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Tax Reform in 2013? Maybe, Maybe Not

Joe Dowley served as Chief Counsel of the Committee on Ways & Means, U.S. House of Representatives when Congress last undertook fundamental tax reform.

Here are a few of the reasons why Congress may undertake tax reform in 2013, together with why not rebuttals:

To avoid the March 1st sequester ($100.9 billion in across-the board cuts from defense and non-defense discretionary accounts), and/or to pass appropriations to avoid a government shutdown on March 27th, leaders will agree in February on a new fiscal approach including tax reform as well as more carefully targeted spending cuts. The plan would be for both houses to agree to a budget resolution reflecting a consensus number on revenues, as well as discretionary spending cuts and a process for dealing with entitlement reforms. This has been described in the past as a “Grand Bargain”. The rationale for this is that the sequester is a mindless and damaging “nuclear” default that was never intended to take effect and will needlessly damage defense and other programs that could be cut in a wiser fashion; shutting down the government is fraught with political downsides, and costly; and a balance of significant new revenues and sufficient spending reductions is exactly what most economists say is needed to successfully bend down the upward curve of the nation’s debt. Besides, in tax reform there is the possibility of reducing individual tax rates – something voters should like, even as favored tax benefits and unpopular cuts are being made. A little sugar makes the medicine go down…

Countering this is the sense that Republicans have that they’ve “already given at the office” when it comes to new revenues, to wit: $600 billion in higher income taxes on wealthier individuals in the just-enacted ATRA. The argument is that the House Republican Conference simply won’t support tax levels above the new (current) baseline. Many Republicans would like to see tax reform happen – foremost is Chairman Dave Camp of Ways & Means – but there is concern that if the House produces a revenue-neutral bill that reduces rates by broadening the tax base, members will have taken hard votes eliminating popular tax benefits only to have the Senate produce a bill raising more revenue from the wealthy and permitting them to hammer home the theme that Republicans stand for protecting their “friends.” Rumor abounds that Speaker Boehner has admonished Rep. Camp to “go slow” on reform on this premise. Also, to date there has been zero movement on dealing with the sequester, which leads some to think that there won’t be an effort to head it off, after all.

There is a good deal of consensus around the idea of fixing the U.S. corporate tax regime, although not necessarily centered on the idea of adopting a territorial system to replace the modified world-wide system now in place. Major business associations like the Business Roundtable are agitating for reform. Many reformers see the revenue from reductions in business tax breaks and other provisions as a means of lowering overall rates both for businesses and individuals. The recently released Ways & Means discussion draft on financial products taxation is an example. If enacted it would raise significant new revenue that could be directed to lowering rates. If tax writers head down the corporate reform path, many feel that it is inevitable that individual reform will accompany the effort, if only because of the growth in business pass-through entities (taxed at the individual level) since the Tax Reform Act of 1986.

Some Democrats are not so sure that delving into the way the U.S. taxes its multi-national corporations will yield a positive result, given the head of steam built up around going to a territorial system – something the House is sure to do. In a conference with the Senate, they worry that in return for some increased level of revenues the trade-off will be a permanent change in the views of U.S. multinationals regarding the location of their operations. Some are predicting that increasingly globalized U.S. corporations will have increased incentives to move even more operations – and jobs – off-shore. Finally, members on both sides of the aisle are wary of taking hard votes to end favored tax provisions only to have the whole exercise crater due to a failure to reach an agreement in conference on the question of how much is enough revenue.

Comment: The fear of failure can have a paralyzing effect. Some of the fear can be dealt with if top leaders, including the President, agree not to go after the other side as the House and Senate reform products are being developed.  President Reagan agreed to such restraint in 1985 when the Democratic House processed its version of tax reform. In the end this facilitated production of the two bills that conferees successfully transformed into the Tax Reform Act of 1986.

