Morning Bell: Will Unions Want to Repeal Obamacare?

In a typical Friday afternoon “news dump,” the Treasury Department announced it could not grant unions’ request for another special Obamacare break.

This time, unions had lobbied the Administration to let union-run, multi-employer plans receive taxpayer-funded insurance subsidies on the new exchanges. These subsidies would be in addition to the tax break that multi-employer plans, like health plans offered by all employers, already receive.

Union leaders wrote to Senate Majority Leader Harry Reid (D-NV) and House Minority Leader Nancy Pelosi (D-CA) in July asking for the Obamacare “fix,” stating that their progressive “vision has come back to haunt us”:

When you and the President sought our support for the Affordable Care Act (ACA), you pledged that if we liked the health plans we have now, we could keep them. Sadly, that promise is under threat. Right now, unless you and the Obama Administration enact an equitable fix, the ACA will shatter not only our hard-earned health benefits, but destroy the foundation of the 40 hour work week that is the backbone of the American middle class.

However, despite comments by Reid that unions would get another special break, the Administration actually found one part of the law it wants to uphold—after all the waivers, delays, and illegal modifications made to other parts of Obamacare.

The question for unions is, what will they do now? Terry O’Sullivan, President of the Laborers International Union of North America, said on Wednesday that his union wants Obamacare “fixed, fixed, fixed….But if the [law] isn’t fixed…then I believe it needs to be repealed.”

O’Sullivan got his answer two days later—the Administration claims the law can’t be fixed. So will his union now call for Obamacare’s repeal?

As the old saying goes, “Better late than never.” Here’s hoping the Laborers Union, and other unions—having finally discovered that Obamacare could cost them both their jobs and their health insurance—ask Congress to stop the law now.

This post was originally published at The Daily Signal.

It’s Official: Administration Admits Obamacare Is a Job-Killer

Bloomberg News reported this evening that the Obama Administration is set to announce a one-year delay in enforcement of Obamacare’s employer mandate, a move the Treasury Department recently confirmed in a blog post.

However, the problem is not just Obamacare’s employer mandate—the real problem is Obamacare itself. The same individuals who said Obamacare would create jobs, not destroy them, are now the same ones who will say the Administration can “fix” the employer mandate, if only given another year to do so. Conservatives should not be fooled, appeased, or assuaged. Instead, today’s developments should provide every incentive for the American people to redouble their efforts to repeal, defund, and dismantle ALL of this bureaucratic, unworkable law.

The idea that selectively enforcing one provision of the law could “solve” all the problems inherent in Obamacare is absurd on its face. In fact, the Administration’s position raises more questions than it answers:

  • If the employer mandate will prove so devastating to businesses that it can’t be enforced in 2014—following three years of implementation work—why should it be enforced at all?
  • Will delaying implementation of the employer mandate encourage more firms to drop coverage entirely and dump their workers on to Exchanges, raising the cost of taxpayer-funded subsidies by trillions?
  • What about individuals who can’t afford to buy health insurance, yet will be forced to do so under Obamacare? Will they get an exemption from enforcement as well?

It is hard to understate the impact of today’s devastating admission from the Administration that, after three years, it still cannot implement Obamacare without strangling businesses in red tape and destroying American jobs. That said, it is still not too late for Congress to do the right thing, and refuse to fund what the Administration has now—finally—admitted is a job-killing train wreck.

This post was originally published at The Daily Signal.

Rep. Stearns Op-Ed: Medicaid for Millionaires

“We shouldn’t have to do that, because they should know better.”

So said President Obama in explaining why the Treasury—quite rightly—forced Citigroup to cancel the purchase of a $50 million corporate jet after the banking firm accepted tens of billions in federal bailout dollars. But he could well have been talking about his Democratic colleagues in Congress, who seem perfectly willing to give the former executives of these firms generous federal health benefits—even though they too should know better.

Consider the case of Henry Waxman, a Democrat who has represented Beverly Hills in Congress for over 30 years. Last fall, as Chairman of the Oversight and Government Reform Committee, he led hearings on the financial crisis, and criticized companies for taking “massive risk. When the bottom fell out, senior management walked away with millions of dollars, while shareholders and taxpayers lost billions.”

