Congress, Decoupling, COBRA Subsidies, Abortion, and HSAs
by William G. (Bill) Stuart, Director of Strategy and Compliance at Benefit Strategies
The next two weeks are crucial for healthcare legislation, as the 116th Congress proposes probably its last major bill prior to the November election.
Buckle your seat belts. The Senate, the House of Representatives, and the Trump Administration will be in furious negotiations during the next two weeks to craft a fifth pandemic-relief bill before Congress adjourns for August recess by the end of the week of Aug. 3. There's political capital to be gained by passing a bill, but coming to a final agreement won't be easy.
The largest healthcare-related topics on the agenda are decoupling Health Savings Accounts from HSA-qualified medical coverage and subsidies for laid-off workers who qualify to continue coverage through COBRA.
Two other topics - surprise billing and prescription-drug prices - may find their way into a bill. The two major parties and both chambers have agreed for 18 months that these issues are important, but they don't agree on solutions. If you're betting on whether meaningful reform in these areas make it into the final bill, put your chips on the square labeled "not happening."
As background, the Republicans in Congress have largely turned away from healthcare issues since GOP leaders in the Senate couldn't muster 50 votes to approve a House-backed bill to make major amendments to federal healthcare law in 2017. Since that time, the Republicans lost control of the House, and the party has left the topic to the Trump Administration. The president has issued a number of executive orders and subsequent guidance to increase coverage options and reduce costs.
Decoupling
Sen. Ted Cruz (R-TX) and Reps. Ted Budd (R-NC) and Chip Roy (R-TX) have introduced legislation to decouple Health Savings Accounts from HSA-qualified plans during the pandemic emergency. If this proposal becomes law, all American adults would be able to open and fund a Health Savings Account until the emergency is lifted.
This approach would help people - particularly those without access to a company-based Health FSA, including recently unemployed workers - pay their medical, dental, and vision expenses with pre-tax dollars. If they're collecting unemployment benefits or continuing their employer-sponsored medical plan, they could pay their premiums with pre-tax dollars as well.
Critics often note that many people simply don't have disposable income to fund a Health Savings Account. But those people may have medical, dental, or vision expenses, or large premium invoices that they must pay - somehow. If they place those funds in a Health Savings Account and then pay those bills, they can save between 25% and 35% on every qualified expense. At a time of high unemployment and financial and medical uncertainty, that relief would be welcome. And this proposal is important as an alternative to a COBRA subsidy, as discussed below.
COBRA Subsidy
Laid-off workers who are enrolled in an employer-sponsored medical plan lose that coverage when they leave the company. Many have the option to continue the company plan by exercising their continuation rights under COBRA, a federal law dating from the 1980s. Under this program, many workers who lose coverage (for reasons other than gross misconduct) and their dependents can extend coverage for an additional 18 months.
Not everyone qualifies for COBRA, however. The law doesn't apply to companies with fewer than 20 workers. And if a company goes out of business or stops paying the premium on the group plan, the plan terminates. At that point, there's no coverage for employees to continue - even when they have the right to continue under COBRA.
And those who enroll in COBRA coverage pay a premium equal to 102% of the group premium. That figure can be a shock to employees who are used to an employer contribution. If the company pays 70% of a $2,000 monthly family premium, the employee's share increases from $600 to $2,040. And that difference is magnified when the $600 was paid with pre-tax dollars (reducing take-home pay by about $450) rather than post-tax funds under COBRA without a Health Savings Account.
During the recession a dozen years ago, Congress provided a subsidy equal to 65% of the COBRA premium. The rationale for that amount: It represented what an average company paid toward the coverage when the worker was actively employed.
The House of Representatives passed its own pandemic-relief bill that includes a 100% subsidy to apply between March 1, 2020, and Jan. 31, 2021. Republicans have objected to the 100% relief because that's richer coverage than active employees - many of whom are at added health risk by remaining at work - receive. At a time when 60% or more unemployed workers receive more income from not working than they did in their paychecks, adding a 100% subsidy further exacerbates the financial and health gap between those working through the pandemic and those who aren't.
But the concept of some level of COBRA subsidy is popular with politicians from both major parties because it makes coverage more affordable to the unemployed and preserves the system of employer-sponsored insurance. Without a subsidy and thus a corresponding reduction in coverage, the calls for a government monopoly on the design, delivery, and financing of medical care are more likely to intensify.
The Role of Abortion
Abortion remains a core issue with Republicans (and some conservative Democrats - recall that former Rep. Bart Stupak (D-MI) and a handful of Democrat colleagues held up the Affordable Care Act in the House in 2010 because of its taxpayer funding of voluntary termination of pregnancy). Federal rules prohibit direct taxpayer funding of abortions.
Republicans close ranks to maintain that prohibition. To understand this position, consider the coalitions that support each major party. Democrats receive tens of millions of dollars of cash and in-kind donations (like phone banks, door-to-door canvassing) from public and private unions during each election cycle. Republicans' strongest support comes from members of the pro-life movement, who are motivated campaign surrogates and active voters. That's why Democrats are so adamant in their support of policies that favor unions over other workers and Republicans dig in on pro-life issues.
An Alternative to COBRA Subsidies
Some policy analysts have proposed providing subsidies for premiums through Health Savings Accounts rather than directing the funds to COBRA continuation. The rationale?
First, COBRA isn't an option for everyone who loses group coverage, as outlined above. Some people don't qualify or have a group plan that they can continue. They're not helped if subsidies are limited to COBRA continuation.
Second, COBRA may not be the best option for everyone. Some laid-off workers may find more appropriate coverage at a lower premium in the nongroup market. COBRA subsidies won't help them. But funds in a Health Savings Account that they could spend on nongroup or COBRA premiums would.
Next Steps
Expect Senate Republicans to produce a draft of their legislation in the next day or two. They want to keep the total bill under $1 trillion (which is less than what Democrats want to spend on aid to state and local governments alone, so a battle is looming), with an emphasis on a second round of stimulus payments and liability protections for companies that that bring their work forces back to the office. House Democrats have a much more ambitious vision - $3 trillion in spending that includes major infrastructure investment, extending the $600 federal unemployment bonus, closing deficits in state and local government budgets, and bailing out chronically underfunded public pension systems in certain states and multi-employer private union pensions in some industries.
Expect a highly spirited and contentious nearly two weeks of negotiations between Treasury Secretary Mnuchen, House Speaker Pelosi (D-CA) and Leader McCarthy (R-CA), and Senate Majority Leader McConnell (R-KY) and Minority Leader Schumer (D-NY). There will be a lot of ground to cover.
I'm director of strategy and compliance at Benefit Strategies, LLC, a provider of Health Savings Accounts and other tax-advantaged benefits. You can read my biweekly Health Savings Account GPS blog and subscribe by clicking here and my regular HSA Monday Mythbuster and occasional Healthcare Update column published on LinkedIn. I also founded your Health Savings Academy, which delivers Health Savings Account education to financial, retirement, and benefits advisors; employers; and account owners. My book, HSAs: The Tax-Perfect Retirement Account, is the definitive guide to navigating the intersection of Health Savings Accounts, Medicare, and retirement planning. It's available in book and e-book forms from Amazon.
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