Tax Reform in 2013? Maybe, Maybe Not

US House Ethics Committee Mandates Greater Transparency for Travel and Disclosure

In the past month, the United States House Committee on Ethics has issued two comprehensive “pink sheets” implementing new disclosure requirements for privately sponsored travel and for member finances.  Both sets of requirements are designed to increase transparency and public trust in government but also provide significant compliance challenges for the private sector and their representatives.


On December 27, 2012, the House Committee on Ethics issued comprehensive regulations on privately sponsored travel in an effort to prevent lobbying organizations from financing Member travel for those they hope to influence through non-profit sister organizations closely aligned with the lobbying organization.  Past examples of such travel receiving considerable press scrutiny have included biennial trips to Israel for members and staff paid for by the nonprofit American Israel Education Foundation which is closely aligned with the lobbying organization, American Israel Public Affairs Committee (AIPAC).

While privately sponsored travel for Members and staff is still permitted, the new regulations require increased sponsor transparency and increased (to thirty days) lead time for Committee approval.  The one exception afforded to entities that engage in limited lobbying activities is with respect to travel sponsored by “US institutions of higher learning”.

According to a press release issued with the new regulations, this is not the end of the road for public scrutiny of privately sponsored travel:

the Committee will add to the disclosure requirements in new certification forms to increase the significant transparency that has already led to abundant reporting and comment on these trips.  With the improved processes, the Committee will continue to examine the growth of groups related to organizations that retain lobbyists, and will continue to consider whether there is a need and fair manner to regulate further, beyond the significant transparency already in place.

The new regulations become effective for travel taking place on or after April 1, 2013.

Financial Disclosure

Every year, on May 15, all Members of Congress and senior staff (defined as those earning more than $119,553.60 per year) are required to submit public financial disclosures.  All dread the process, but this year, that task will be considerably more onerous.  Last week, on January 23, 2013, the House Committee on Ethics issued guidance clarifying that filers will now be required to disclose the individual assets held by their investment funds and accounts as opposed to simply disclosing the name and overall value of the account.

This new regulation is in direct response to the public outrage over member trading on what some considered to be “inside information” which led to passage of the STOCK ACT.

Now, the only funds exempt from individual disclosure will be publicly traded “widely held investment” accounts such as mutual funds in which no entity (other than the US government itself) holds more than a 5% interest.  Every other holding of a Member’s 401(k) and IRA will have to be individually itemized on the Congressional disclosures.

US House Ethics Committee Mandates Greater Transparency for Travel and Disclosure

Charter Schools Newsletter: Inaugural Edition

The charter school movement is playing an increasingly visible role in education reform activity at the federal, state, and local level.

To that end, we are excited to launch a new, quarterly newsletter that will serve as an opportunity to share updates and analysis of key and emerging legal and policy issues facing the charter sector across the country.

We’re launching our newsletter to coincide with National School Choice Week, an annual effort to highlight the importance and availability of quality educational options and innovative school choice programs across the country.

Charter Schools Newsletter: Inaugural Edition

Prospects for Tax Reform are Improving

Joe Dowley served as Chief Counsel of the Committee on Ways & Means, U.S. House of Representatives when Congress last undertook fundamental tax reform.

One hesitates to predict these days what the new Congress might do in 2013-14. The past few years will not be marked by historians as a high water mark in terms of legislative productivity, efficiency or civility. With all the potential interests that would be impacted in a sincere effort to rewrite the code, tax reform is one of the most difficult tasks any Congress might undertake. It absolutely requires some level of comity between the political parties, between the two chambers, and with the White House. Participants, most notably the President and party leaders, need to apply patience and verbal constraint and be willing to express an occasional word of support during the process if it is to have a chance. The Committees involved need to be given the freedom to operate — i.e., let members on both sides meaningfully participate. Predicting that this Congress and President will actually undertake what could be landmark legislation in such a manner is done at real peril to one’s reputation.

So, let’s hedge a bit. It is beginning to look like both sides of the aisle, and the White House, are edging towards identifying a common item for the legislative agenda in 2013:  tax reform.