Fast forward to this year and a new Congress, where Mr. Waxman assumed the Chairmanship of the Energy and Commerce Committee, on which I sit. As Chairman, Waxman wrote major health-related sections of the economic “stimulus” legislation which Congress is currently considering. The proposal Mr. Waxman presented to the Committee spent more than $100 billion on various health spending projects, and created two new federal entitlements—one expanding Medicaid to individuals receiving unemployment compensation, and the second providing subsidies to individuals who choose continuation coverage from their former employers.

But for the new entitlements, there was a massive loophole. Because the bill explicitly prohibited income or asset tests from being applied to people receiving the new health care entitlements, anyone who recently lost their job—including the former CEOs who Mr. Waxman said last fall “walked away with millions”—could receive free or subsidized health care courtesy of federal taxpayers. At a time when all Americans are struggling to make ends meet, I viewed these uncapped subsidies as a poor use of taxpayers’ hard-earned money—and an unnecessary expansion of government to boot.

So when our Committee met to consider the “stimulus” legislation, I offered an amendment to the legislation to make sure that individuals with income over $1 million who elected continuation coverage from their former employers would not receive federal subsidies to pay for that coverage. Chairman Waxman accepted my amendment, and said he would “try to find a way to structure” the subsidies so that wealthy executives wouldn’t be eligible for subsidies they really shouldn’t need.

But several days later, when Democrat leaders introduced the version of the “stimulus” legislation that the House was actually going to vote on, my amendment was stricken from the bill. The omission wasn’t because a cap on the federal health subsidies was unworkable—Congressional tax advisers told a Senate committee an income-based cap was feasible to implement. No one was able to give me a straight answer as to why my amendment wasn’t included in the final bill—Speaker Pelosi actually put out a press release saying my amendment had been accepted as part of the “bipartisan” debate, when in reality my amendment and those of two of my other Republican colleagues had been unceremoniously dumped behind closed doors.

This incident raises a couple of key questions—one procedural, the other political. First, how bipartisan is it to accept an amendment one week, only to remove it without explanation or cause the next? Second, now that they control Congress and the White House, are Democrats so insistent on expanding the federal government’s role in health care that they want to provide subsidized coverage to the same fired executives they have so recently blamed for causing our current economic crisis?

In the end, the final “stimulus” product included an income cap so that taxpayers’ funds won’t be to subsidize the health insurance of Bernie Madoff and other similar characters. But it begs the same point President Obama raised when talking about Citigroup’s desire for a new corporate jet: We shouldn’t have to tell Democrats not to give federal health benefits to millionaires—because they should know better.

This post was originally published at RedState.

Question and Answer: Tobacco Regulation Bill

The House may soon be faced with a vote on a measure (H.R. 1108) to include tobacco products under the regulatory authority of the Food and Drug Administration (FDA).  The RSC has prepared the following analysis providing background information on the legislation, as passed by the House Energy and Commerce Committee on April 2, 2008.

What is the purpose of the provisions of H.R. 1108 regulating tobacco products? 

Both the stated purpose and expansive scope of the proposed FDA regulation of tobacco under H.R. 1108 can be observed in Title I of the bill: “The Secretary [of Health and Human Services] may by regulation require restrictions on the sale and distribution of a tobacco product, including restrictions on the access to, and the advertising and promotion of, the tobacco product, if the Secretary determines that such regulation would be appropriate for the protection of the public health.”  Under the bill, the definition of the public health is extended to both users and non-users of tobacco products.

Some conservatives may note that this language is a significant modification from the original justification for tobacco regulation—namely, the need to protect children from gaining access to tobacco products.  In fact, while children are mentioned several times in the findings section of H.R. 1108, the word “children” appears only four times in the remaining 176 pages of the bill.  Some conservatives may be concerned that this new focus on a more expansive goal of protecting the public health may divert energy away from efforts to combat underage consumption of tobacco products.

Does H.R. 1108 contain a tax increase?

Many conservatives may be concerned that it does.  The bill includes assessments on tobacco companies, ostensibly termed “user fees,” to finance the FDA’s work regulating tobacco products.  However, the Congressional Budget Office estimates that tobacco regulation will reduce the number of smokers—thus decreasing the amount of revenue derived to the federal government from tobacco taxes.

