Volume 8 | Issue 21
Last week Congress received President Trump’s 2018 fiscal year budget proposal and the CBO analysis of the House-passed health care bill. The budget package aims to cut $3.6 trillion in government spending over the next decade and push economic growth ultimately to balance the federal budget. Although the key focus of the proposal will be on budgeting assumptions and cuts to certain social programs, it will also impact the labor, employment and employee benefits arena.
What Happens with the President’s Budget Proposal?
The president’s 2018 fiscal year budget proposal (A New Foundation For American Greatness) reflects the administration’s views on how government dollars should be spent. The administration also released a summary of the Major Savings and Reforms and the annual Analytical Perspectives document. So begins the complex congressional process – with the proposal winding its way through Congress and a number of committees before making its way in the form of legislation on the president’s desk (where it will be signed or vetoed). Ultimately, the legislation may bear little resemblance to what was initially proposed.
To ensure that funding is timely secured for the 2018 fiscal year, the congressional process should be completed before September 30, 2017 – the last day of the 2017 fiscal year. It could be an uphill battle to meet this deadline even with Republicans controlling both the Congress and the presidency. (See our Legislate from May 8.)
Comment. Employers might be thinking: “Does this budget proposal matter for my company?” Yes! These proposals may drive (or at least influence) other legislative and regulatory activity. Therefore, understanding the budget proposal is important as companies consider workplace strategies and employee benefit plan designs for 2018 and beyond.
The president’s budget proposal would decrease spending for many government assistance programs like Medicaid and Social Security disability insurance, but does not cut other Social Security payments or Medicare coverage. While the proposal briefly discusses tax reform, it does not provide any specifics on plans for the tax exclusion of employer-provided group health plan coverage.
Comment. As noted in the Analytical Perspectives, the exclusion of employer-provided health insurance coverage from employees’ taxable income is one of the highest “tax expenditures” (i.e., foregone tax revenue) under the Internal Revenue Code. The Cadillac tax (the 40% excise tax on high cost plans that is currently scheduled to go into effect in 2020) is designed to recoup some of this loss of tax revenue. Thus, should Congress repeal the Cadillac tax, it may seek to impose a cap or limitation on this tax exclusion (at the employee and/or the employer level) as an alternative.
Impact of Delay in Cadillac Tax
On May 24, the Joint Committee on Taxation released its estimate of the revenue effects of the tax provisions contained in Title II of the AHCA. That report found that delaying the Cadillac tax through 2025 would result in a revenue loss of nearly $66 billion over ten years.
Retirement Provisions – Multiemployer PBGC Premiums
Both multiemployer pension plans, as well as employers participating in the plans, would be hit with big increases in PBGC premiums under provisions in the 2018 budget proposal. Underfunded multiemployer plans would have to pay the PBGC a variable rate premium based on the amount of underfunding, subject to a yet-to-be determined cap. In addition, employers leaving underfunded plans would be charged an exit premium of 10 times the flat-rate premium. This year, the multiemployer flat-rate PBGC premium is $28 per plan participant.
The proposal, which would require congressional approval, is estimated to boost PBGC multiemployer premium revenues by nearly $16 billion from 2018 through 2027. The administration said those new revenues would be sufficient to fund the PBGC’s multiemployer pension insurance program for the next 20 years. In fiscal 2016, the multiemployer insurance program was massively underfunded with $61 billion in liabilities and just $2.2 billion in assets, with the PBGC projecting that the program will be insolvent by the end of 2025.
Budget Proposal’s Potential Impact on DOL, OFCCP and EEOC
The budget proposal includes a number of changes to the status quo. If approved by Congress, it would significantly reduce funding for programs administered by the DOL, restructure federal antidiscrimination agencies and create a nationwide federal-state paid parental leave program.