Clearly there are differences in the approaches that might be taken. In the House, Rep. Paul Ryan is making it clear that Republicans have already “given at the office” when it comes to agreeing to any more tax increases. In fact, on January 23rd PoliticoPro reports him as indicating:

…he and Rep. Dave Camp will do tax reform this year — and it will definitely be  revenue neutral. “He [President Obama] already got his revenue,” he said at a Wall Street Journal breakfast.

The idea of revenue neutrality, of course, is not new. This was the standard imposed by President Reagan the last time around. There is much to be said in favor of such an approach: it instantly settles the issue of how much revenue the system should produce because it assumes the baseline of current law. It tends to make lawmakers focus more on the tax policy involved in each provision and perhaps less on the revenue implications—although it is still a tough task to make sure the revenue is there in the end. It demands hard choices be made in the “mark” produced to begin legislating, and imposes a revenue estimating discipline on the process as amendments are offered to change the mark. The anvil of that discipline can quickly render some budget-busting, policy-questionable, provisions “less worthy.”

But, this is not 1985-86. Fiscal pressures are more intense than they were then, many are calling for more revenue from a recast system, and Ronald Reagan is not in the White House.

Sen. Schumer, a member of the Finance Committee, is saying that there will be a budget passed this year (for the first time since 2009) and that it will contain instructions to the Finance Committee to raise revenues through tax reform. Majority Leader Sen. Reid has included reform in the litany of items his majority will pursue in 2013. Sen. Baucus has been holding hearings on the subject and recently gave a speech indicating his committee’s interest in proceeding. In all of this, there is no doubt that Democrats do not intend that the $600 billion in new revenues enacted in the American Taxpayer Relief Act (ATRA) earlier this month is to be the last word on revenues.

In his Inaugural address the President made mention of the concept of applying new efforts to tax reform, although it was included in a litany of other needs, and did not directly address the issue of new revenues:

…We understand that outworn programs are inadequate to the needs of our time. So we must harness new ideas and technology to remake our government, revamp our tax code, [emphasis added] reform our schools, and empower our citizens with the skills they need to work harder, learn more, reach higher.

Inaugural oratory isn’t normally the place for detailed discussions of agenda priorities — that is usually reserved for the State of the Union (SOU) address, which this year is scheduled for February 12th. But it is a place to identify priorities, so the mention of  a “revamp” was significant. Yet, if there is a nagging concern about there being the requisite support for tax reform, it appears to be with regard to the White House. Given its complexity, the fact that it will affect every household, business, and community in America, and the fact that so many interests will naturally resist it, tax reform requires that the President bring along that other fundamental component: the public. The SOU should be the true litmus test of the extent of White House interest.

Those with a vested interest in tax reform — that would be just about all of us — should take note of these developments and give real thought to just what we think the Tax Code of 2013 (or 2014) ought to look like.

Prospects for Tax Reform are Improving

After ATRA: What’s in Store for Taxes?

Updated: January 18, 3:20 pm

Joe Dowley served as Chief Counsel of the Committee on Ways & Means, U.S. House of Representative when Congress last undertook fundamental tax reform.

Rep. Paul Ryan (R-WI), Chairman of the House Budget Committee, was quoted by BNA on Jan. 17th indicating that tax reform will go forward in the House in 2013 regardless of the fiscal negotiations. “…We are serious about it, one way or another.  We are going to do it anyway.  Ways and Means, the House Republicans, we’re going to take on the issue of tax reform…”

In the wake of the American Taxpayer Relief ACT of 2012 (ATRA), a.k.a. the “Cliff Deal”, it is legitimate for higher income individuals and businesses to ask whether there will be any further new tax legislation in 2013. House Republicans are adamant that given the higher rates and other revenue provisions placed on upper income earners by ATRA there is no more room for tax increases as part of the budget solution. Meeting at their annual legislative planning retreat in Williamsburg, Virginia, House Republicans are eyeing three different fiscal deadlines as opportunities for insisting on major spending reductions that would not be coupled with tax increases.