While the version of H.R. 1108 reported from full Committee attempted to address this matter by including a finding that the bill’s scope was not intended to intrude upon any authority under the Internal Revenue Code, the House Ways and Means Committee has requested a referral on the grounds that the fee ultimately constitutes a tax.  As Ways and Means Chairman Rangel wrote to Speaker Pelosi on April 3, 2008:

The amount of money raised by the assessment of the user fee is more than the amount of money being made available to the Secretary of Health and Human Services (HHS) for the regulation of tobacco….Since the bill forbids the funds from being spent on anything other than tobacco regulation, [the funds] would in fact revert back to the general fund of the U.S. Treasury.  The Committee on Energy and Commerce would then be financing the costs of government generally, which is clearly the jurisdiction of the Committee on Ways and Means.

Therefore, many conservatives may be concerned that, following Chairman Rangel’s own logic, the “user fee” in H.R. 1108 in fact constitutes a tax increase on tobacco companies.

Under what standard would tobacco be regulated under H.R. 1108?

The bill would re-institute standards first proposed in 1996 to regulate tobacco as a medical device.  However, it remains unclear how these standards can be reconciled with the inherent nature of tobacco products.  For instance, Title I of H.R. 1108 deems a tobacco product as “adulterated” if “it consists in whole or in part of any filthy, putrid, or decomposed substance, or is otherwise contaminated by any added poisonous or added deleterious substance that may render the product injurious to health.”  Based on this description, it is unclear how any tobacco product would fail to qualify as “adulterated,” raising questions as to how the standards can be appropriately applied.

Will H.R. 1108 impede the introduction of reduced-risk tobacco products?

H.R. 1108 places stringent restrictions on the introduction and marketing of new products that would reduce or modify the inherent risks associated with the consumption of tobacco.  The bill states that a reduced risk product may be marketed only if the product will “significantly reduce harm and the risk of tobacco-related disease to individual tobacco users” and also will “benefit the population as a whole,” including persons who do not consume tobacco products.  Other reduced risk products may be approved for distribution, but will be subjected to further marketing restrictions, post-market surveillance, and potential revocation of the distribution license after a five-year period.  Some conservatives may be concerned that such onerous restrictions on the introduction of new reduced risk tobacco products could have the effect of inhibiting the introduction of products that could reduce the risks associated with tobacco consumption while potentially serving as a barrier to entry for new market competitors.

How would tobacco advertising be regulated under H.R. 1108?

In addition to codifying federal restrictions, which tobacco companies agreed to in their 1998 settlement with state Attorneys General, H.R. 1108 places additional federal restrictions on tobacco advertising, while simultaneously eliminating federal pre-emption by allowing states to enact legislation “imposing specific bans or restrictions on the time, place, and manner, but not content, of the advertising or promotion” of tobacco products.  Some of the federal restrictions on advertising content in H.R. 1108 include the following specifications for the size of warning labels on tobacco products:

The text of such label statements shall be in a typeface pro rata to the following requirements: 45-point type for a whole-page broadsheet newspaper advertisement; 39-point type for a half-page broadsheet newspaper advertisement; 39-point type for a whole-page tabloid newspaper advertisement; 27-point type for a half-page tabloid newspaper advertisement; 31.5-point type for a double page spread magazine or whole-page magazine advertisement; 22.5-point type for a 28 centimeter by 3 column advertisement; and 15-point type for a 20 centimeter by 2 column advertisement.

Some conservatives may be concerned that the highly prescriptive restrictions described above, and elsewhere in H.R. 1108, constitute an undue intrusion on companies’ constitutional free speech rights to advertise a product that most Americans already know is unhealthy.

What implications might consumers draw from FDA’s proposed role in regulating tobacco?

As FDA Commissioner Andrew von Eschenbach testified before the House Energy and Commerce Committee in October 2007, the FDA has heretofore been structured as an agency to promote and protect the public health.  In the Commissioner’s opinion, requiring FDA to “approve” tobacco products as a result of H.R. 1108 would dramatically change the agency’s focus: “Associating any agency whose mission is to promote public health with the approval of inherently dangerous products would undermine its mission and likely have perverse incentive effects.”

Is FDA competent to regulate tobacco products?

The statements of several Congressional Democrats—who have criticized the agency’s handling of food and drug safety, particularly with regard to imported products—raise questions as to why they would support granting new and broad authority to FDA with regard to tobacco regulation.  For instance, Energy and Commerce Oversight Subcommittee Chairman Bart Stupak (D-MI), in holding a hearing on FDA’s decision to approve an antibiotic despite receiving false clinical trial data, called the incident “a microcosm of the failure by all FDA stakeholders—FDA, pharmaceutical sponsors, and third-party monitors—to ensure the integrity of clinical trials used to support the safety and approval of new drug applications.”  On top of questions which Democrats themselves have raised regarding FDA’s competence, some conservatives may question whether the food safety concerns that have arisen in recent months make now an appropriate time significantly to expand the agency’s regulatory remit and mission.

