dollars that employers pay for an employee s health benefits. While it is true that the consumer is not required to use the entire HSA contribution in a given year, it is also true that the amount an employer contributes to an HSA does not change based on how much of the prior year s contribution has been used. Adjusting the employer s HSA contributions in this manner not only undervalues the money that the employer is paying toward an employee s health benefits, but it also undercuts the viability of these products. Funds not spent can also roll over from year to year so that they are available to an employee to use for health care costs at their discretion in the following year. Employer contributions to HSAs and HRAs are made to assist employees with certain first-dollar health care costs. Employers do not monitor to see whether the full amount of the contribution is spent it is offered to employees as a part of their health care benefit and should be treated in this way. Adjusting the employer s contributions to not reflect the actual amount paid by the employer could inadvertently undercut the viability of these products by causing a chilling effect on employer contributions to these plans, ultimately resulting in fewer affordable insurance options for Americans and less flexibility in benefit design for employers. We strongly encourage the IRS and the Department of Health and Human Services to reconsider this treatment to ensure that this valued and popular products and accounts continue to be viable choices for employers and their employees. WELLNESS INCENTIVES We strongly urge the Treasury and IRS to reconsider its decision to disregard lawful wellness program incentives for the purposes of both affordability and minimum value. Particularly, given the extreme restrictions and qualifications now placed on wellness programs, it is wrong only to allow tobacco use disincentives to be taken in to account. While we appreciate the one year transition relief, we believe that the plan s share of cost for minimum value purposes should be permanently determined with the reduced cost-sharing available under such a program. We also urge the Treasury and IRS to include the incentives when assessing affordability and believe that these measures will encourage employees to take responsibility for their health and modify their behavior. The excessive restrictions placed on these programs and the many alternatives available to individual employees more than ensures appropriate participation and eligibility for these rewards. 10 NPRM, at 25,916. 5

6 ADMINISTRATIVE LAW REQUIRES THAT THE NPRM UNDERGO REGULATORY ASSESSMENT In the NPRM, the Treasury and IRS state that It has been determined that this notice of proposed rulemaking is not a significant regulatory action as defined by Executive Order [and] therefore, a regulatory assessment is not required. 11 However, the omission of any substantive discussion of the potential costs and benefits of the NPRM is a flagrant violation of both the letter and the spirit of Executive Order and of President Obama s more recent Executive Order The assertion that it has been determined that the NPRM is not a significant rulemaking is arbitrary: No reasoning, data, calculations, evidence or facts are presented to support that conclusion, nor does the NPRM state who has made this arbitrary determination. Under Executive Order there are four possible reasons to designate a rule as a significant regulatory action. See E.O , Section 3 (f): (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 policy issues arising out of legal mandates, the President s priorities, or the principles set forth in this Executive order. The Treasury and IRS are obligated to consider whether the NPRM is significant under the terms of each of the four possible significance triggers and to explain in the preamble the reasons for its conclusions in each instance. With respect to (f)(1), economic significance, the Department should demonstrate by monetary calculations that the estimated annual economic cost of the NPRM to show whether or not its estimated cost is below the $100 million annual effect amount. Further, we fail to see how the economic cost of the NPRM could possibly fall below that threshold. Likewise, it surely must a significant regulatory action under (f)(3), budgetary impact of entitlements. Economic Impact Is In Fact Significant In particular, the Treasury and IRS should include in their analysis and calculations of economic cost consideration of the probable effect of the proposed minimum value rules on an employer s costs of providing health insurance benefits to workers. At the least, the Treasury and IRS should have informed their rulemaking decisions by conducting surveys or other research to determine the proportion of current employer plans that do 11 NPRM, at 25,913. 6

7 not meet the proposed minimum value criteria and the added cost that affected employers would incur to bring their plans into compliance. The Treasury and IRS should also have attempted to estimate the proportion of affected employers who would elect to terminate employee health benefit plans rather than increase plan costs to meet the minimum value requirement. In the case of plan terminations, the economic impact of the NPRM will be to increase the number of individuals without employer sponsored health insurance, to increase the demand for individual coverage through the exchange markets, to increase the health insurance cost burden on working families, and to increase the tax revenue losses through increased access to the premium tax credit. All of these potential economic impacts should have been considered by the Treasury and IRS with respect to various regulatory strategy alternatives prior to formulating their decision and proposal. In addition to the direct cost of the NPRM to increase the cost burden on employer sponsors or to reduce the prevalence of employer sponsored coverage, the proposed regulation will also impose significant additional administrative costs on affected insurers. These costs include the direct labor costs of monitoring, reviewing and calculating to determine whether or not each current plan meets the minimum coverage requirement, and if not what changes may be necessary to achieve minimum coverage. Employers sponsoring health insurance coverage will likely find it necessary to expend significant sums for the services of actuaries, attorneys and other specialized consultants to ensure that they are incompliance or to inform decisions about continuing to offer health insurance benefits to employees. The offer of the minimum value calculator is not sufficient to offset these costs. The Treasury and IRS have not provided evidence from pilot tests or other experiments that the offered calculator will be reliable, appropriate to the circumstances of typical employers or significantly reduce employer compliance costs. The Treasury and IRS should be aware that employers have a legal duty to stockholders to manage company expenses and assets prudently, and naïve reliance on a government-provided calculator to inform critical financial decisions regarding the offer of health insurance benefits to employees may not be deemed by critical shareholders as constituting prudent due diligence to justify management decisions. These are significant costs and cost issues that the Treasury and IRS failed to consider, calculate and reveal in its rulemaking proposal. The Treasury and IRS also failed to articulate any reasonable, quantitative analysis of the expected benefits of the NPRM. Executive Orders and require agencies to consider and compare the probable benefits and costs of various regulatory alternatives and to select the alternative that is likely to provide the greatest net benefit. This process is intended to ensure that regulatory decisions are based on reason and empirical evidence. Failure to comply with President Obama s direct order is another manifestation of the arbitrariness of the NPRM. Without such analysis it is uncertain whether the regulation as proposed will yield any net benefit. That uncertainty renders the rulemaking decision capricious, as well as arbitrary. President Obama s Executive Order explicitly directs agencies to examine and monetarily estimate the income transfer effects of proposed regulations in addition to the cost and benefit effects specified in Executive Order The economic impacts 7