However, led so far by the President and Ways & Means Committee Ranking Democrat Rep. Sander Levin, some Democrats are saying there continues to be a need for “balance” (read that: new revenues) in coming efforts to more comprehensively reduce the deficit/debt. This notion of balance was essentially the same exchange going on before the ATRA was produced as a last-ditch effort to avoid the fiscal cliff. ATRA raised top-end individual rates and other revenue provisions totaling $600 billion over ten years, but did nothing on spending other than to put off by two months the impact of the $1.1 trillion “sequestration”—the automatic, across-the-board spending cuts (including to defense) which were a prominent part of the December cliff fight.  By historical legislative measures, that amount of revenue increase is major, but in the current environment of large annual deficits and exploding debt not nearly enough in the minds of some if serious budget efforts are to be “balanced”.

So, the basic argument over taxes as part of the debt/deficit solution has now migrated over from December’s “cliff” to a new budget battle waypoint, March 1, the new ATRA date for imposition of the dreaded sequestration. If, somehow, Congress and the President navigate around that landmine, another opportunity for confrontation will arise with the need to renew the Continuing Appropriations Resolution under which the government funds its operations. That renewal must occur on or before March 27th,  or the government will need to shut down. It appears that a third opportunity, the looming need to increase the nation’s debt limit, which likely needs to occur in late February or early March, will not, at least for the time being be selected. Lots of opportunities, then, exist for new deals that just may include new taxes.

But, why would Congress turn back to taxes having just imposed new revenues on higher earning individual taxpayers?  One reason might be that if additional taxes—aimed at individuals or businesses—aren’t to be considered in dealing with the fiscal crisis, a larger share of future efforts to reduce the red ink will have to come from entitlement programs such as Medicare and Social Security and from other mandatory spending categories. Voting to cut these programs that involve children, the elderly, the disabled, veterans, and other favored groups, perhaps in ways likely to immediately affect their current benefits (e.g., using a “chained CPI” cost of living measurement), is for politicians on both sides of the aisle the equivalent of going to a dentist who doesn’t believe in sedation or Novocain.

The most recent exhibition of this is the protracted negotiation that led to ATRA. Most economists have cited a need for about $4 trillion in deficit reduction if there is to be any significant hope for managing the upward curve of the federal deficit/debt. Bowles-Simpson was aimed at that level of budget impact. Reality struck when the post-election haggling and negotiations began.  Spending and revenue proposals from both the President and the Speaker were in the vicinity of  $2 trillion and included entitlements reductions—although not necessarily the same. Admittedly, the deal broke down over tax rates, but, ATRA, as we know, raised “just” $600 billion (using CBO’s then-current policy baseline)—exclusively via taxes.  Spending reductions, including on entitlements, were not included, at all. This won’t get any easier.

Another reason Congress may return to revenues as part of the solution: if taxes are involved in the next round, they may not be aimed at individuals. There were no new levies in ATRA assessed on corporations, even though the President has provided a litany of such items in his recent budget submissions, including reforms to international tax rules, the elimination of so-called “loopholes” like carried interest, and the removal of subsidies for oil companies and others. Some elements of the corporate community have actually been asking for reforms which would involve reducing some existing benefits as a trade-off for lower rates and an updated international tax scheme.

Lest individual taxpayers feel they might be totally off the hook, however, there are rumblings in some (liberal) quarters about whether ATRA was all that successful in further engaging wealthier taxpayers in the effort to tame the deficit. Although wealthier taxpayers are also now subject to a reconstructed Personal Exemption Phase-out and Pease limitation on itemized deductions, some commentators say that many wealthy folks don’t care about ATRA’s higher rates. As Harold Meyerson points out in his January 8, 2013 commentary in the Washington Post,  the “wealthiest 1 percent of taxpayers get 38.2 percent of their income from investments, and the wealthiest one-tenth of 1 percent realize more than half: 51.9 percent” from investments subject to capital gains rates. In ATRA, the top capital gains rate for high income taxpayers went up from 15% to 20 %, plus the new 3.8% levy imposed by the Affordable Care Act (effective 1/1/13), for a new top rate of 23.8%. This is a lot more attractive than regular income tax rates above that figure and up to 39.6%  under the Act which will apply to taxpayers who predominantly earn wages and salaries. Coupled with ATRA’s “permanent” provision on estate and gift taxes—it retains and continues to adjust for inflation the Bush-era $5 million unified estate and gift tax exempt amount and only raised the rate from 35 percent to 40 percent—some conclude things could have been much worse for high-income taxpayers.