Important Points on the Medicare Trigger

Virtually all independent experts have confirmed what most of the public already knows: Rising health care costs and the retirement of the Baby Boomers make Medicare’s financial future precarious.  Yet while Republicans have advanced plans to improve this important program’s solvency, Democrats seem intent on ignoring the looming entitlement crisis until it is too late.

Medicare Comprises a Large—and Growing—Share of Government Spending

In 2006, the Centers for Medicare and Medicaid Services reports that Medicare outlays were $408.3 billion.  Comparable 2006 data from other government agencies demonstrates the relative size of Medicare’s budget:

  • If Medicare were its own country, it would have the 17th largest economy of the 180 national economies ranked by the World Bank.
  • Federal Medicare spending exceeds the total national GDP of the 16 countries that comprise southern Africa combined.
  • The federal government spends more money on Medicare than the Departments of Agriculture, Education, Energy, Homeland Security, Transportation, and Veterans Affairs spend combined.
  • The Medicare actuaries predict that over the next decade, Medicare spending will rise by an average 7.4% per year—more if scheduled reductions in physician payments do not take effect.

Medicare Faces a Bleak Financial Future

Projections from the Congressional Budget Office (CBO) and the annual report issued by the Medicare trustees provide some indication of the scope of the fiscal problems facing Medicare in the future:

  • The Medicare trustees report released in March projected that the Medicare Hospital Insurance Trust Fund will be exhausted in 2019—just over a decade from now.
  • The trustees also project that overall spending on Medicare will rise from its 2006 level of 3.1% of GDP to reach 7.0% of GDP by 2035 and 10.8% GDP by 2082—nearly twice the size of Social Security, and more than one dollar out of every ten spent (public or private) nationwide.
  • CBO estimates—which, unlike the trustees’ report, presume that health costs will continue to rise at a pace consistent with past trends—that Medicare alone will constitute 17% of GDP by 2082—a nearly sixfold increase from 2006 and equal to all health care spending (private and public) today.
  • A former Medicare trustee found that, in order to solve the program’s funding shortfall, Part B premiums would need to rise to over $3,000-$5,000 per month in today’s money if the share of general revenue Medicare funding remains constant.

Democrats Have No Plan to Restore Medicare’s Solvency

While the Congressional Budget Office has concluded that “the main message [from both reports] is that health care spending is projected to rise significantly and that changes in federal law will be necessary to avoid or mitigate a substantial increase in federal spending on Medicare,” Democrats have not acted to fix the problem:

  • When the Medicare trustees released their report noting that Medicare faces nearly $86 trillion in unfunded obligations, Ways and Means Health Subcommittee Chairman Pete Stark responded by saying, “I don’t think it makes any difference what [the trustees] say” about the precarious state of Medicare’s funding.
  • Former Comptroller General David Walker has noted that each year Congress does not act to reform its entitlement obligations, the size of the debt the next generation of Americans face grows by $2 trillion.
  • Republicans have put forth several proposals to close the size of the Medicare funding gap—but Democrats would rather grow the federal debt than take reasonable steps to slow the growth of America’s massive government programs.

Question and Answer: Health Savings Account Restrictions

On April 9, 2008, the House Ways and Means Committee passed legislation (H.R. 5719) with provisions placing additional restrictions on Health Savings Accounts (HSAs).  In anticipation of floor consideration of the measure, the RSC has prepared the following document providing context and background information on the proposal.

What change to Health Savings Accounts are Democrats proposing?

Section 17 of H.R. 5719 requires “substantiation” of all HSA transactions from an independent third party, to ensure that money withdrawn from an HSA pays for qualified medical expenses.  Specifically, the section would make the income tax deduction associated with HSA contributions contingent on substantiation of all withdrawals, beginning in 2011.  This oversight of every single account transaction would make HSAs similar to Flexible Spending Arrangements (FSAs), an earlier consumer-driven health care model.

How are FSAs and HSAs different?

