The Trump Administration takes on the Fiduciary Rule and ACA
This is our second alert on our series on the impact of the Trump administration on employee benefit programs. As the second full month of the new administration comes to a close, two significant laws in the executive compensation and employee benefits arenas are now in question.
Delay of Fiduciary Rule
As noted in our February 6th alert , in early February the White House directed the DOL to examine the Fiduciary Rule to determine whether it may adversely affect the ability of plan participants to gain access to retirement information and financial advice, but it did not extend its April 10th effective date.
On March 2nd, the DOL announced a proposal to delay the effective date of the Fiduciary Rule for 60 days. On March 10th, in response to concerns raised by financial services institutions about marketplace disruption based on uncertainty about whether a final rule implementing a delay will be published before the April 10th effective date, the DOL announced a temporary enforcement policy with respect to the rule. Under the policy, if the Fiduciary Rule is delayed by issuance of a final rule after April 10th, the DOL will not impose penalties for noncompliance during the gap period. If instead the DOL decides not to delay the April 10th effective date of the Fiduciary Rule, it will allow advisers and financial institutions a reasonable period of time to comply. Many experts believe that the delays are likely to be finalized and more delays may be forthcoming. What is unclear is whether investment advisers and financial institutions who have already modified their systems and fee structures to comply with the rule will continue with the changes already made or take steps to unravel those changes.
For now, no actions by employers should be needed in response to this delay.
Efforts to Repeal and Replace the ACA
Attempting to fulfill the President's campaign promise of repealing and replacing "Obamacare," this month the new administration released draft recommendations for a reconciliation bill – the "American Health Care Act" - that would, among other things, immediately repeal the ACA's individual mandate penalties, effective back to January 2016. The recommended bill would also eventually replace the premium tax credit (which was based on income) with a refundable tax credit (which will be based on age), in 2020.
For employers, the recommended bill would reduce the employer mandate penalties to zero and make a limited number of other changes, as summarized below:
- Repeals employer mandate ("pay or play") penalties, effective January 1, 2016
- Repeals the health insurance tax, effective January 1, 2017
- Repeals the additional Medicare tax (0.09% add-on) that was imposed on high wage-earners, effective January 1, 2018
- Keeps the Cadillac Tax, but delays it to 2025
- Removes the dollar cap on contributions to health flexible spending accounts (health FSAs) (currently $2,600) and allows them to reimburse OTC medications, effective January 1, 2018
- Allows partial deduction of employer costs of offering Medicare Part D plans
- Eliminates the small employer health care tax credit
Many of the ACA's coverage mandates that employers have complained are driving up health care costs were not addressed in the recommendations (presumably because they are not budget items and therefore can not be included in a reconciliation bill). These include:
- Employer reporting (e.g., Forms 1094 & 1095)
- Essential health benefit requirements
- No-cost preventive care
- Dependent coverage to age 26
- No annual and lifetime limits on essential health benefits
- No pre-existing condition exclusions
- Summaries of benefits & coverage (SBCs)
Another notable item missing from the recommendations is any change to the tax treatment of employer-provided health coverage. Many experts had predicted that the Trump administration would seek to fund its health care legislation in part by capping employer deductions for employer-sponsored health coverage.
This is the first real step that the Trump administration has taken to repeal and replace the ACA, but many changes can be expected to be made to the recommended provisions as they move through the House committee markup process. Including these provisions in a reconciliation bill means that the final bill will have a better chance of passage because only 51 votes are needed in the Senate. However, disagreements among Republicans over what repeal and replace should mean could still make it difficult to achieve this threshold vote.
It is too early for employers to make changes in response to the recommended legislation. The ACA requirements are still in effect. You should monitor the changes and be ready to react quickly if needed. As you move into the planning season for 2018 benefits, be sure to discuss with your broker or advisers what potential choices are available to you, based on each possible scenario.
Also note that the proposed legislation would also phase out Medicaid expansion and replace it with capped payments to states based on enrollment, create a fund for states to subsidize high risk groups, continue to prohibit pre-existing condition exclusions (but allow increased premiums if coverage lapses), and make HSAs more flexible by increasing limits to match HDHP limits, allowing reimbursement of over-the-counter (OTC) medications, allowing a 60-day lookback for eligible reimbursements, and allowing catch-up contributions.
If you have questions regarding this publication or need assistance, please contact one of our Employee Benefits Professionals, or the Nelson Mullins attorney with whom you work.
This Brief should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have.
The articles published in this newsletter are intended only to provide general information on the subjects covered. The contents should not be construed as legal advice or a legal opinion. Readers should consult with legal counsel to obtain specific legal advice based on particular situations.