ATRA isn’t uniformly pleasing to others for other reasons. The charitable community isn’t happy with the new Pease limits on itemized deductions, fearing that it will constrain giving just at a time when it is most needed. Their concerns are being heard in Congress. And those who have pushed for significantly lower individual rates in a base-broadening tax reform effort see ATRA as a clear step in the wrong direction.

To be sure, permanently cleaning up the Alternative Minimum Tax (AMT) by indexing it for inflation was a big achievement—saving 27 million or so new unintended taxpayers from its clutches. And, the extension of a litany of business provisions such as the R&E credit and the active-financing exception have both removed uncertainty and a fair amount of interest in embracing the challenge of tax reform.

However, in the battle over this country’s budget and debt crisis there doesn’t have to be tax reform to open the door to a new consideration of taxes, as we just saw with ATRA. The hard public policy choices involved in reducing mandatory program benefits for future and existing recipients may compel more policymakers to revisit the notion of considering raising new revenues. Taxpayers, especially businesses, need to be prepared for what is coming.

After ATRA: What’s in Store for Taxes?

Weekly Health Policy Update: CMS Announced Approval of New ACOs

Each week, our Health Policy team recaps recent health care developments in two reports, Weekly Health Care Wrap-Up and Health Insurance Exchanges: State of the States.

Weekly Health Care Wrap-Up

CMS Announces Next Round of ACOs

The Centers for Medicare and Medicaid Services (CMS) this week announced the approval of over 100 new Accountable Care Organizations (ACOs), including 15 Advanced Payment Model ACOs. The announcement brings the total number of ACOs to date to more than 250. Roughly half of all ACOs are physician-led, while approximately 20 percent of ACOs include community health centers, rural health centers and critical access hospitals that serve low-income and rural communities. More information is available here.

Senators Call for Better Oversight of Medicare Parts C, D

Senators Hatch (R-UT), Baucus (D-MT), Coburn (R-OK) and Carper (D-DE) came together this week to call for increased oversight of Medicare Parts C and D. The announcement follows a recent report by the Medicare Inspector General that concludes existing efforts are not accomplishing stated goals and recommends steps for improvement. The report can be found here.

Lead Counsel Leaves Energy and Commerce

The top lawyer at the House Committee on Energy and Commerce has left his post. Howard Cohen was with the Committee for two years. The Energy and Commerce Committee has jurisdiction over a host of health care issues, including Medicaid.

From the States

A complete roundup of this week’s action in the states is available through ourState of the States: Health Insurance Exchanges publication here.

Leavitt, Ritter Launch State Health Care Cost Containment Commission

Former Governors Mike Leavitt (R-UT) and Bill Ritter (D-CO) announced a new effort to develop a process and practical policies that states can adopt and implement to slow health care cost growth. Leavitt and Ritter will be joined by former NGA head Ray Scheppach and a host of other health care experts and industry representatives. The Commission is being housed at the Miller Center at the University of Virginia. More information is available here.

WalMart Joins Arkansas Payment Improvement Initiative

Arkansas Governor Mike Beebe announced this week that WalMart will add $670,000 to efforts to reform payment policy in the state. The Arkansas Payment Improvement Initiative launched in 2011 when Arkansas Medicaid and Department of Human Services collaborated with Arkansas Blue Cross Blue Shield and QualChoice to design a multi-payer payment reform demonstration. Walmart will serve on the Initiative’s Employer Advisory Council. More information can be found here.