One of the prime differences between the two account-based models lies in the control source for the funds in the account.  The Internal Revenue Code makes clear that FSA accounts are held by employers, while HSA funds remain exclusively the property of the employee.  This distinction explains why unused FSA funds in an employee’s account at the time of departure revert back to the employer, while HSA funds always remain with the employee, and remain portable from job to job and into retirement.  Some conservatives may be concerned about the potential implications of transferring a “substantiation” system designed for employer-owned FSAs to individually-owned HSAs—both in terms of the legal liabilities placed on employers and administrators to verify transactions, and the restrictions placed on individuals to control their HSA account dollars.

How are HSA and FSA withdrawals administered?

Right now, most HSA transactions take place using point-of-sale debit cards that make electronic fund transfers directly from the account.  Conversely, most FSA transactions remain paper-based, requiring out-of-pocket spending by the individual and subsequent reimbursement from the FSA after approval by an administrator.  While Treasury has released new regulations to make FSA reimbursement simpler, some conservatives may remain concerned that the Democrats’ proposed change may make the HSA model less attractive to consumers.

What penalties are currently in place to ensure HSA funds are spent on qualified medical expenses?

Under the Internal Revenue Code, non-qualified withdrawals from an HSA are subject to individual income taxes, as well as a 10% penalty.  HSA account activity is subject to audits from the Internal Revenue Service, and account holders are advised to retain their receipts documenting qualified medical expenses in the event of an audit.

What measures do HSA administrators currently have in place to ensure that withdrawals from the account are made for qualified medical expenses?

Right now, some banks that administer HSAs have electronic debit cards that can “read” the merchant code where the transaction is taking place (e.g. a doctor’s office).  If a request for transaction is occurring at a location not normally associated with qualified medical expenses, the debit card can decline the transaction.  Some administrators have developed more advanced technology to differentiate product codes within a merchant’s offerings—for instance, accepting grocery store transactions for cough syrup (a permissible over-the-counter drug) while rejecting attempts to purchase items within the same store for items without a clear medical use, such as beer or wine.  This advanced technology is in the process of being rolled out; however, many banks and account administrators have expressed their view that enactment of this legislative provision could prompt their withdrawal from the HSA marketplace.

Does the fact that some HSA withdrawals are made at places like grocery stores mean that these withdrawals are not for qualified medical expenses?

Not necessarily.  The list of qualified medical expenses is quite broad, and generally includes most items reimbursable from a Flexible Spending Arrangement or deductible on an individual tax return if total medical expenses exceed 7.5% of an individual’s adjusted gross income.  Under certain circumstances, legal expenses (to authorize mental health care), lodging and travel expenses (related to medical treatment) and even the cost of a telephone (for the hearing impaired) can be considered medical expenses.  Some conservatives may be concerned that the proposal under consideration would essentially shift the burden of proof from the government (to prove that an expenditure was improper in the context of a tax audit) to the consumer to prove compliance at the time of withdrawal, causing additional inconvenience to the HSA holder.

Are withdrawals made for causes other than qualified medical expenses unlawful?

Only if the account holder does not pay income taxes and a 10% penalty.  Under current law, it is the account holder’s obligation to declare such non-qualified withdrawals—a policy comparable to withdrawals from an Individual Retirement Account (IRA).  Account holders who do not pay appropriate taxes and penalties on withdrawals not for qualified medical expenses are subject to an Internal Revenue Service audit.

How many HSA withdrawals are unlawful?

The percentage is unclear for two reasons.  First, estimates of the amount of withdrawals made that do not involve qualified medical expenses vary.  While one HSA administrator claimed that 12% of withdrawals were made at vendors not normally associated with qualified medical expenses, HSA administrators affiliated with the American Bankers Association claim that only 2.7% of their withdrawals took place at such vendors—and, for the reasons explained above, the fact that a vendor is not a qualified health provider does not mean that a transaction itself is not a qualified medical expense.  A 2006 Government Accountability Office (GAO) study on HSA usage found that 10% of all withdrawals were made for purposes other than qualified medical expenses; however, GAO had only a single year (2004) of HSA withdrawal data available at the time it compiled its report.

What remains largely unknown is the percentage of transactions not associated with qualified medical expenses for which the account holder does not pay appropriate taxes and penalties.  At the Ways and Means markup, Treasury Department officials presented preliminary data indicating a relatively high rate of compliance with respect to self-attestation of non-qualified withdrawals, which if proven accurate would obviate the need for the legislative change.  Even as the Ways and Means Committee passed the substantiation language, both Democrats and Republicans decried the lack of available evidence to judge the need for this particular provision.