EEOC and OFCCP Proposed Merger
In addition to cutting the DOL’s discretionary budget by $2.4 billion (or nearly 20%), the proposed budget would merge the Office of Federal Contract Compliance Programs (OFCCP) into the Equal Employment Opportunity Commission (EEOC) to create “one agency to combat employment discrimination.” Before the merger, the proposed budget would shrink OFCCP’s budget by $17 million and full-time staff by nearly 25%, while funding for the EEOC would essentially stay flat. Because the EEOC has no enforcement authority over federal contractors under Executive Order 11246, Section 503 of the Rehabilitation Act and the Vietnam Era Veterans Readjustment Assistance Act, EO 11246 would have to be amended and Congress would have to act outside the budget process to effect this organizational change. At last week’s House Subcommittee on Workplace Protections hearing on the EEOC’s regulatory and enforcement policies, witnesses expressed concerns about a possible merger given the agencies’ many differences.
Paid Leave Proposal
The administration also proposes establishing a new benefit – paid parental leave within the Unemployment Insurance program – and allocates $18.5 billion over ten years for that purpose. The proposed federal-state program would provide up to six weeks of paid leave for new biological and adoptive parents. While states would have broad latitude in designing and establishing paid leave programs tailored to their workforces and economies, they would have to adjust their unemployment programs to ensure adequate funding in their unemployment insurance trust fund accounts. There also appears to be a federal mandate for states to increase their unemployment insurance tax to generate revenue, which would impact employers.
Proposed Gov’t Funding Cuts
The proposal also includes cuts to the funding of many government departments and agencies, including Treasury, the IRS, DOL and Health & Human Services.
Congressional Budget Office Analysis of AHCA
Last week, the Congressional Budget Office (CBO) released its revenue estimate for the American Health Care Act (AHCA) as passed by the House. While not coordinated with the administration, the president’s budget proposal is based on the presumption that the ACA is “repealed and replaced” (e.g., the AHCA will become law). This bill is projected to decrease the U.S. budget deficit by $119 billion over ten years. The increase in the number of uninsured individuals would reach 23 million in 2026. The CBO found that those purchasing coverage in the marketplace would pay lower premiums, but the insurance, on average, would pay for a smaller portion of health care costs. For example, given the state’s ability to waive essential health benefits (EHBs) and impose underwriting, the coverage available in the marketplaces might not be as comprehensive as that offered under the ACA. For details about the AHCA, please see our May 8 Legislate.
In terms of relevant issues for employers, the CBO’s analysis examines how the AHCA would impact employer motivations to offer health coverage to employees. The report states that in response to government-provided tax credits and the lack of an employer penalty for not offering coverage, some employers would stop offering health coverage to their employees. That said, even while suggesting some employers might drop coverage, one overriding theme in the report is that employers will stay in the game. The CBO estimates that because the available coverage “would tend to have higher out-of-pocket premiums for people currently eligible for subsidies and because the plans would tend to provide fewer benefits,” more employers would continue to offer coverage for their employees.
The CBO says that employer plans are expected to be largely unaffected by state waivers or other actions of states in terms of EHBs and annual and lifetime dollar limits. But it seems there would be an indirect impact on employers. The report states that, over time, less healthy individuals (including those with preexisting or newly acquired medical conditions) would be unable to purchase comprehensive coverage with premiums close to those under the ACA and would find coverage through an employer or become uninsured. For example, the AHCA permits state waivers for age rating, EHBs and community rating (where an individual’s coverage has lapsed). If a state opted for a waiver, premiums for certain individuals might increase and they might seek coverage under an employer’s plan (if more affordable) or drop coverage altogether. Thus, the CBO also expects that in states where moderate changes are made to market mandates, employers likely will continue to offer health coverage to employees because the plans offered in the marketplace will not be comparable to the employer’s coverage. In states where substantial changes are made to EHBs and where medical underwriting is employed, employers also would be likely to continue offering coverage because “comprehensive coverage for less healthy employees might not be available in the nongroup market.”
In terms of next steps, even if the House’s AHCA meets the technical budget reconciliation rules so that the Democrats are blocked from using the filibuster to derail the bill, Senate Republicans have indicated that they will develop their own “repeal-and-replace” legislation. (See our May 22 Legislate.)