Health Insurance Exchanges: State of the States update

After last week’s conditional approvals and without an announcement from HHS on the status of Exchange Establishment Grant applications submitted in mid-November, our attention returns to the states. This week, many legislators returned to statehouses to reexamine the exchange issue, and a few states now find themselves having to pass legislation quickly in order to stay on track for October 1, 2013 open enrollment.

In Minnesota, lawmakers introduced health insurance exchange legislation (H.F. 5/S.F. 1) on Wednesday to create the “Minnesota Insurance Marketplace.” H.F. 5 calls for the exchange to be governed by a seven-member board, act as an “active purchaser” when negotiating with health plans and “collect up to 3.5 percent of premiums” to provide the exchange a revenue stream. The bill also gives the Commissioner of Management and Budget initial authority to determine commissions paid to brokers who sell through the exchange. While some legislators believe that H.F. 5 is on the fast-track to passage, concerns remain over how some Republican legislators will respond. According to Governor Mark Dayton’s (D) administration, Minnesota needs to pass health exchange-enabling legislation by March 31 to stay on track to meet federal requirements. Also this week, in Virginia, Delegate Patrick Hope (D) introduced legislation (HB 1664) that if approved would create a State Partnership Exchange.

Governor C.L. “Butch” Otter (R-ID) has a host of deadlines rapidly approaching on the way to launching Idaho’s exchange, and not a lot of time to meet them. According to Senate President Pro Tem Brent Hill (R), Governor Otter will introduce exchange implementation legislation soon, potentially next week. Idaho has to act quickly on the exchange issue because in its conditional approval letter to the state, CCIIO wrote that Idaho had to “confirm its Information Technology and Project Management vendor” selection by February 15. According to Tricia Carney, public information officer for the Idaho Department of Insurance, the Department of Insurance cannot award those contracts until the legislature makes a decision.

Moving east, the Connecticut Health Insurance Exchange announced this week that it had received notifications from nine insurance companies interested in offering health or dental coverage on the Exchange. Five health insurance carriers, including Aetna, Anthem, ConnectiCare, Healthy CT, and United Healthcare, and four dental insurers, Delta Dental, The Guardian Life Insurance Company, MetLife, and Renaissance Dental, said they plan to offer products.

Meanwhile, Mississippi made news this week as its exchange saga continued to unfold. According to Insurance Commissioner Mike Chaney (R), he had a discussion with HHS on Monday (1/7) to discuss his pending Blueprint application. Chaney believes HHS’s main concern is whether a state-based exchange would be able to effectively interface with other parts of Mississippi’s government, such as the state’s Medicaid program, if Governor Phil Bryant (R) continues to oppose its creation.  But exchange-watchers should see a decision from HHS soon. On Thursday, while speaking to the Mississippi Economic Council, Chaney said that he expects a decision on his Blueprint from HHS in 10 to 15 days. Chaney also said this week that if his application for a state-based exchange was denied, he would pursue a State Partnership Exchange.

Finally, according to the Washington Business Journal, the D.C. Health Benefit Exchange has awarded a contract to Infosys Public Services to build DC’s exchange IT system for both the individual exchange and the SHOP. The $49.5 million contract initially runs through September 2013, but includes options that could increase the value of the contract to $86 million. Dell, HCL Technologies and Deloitte also bid on the contract, but only Deloitte and Infosys responded when the DC exchange requested a second round of bids.

Weekly Health Policy Update: CMS Announced Approval of New ACOs

API’s State of American Energy Report Touts Economic Impact of Oil and Gas Development

The American Petroleum Institute (“API”) released today its 2013 State of American Energy Report. Consistent with recent analyses, API’s report takes a bullish perspective on the prospects for U.S. energy security over the coming decade due to increased domestic oil and gas production.