How does this provision save money for the federal government?

The Joint Committee on Taxation notes that Section 17 of H.R. 5719 would save $151 million over five years and $308 million over ten years.  However, the cause for this savings is unclear.  During the Ways and Means markup, Joint Tax staff admitted their inability to determine how much of the savings would result from newly captured penalties and taxes and how much of the savings would come from lower HSA take-up rates and/or lower contribution levels to HSAs.  Some conservatives may be concerned that it remains unclear whether this provision would achieve its stated purpose by increasing oversight of questionable HSA withdrawals—or will instead achieve budgetary savings by making HSAs less attractive to consumers.

Employers contribute money to their employees’ HSAs.  Shouldn’t they have a right to know that their contributions are being spent for medical purposes?

Unlike FSAs, which are considered as being held by the employer, an HSA is considered the employee’s property, and any cash contributions immediately accrue to the worker.  Thus an employer has no more or less right to know the employer’s contributions are spent on qualified medical expenses than a business has a right to determine that the employer’s share of 401(k) contributions is ultimately spent on retirement expenses.  In both cases, the penalties for a non-qualified distribution are the same—income taxes owed, plus a 10% penalty.

In an advisory opinion on the status of HSAs, the Department of Labor (DOL) held that an employer’s transfer of cash contributions into an employee’s HSA does not constitute group coverage under the Employee Retirement Income Security Act of 1974 (ERISA) because of the employer’s inability to control the funds in the employee’s account.  Many small businesses—who have heretofore not been able to finance health insurance coverage for their workers—have used the flexibility provided by the DOL opinion to place cash contributions into their employees’ HSAs without triggering the regulatory burdens imposed on ERISA group health insurance plans, benefiting both the business and the worker.

What may be the practical implications of this proposed change to HSAs?

In addition to increased inconvenience for end users, introducing a new step of independent “substantiation” may well increase costs for banks and account administrators, who are likely to pass these costs on to employers and/or consumers.  While Democrats have complained in recent months about the charges which banks and other commercial lending institutions pass on to their customers, this provision carries a strong likelihood of increasing those costs further.  In addition, some conservatives may also be concerned that should this proposal pass, an HSA mechanism created to reduce the growth of health care costs—and which has achieved some noteworthy successes in the time since its introduction—would lead to increased costs for businesses and individuals.

What organizations oppose this proposed change to HSAs?

Although some members of the business community support other provisions included in H.R. 5719, many organizations have expressed concern about the substantiation requirements—including the company (Evolution Benefits) that first brought the issue to the Committee’s attention.  A partial list of organizations opposing the HSA substantiation provision includes:

  • America’s Health Insurance Plans
  • Business Roundtable
  • Credit Union National Association
  • Financial Services Roundtable
  • HSA Council (part of American Bankers Association)
  • International Franchise Association
  • National Association of Health Underwriters
  • National Association of Manufacturers
  • National Federation of Independent Business
  • National Restaurant Association
  • National Retail Federation
  • National Taxpayers Union
  • U.S. Chamber of Commerce

Weekly Newsletter: April 7, 2008

Democrats Plot Restrictions on Health Savings Accounts

Reports surfaced this week that the Democratic majority may be attempting to enact new restrictions on Health Savings Accounts (HSAs) as part of upcoming health legislation. The proposal being discussed would require that all HSA account holders submit information showing what portion of their HSA expenditures in a given year have been independently verified as constituting qualified medical expenses.

Available data suggest that the percentage of HSA funds being used for non-medical expenses is comparatively low—particularly upon close examination. For instance, purchases in a grocery store may at first blush appear irrelevant to HSA use—but in reality many of these transactions could involve permissible medical items (over-the-counter pharmaceuticals, prescriptions, medical supplies, etc.). And in those instances when individuals do use their HSA funds to make major non-health expenditures, the Internal Revenue Service has audit procedures in place to ensure that account-holders pay income taxes on non-qualified distributions—plus a 10% penalty to discourage such behavior.