8 described above (price increases to consumers, reduced compensation of employees, and reduced dividends or equity to shareholders) may have the effect of income or wealth transfers as well as having cost effects. The Treasury and IRS failed in their duty to analyze this aspect as required by the Executive Order. Furthermore, they should be aware that Executive Order defines an economically significant regulation as one having an annual economic impact of $100 million or more and that transfers as well as costs may comprise elements of the total economic impact. Cost-Benefit Analysis of Regulatory Alternatives Required Even if the Treasury and IRS were to find that the expected annual economic impact of the proposed regulation is less than $100 million annually, they are still under obligation by Executive Orders and to conduct and consider an analysis of economic impacts of their selected regulatory approach and of alternative approaches. The $100 million threshold only applies to the requirement to submit their analysis to OMB/OIRA for review. Indeed, some analysis of cost and transfer impacts is logically required to reasonably establish whether or not the threshold for OMB/OIRA review is reached. Even if a regulation is not deemed to be significant (economically or otherwise), agencies are required by the Executive Order to identify, assess and consider the costs and benefits of the various regulatory alternatives (not just the one specification chosen) and to choose the approach that yields the greatest net benefit, unless the statutory authority requires otherwise. The Executive Order does not provide any exception to this requirement. The Executive Order encourages agencies to quantify the costs and benefits of the selected regulatory approach and of alternatives considered to the extent feasible, but permits qualitative assessment in cases where quantification is difficult. Neither difficulty of measurement nor expectation of smallness of cost exempts the promulgating agency from these responsibilities under the Executive Order. Even if the costs of a regulation (and of each of its alternative formulations) is relatively small, this would not justify ignoring the economic considerations. Indeed, a rule with small costs may well also have small social benefits, and failure to consider costs and benefits and to choose an approach randomly or arbitrarily would carry a real risk that costs would exceed benefits. Given the thousands of regulatory decisions made each year by Federal agencies, even small inefficiencies in regulatory design are important and can add up to big inefficiencies and economic losses of output, productivity and income. The Treasury and IRS should also be aware that they cannot evade their duty to conduct an analysis of the economic impact of the NPRM by the appeal that they have exercised no discretion in their rulemaking proposal. Even economic impacts of a regulation that result from the underlying statute are legitimate impacts of the rulemaking to implement the statute. Regulatory impacts are not limited to the impacts of exercise of agency discretion. To claim otherwise would make the regulatory impact assessment process both infeasible and un-useful. An important purpose of the economic impact analysis required by Executive Orders (and also by the Regulatory Flexibility Act, the Unfunded 8

9 Mandates Act, and the Paperwork Reduction Act) is to inform the President, the Congress and the public regarding the full costs and benefits of government mandates, including the costs of the statutory requirements that underlie the implementing rules. In the case of this NPRM, Congress may particularly benefit from information that informs it of the findings of a full and objective analysis of the economic costs and income/wealth transfer impacts of the statutory requirement that the regulation is designed to implement. The intent of the Executive Orders is that agencies will approach the rulemaking task analytically and consider costs and benefits as an integral part of the regulatory decisionmaking process and not as an afterthought to justify a decision made arbitrarily. The admission that no economic analysis or assessment of the impact of the NPRM was conducted renders the proposed regulation unreasoned and arbitrary. The Treasury and IRS have acted in violation of the direct orders of the President of the United States. The NPRM should be withdrawn, revised and resubmitted to include economic impact analysis that demonstrates compliance with Executive Orders and CONCLUSION In issuing a final rule, we urge the Treasury and IRS to recognize that the PPACA bases minimum value on the plan s own allowed costs, not those of an EHB benchmark plan. To build on and encourage wider adoption of the highly valued HSAs and HRAs and lawful wellness programs, we urge appropriate treatment of employer contributions to these accounts and available financial incentives when assessing minimum value and affordability. 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