In addition, API’s report touts the economic benefits of increased domestic oil and gas production. The report cites a Bank of America Merrill Lynch study, which found that lower natural gas prices saved U.S. companies and consumers an average of $566 million daily between July 2011 and June 2012. With respect to job creation, API emphasizes the chemical industry as a growth sector due to increased oil and gas production. Specifically, API references American Chemistry Council data, which shows that increased supply of ethane – a derivative of shale gas – could result in domestic chemical companies creating more than 400,000 domestic jobs. And as Congress and the Administration continue to search for ways to responsibly reduce the federal deficit, API’s report notes that oil and gas production results in significant federal revenue in the form of taxes, royalties, rents, and lease payments. According to API’s report, domestic oil and gas companies “pay on average more than $86 million every single day to the federal government.”

This report comes as last week jobs’ report, released by the Bureau of Labor Statistics, showed that the oil and gas industry added 1,500 jobs in December. In total, the jobs’ report found that the oil and gas industry employs nearly 200,000 individuals, which is 6% higher than the total amount employed in December 2011.

Certainly, the oil and gas industry faces a number of policy changes, including, but not limited to: potential changes to tax expenditures for oil and gas development; debate over whether to expand liquefied natural gas exports; and concerns about the environmental impacts of new development. That said, it is clear that domestic oil and gas development is playing a significant role in job creation and economic growth. Moreover, the state of American energy is promising, which is a significant departure from where the country stood just several years ago.

API’s State of American Energy Report Touts Economic Impact of Oil and Gas Development

Weekly Health Policy Update: HHS Announced New Guidance for States

Weekly Health Care Wrap-Up

HHS Releases FAQs on Exchanges, Medicaid

On Monday, the Department of Health and Human Services (HHS) released a series of FAQs designed to answer some of the outstanding questions surrounding the Medicaid expansion and exchanges under the Affordable Care Act (ACA). Of note, the document announced that states will need to expand Medicaid to 133 percent of the federal poverty level (FPL) to be eligible for the enhanced federal match — partial expansions will not be eligible for the extra federal funding. The document also reiterates the December 14 deadline for state-based exchange Blueprints and the February 15 deadline for partnership exchanges. According to the information provided, states will not be charged for use of the federal data hub and HHS anticipates reimbursing states pursuing partnership activities in support of the FFE. A complete recap of this week’s exchange activities can be found in our State of the States publication.

Senate Ds Claim Committee Slots

We received a glimpse into the 113th Congress this week, when Democrats announced several key committee assignments.  The Senate Finance Committee, which lost four members this election cycle, will add Democratic Senators Sherrod Brown (OH) and Michael Bennet (CO). The Senate HELP committee will add Democrats Tammy Baldwin (WI), Christopher Murphy (CT) and Elizabeth Warren (MA).  Meanwhile, Senator Parry Murray (WA) will be at the helm of the Senate Budget Committee in 2013, replacing retiring Senator Kent Conrad (ND). The Republican assignments have yet to be announced.

Around Town

A new study from the Government Accountability Office (GAO) finds that the Medicaid Integrity Group has hired more than one company to perform its audits, with both contractors reviewing similar areas without coordination or communication.  GAO recommends that CMS remove duplicate contractors and use comprehensive reviews to better target their audits.  Read the entire reporthere.

The Commonwealth Fund released an issue brief this week examining the trends in private employer-based health insurance premiums and deductibles from 2003 to 2011.  The brief found that premiums have increased 62 percent and deductibles have more than doubled.

The American Hospital Association is out with a study finding that Medicare patients, while living longer, are growing sicker and therefore using more services.  The rise in obesity and chronic conditions has been staggering in Medicare population, with obesity rates doubling since 1987 and diabetes rates increasing from 18 percent in 2002 to 27 in 2010.  Due to medical breakthroughs and expanded use of health care services, life expectancy has risen despite the sicker population, which has vast cost implications for the Medicare program.

A new analysis from the Kaiser Family Foundation provides a detailed look at the difference in the availability of health coverage at small and large employers, as well as the variations in plan costs and cost-sharing requirements.