When drafting the regulations implementing Health Savings Accounts in 2004, the Treasury Department attempted to create a framework that would ensure that HSA funds would be used for bona fide medical expenses, while avoiding burdensome regulations that would inhibit the growth of this innovative consumer-driven health product. The proposal under discussion places an additional burden on account holders to document their purchases—even the $3 bottle of cough syrup an individual might choose to buy at a grocery store like Safeway rather than at a CVS or other pharmacy—and may have a similarly chilling effect on insurance carriers and banks currently offering account-based products to individuals and employers.

Some conservatives may be concerned that this proposal represents the first of many impending attempts by the Democrat majority to enact burdensome and bureaucratic regulations undermining HSAs, which in a few short years have proven successful at slowing the growth of health costs and insurance premiums for millions of individuals and small businesses. Some conservatives may also be concerned that this particular provision, brought to the attention of the Democratic Ways and Means Committee staff by a former Republican staffer-turned-lobbyist, may constitute a legislative “earmark” drafted specifically to benefit one company (Evolution Benefits) seeking to market its substantiation technology to HSA administrators.

The attached policy brief explains the issue in further detail. The RSC will continue to monitor this or any similar attempts to enact burdensome restrictions on HSAs, and will weigh in to protect the important consumer-driven health programs which Republicans have succeeded in establishing in recent years.

House Committee Attempts to Override Medicaid Regulations Restoring Fiscal Integrity…

This past Thursday, the House Energy and Commerce Committee held a Subcommittee hearing on legislation (H.R. 5613) that would impose moratoria on several proposed regulations issued by the Centers for Medicare and Medicaid Services (CMS) to restore fiscal integrity to the Medicaid program. The regulations come as a response to more than a dozen Government Accountability Office (GAO) reports released since 1994 highlighting the various ways states have attempted to “game” the Medicaid program, reducing their share of program spending through various mechanisms designed primarily to increase the amount of federal matching funds received. The Energy and Commerce Committee may mark up legislation overriding the regulations as soon as this week.

While several state officials testified about the impact that the proposed regulations would have on their Medicaid programs in the current economic downturn, many conservatives may be concerned about the ways in which various questionable financing schemes—some of which have been used by states for more than a decade—have left Medicaid paying for non-health-related activities, such as trips to grocery stores and bingo games. With the proposed regulations reducing the federal share of Medicaid spending by only 1% over the next five years, some conservatives may have concerns should Congress attempt to override CMS’ modest attempts to restore fiscal integrity to Medicaid. However, some conservatives may embrace the opportunity presented by this discussion to advance concepts for more comprehensive reform of Medicaid program financing, to control health care costs and set clear fiscal priorities for the use of scarce federal dollars.

RSC Policy Briefs on the federal-state Medicaid relationship can be found here and here.

…While Marking Up New Regulations on Tobacco

Thursday’s hearing in the Health Subcommittee followed Wednesday’s full Energy and Commerce Committee markup of legislation (H.R. 1108) that would impose authority on the Food and Drug Administration (FDA) to regulate tobacco. While the bill as modified in Committee altered proposed “user fee” language, some conservatives may remain concerned that the bill would impose additional free speech and marketing restrictions on tobacco companies, and could increase black market activity of tobacco products. Some conservatives may also echo the statements of FDA Commissioner Andrew von Eschenbach, who has stated that tobacco regulation is not in line with FDA’s core mission—and question why Congressional Democrats who have criticized the FDA’s handling of various matters related to food and drug safety now consider the agency competent to regulate tobacco products.

The RSC will be monitoring this legislation as it makes its way to the House floor, and will be weighing in during the process to express conservatives’ concerns.

Interview of Note: “Crisis? What Crisis?”

This past week, Chairman of the House Ways and Means Health Subcommittee Pete Stark (D-CA) appeared on C-SPAN’s Washington Journal to discuss the Medicare trustees’ report released during the congressional recess. When asked about the impact of the trustees’ projection that the Medicare Hospital Insurance Trust Fund would become insolvent in 2019—just over one decade from now—Stark answered: “I don’t think it makes any difference what they say.” This followed on the heels of his statement at Tuesday’s Health Subcommittee hearing that “Medicare is not in crisis.”

Many conservatives may be concerned by Chairman Stark’s insouciance at a time when the federal government faces spiraling costs for Medicaid, Medicare, and Social Security that both the Medicare trustees and most independent observers agree are unsustainable. Many conservatives believe that the time has long since arrived for the federal government to place its own fiscal house in order, because, as countless homeowners have observed in recent months, further delay will do nothing to prevent the problem—and will only make the ultimate solution harder on all parties.