October 19, 2017

Budget and Tax Deliberations Continue; Cost-Sharing Reduction Bill Falters in Senate

The Senate began debate this week on a fiscal year 2018 budget resolution. If finalized by Congress, the measure (S Con Res 25) would pave the way for the upper chamber to consider the GOP’s tax reform plan under expedited procedures. That process, known as budget reconciliation, would allow Republicans in the Senate to clear an eventual tax-code rewrite with a simple majority vote (instead of the 60 votes that are typically required to pass most legislation of consequence).

It should be noted that Senate Republicans are expected to amend a previously passed House version of the budget resolution (H Con Res 71), which would require the two chambers to reconcile their differences before moving forward with a tax cut bill under the budget reconciliation process. Among other disparities, the House and Senate budgets would set overall discretionary funding for fiscal year 2018 at different levels. While the House measure would bust the Budget Control Act’s (BCA) spending limits for defense programs by over $72 billion and trim non-defense funding by $5 billion, the Senate resolution would comply with the BCA’s caps.

Both resolutions also include language assuming trillions of dollars in cuts to mandatory spending programs (entitlements) over 10 years. While it is unclear how most of those spending reductions would be achieved, the House measure includes reconciliation instructions that direct 11 committees to produce legislation that would reduce the deficit by a combined $203 billion over the ensuing decade.

On a related matter, the House and Senate authorizing committees that are responsible for writing tax legislation have continued the process of drafting their respective bills. While it is unclear when the Senate Finance Committee will release a draft, the House Ways and Means Committee is expected to unveil draft language at end of the month. As of this writing, it is unclear how the House committee intends to address the deduction for state and local taxes (SALT), though Republican leaders are targeting the deduction as a means to help offset the overall cost of the tax package.

In other developments, the House on October 12 approved legislation (HR 2266) that would provide $36.5 billion in disaster aid to help communities affected by recent hurricanes and wildfires. Among other things, the package includes $18.7 billion for the Federal Emergency Management Agency’s (FEMA) disaster relief fund, of which $4.9 billion could be transferred to the agency’s Community Disaster Loan (CDL) program to help local governments provide essential services. In addition, the measure includes $16 billion to address national flood insurance program debt and would also provide up to $1.27 billion for disaster food assistance in Puerto Rico. Of direct interest to California, $576.5 million would be dedicated for wildfire suppression efforts in the West.

Across Capitol Hill, lawmakers from states impacted by the recent disasters have called on Senate leaders to increase the size of the aid package. However, the National Flood Insurance Program is projected to run out of funds by next week. If the Senate makes any changes to the current measure, it would put pressure on the House to immediately approve the new bill when it returns on Monday. As an alternative, Senate leaders have also discussed the possibility of a third disaster aid package that would move later this fall.

Cost-Sharing Reduction Payments

This week, Senators Lamar Alexander (R-TN) and Patty Murray (D-WA) announced a bipartisan agreement to fund the Affordable Care Act’s Cost-Sharing Reduction (CSR) payments through 2019. A source of controversy for months, the payments are made to health insurance companies to assist low and moderate income subscribers meet their co-pays and deductibles. The impetus for the Alexander-Murray bill gained urgency given last week’s announcement by the Trump administration that the executive branch would cease those monthly payments immediately.

For their part, health insurance companies have stated that the loss of the CSRs would greatly disrupt the individual marketplace and would lead to double-digit increases in premiums. Ironically, given the interaction between increased premiums and marketplace subsidies to pay for them, the Congressional Budget Office has estimated that it would cost the federal government more to help lower-income subscribers pay their premiums than to offer subsidies for co-pays and deductibles under the CSRs. In light of the Trump administration’s action, and absent legislation to address CSR payments, more moderate income individuals will likely see their premiums skyrocket and insurers may pull out of some states due to the tremendous uncertainty of the federal commitment to them and their subscribers.

With regard to the Golden State, Covered California has indicated that the state’s proactive planning likely means there will be little or no impact on current 2017 coverage or rates for California subscribers. Moreover, there is expected to be no effect on 2018 premiums or subscribers’ ability to access those benefits next year.

Although the Alexander-Murray agreement was just announced on Tuesday, the chances for its success already appear to be dwindling. For their part, GOP Senate leaders have declined to endorse the proposal, while conservative House Republicans – backed by Speaker Paul Ryan (R-WI) – have announced their opposition. For his part, President Trump has been unclear on his position, initially supporting the plan only to subsequently signal his opposition.