Health Insurance Exchanges: State of the States update

Today is the final day for states to declare their intent to develop a state-based exchange and submit their Blueprint to HHS. Already, one state that had previously signaled an interest in a state-based exchange, Iowa, has reversed course. But more on that later. As we await additional announcements from governors and HHS on which states will move forward with building a state-based exchange, let’s review a week packed with exchange developments.

Exchange officials in Colorado, Connecticut, Massachusetts, Maryland, Oregon and Washington were able to breath a collective sigh of relief this week because on Monday, HHS conditionally approved their Blueprint applications. HHS also revealed during a press call that, including the six states that received conditional approval, HHS has received Blueprint applications from 14 states total. According to Director Cohen, the reason those six states were approved first was because they were the “earliest ones to make their application available to HHS.” Then on Friday, HHS announced that the District of Columbia, Kentucky and New York also received conditional approval to operate exchanges.

Also on Monday, CCIIO released a “Frequently Asked Questions on Exchanges, Market Reforms and Medicaid,” which included information on the Medicaid expansion and exchanges, with some anticipated details surrounding the FFE. The FAQ states that there will be no charge for states to access the federal “Data Hub.” The FAQ also says that after Exchange Grant opportunities expire in 2014, HHS anticipates offering continued funding under a different source for state activities performed on behalf of the FFE.

On Capitol Hill yesterday, the House Energy and Commerce Health Subcommittee held a hearing on the implementation of exchanges and the Medicaid expansion. During the hearing, CCIIO Director Gary Cohen fielded a few tough questions from lawmakers and denied allegations from Representative Michael Burgess (R-TX) that HHS intentionally delayed the release of regulations before the November elections for political reasons. He also reiterated his view that states and the federal government will be ready to run exchanges in 10 months. Director Cohen was joined by CMS Deputy Administrator/Director Cindy Mann, who is in charge of Medicaid at CMS, and officials from the states of Arkansas, Louisiana, Maryland and Pennsylvania.  Full video of the hearing and witness testimony can be found on the subcommittee website.

Moving to the states, two states decided against creating state-based exchanges this week. On Monday, Governor Bill Haslam (R) of Tennessee decided that his state would not create a state-based exchange. In a statement, Haslam did not express opposition to the idea of an exchange, but he said he was concerned over how much independence Tennessee would have to run its exchange. “What our administration has been working to understand is whether we’d have the flexibility for it to be a true state-based exchanged, how the data exchange would work, and if it would work.” He also expressed concerns that exchange rules from the federal government had been developed haphazardly. “What has concerned me more and more is that they seem to be making this up as they go.”

In Pennsylvania, Governor Tom Corbett (R) sent a letter to HHS Secretary Sebelius stating that Pennsylvania would not develop a state-based exchange due to regulatory uncertainty. In his letter, he wrote “With regulations still to be finalized and with more forthcoming, too many unknowns remain for us to plan accordingly.”

Moving in a different direction, Governor C.L. “Butch” Otter announced on Tuesday that Idaho would pursue a state-based exchange, subject to legislative approval. In a statement released to the press, Governor Otter presented the stark choice faced by the state. “Our options have come down to this: Do nothing and be at the federal government’s mercy in how that exchange is designed and run, or take a seat at the table and play the cards we’ve been dealt.” His decision to pursue a state-based exchange comes after a working group appointed by the governor to examine the exchange issue recommended that Idaho create a state-based exchange, despite warnings from KPMG that the state had a slim chance of meeting HHS deadlines. It is not clear how HHS will react to Idaho’s announcement. While the state has signaled an intention to create a state-based exchange, the state’s lack of planning and actions by the legislature could alter the state’s course.

Also this week, on Thursday, Governor Susana Martinez (R) sent a Declaration Letter to Secretary Sebelius announcing that New Mexico will create a state-based health insurance exchange. In her letter, Governor Martinez wrote that the Office of Health Care Reform will coordinate developing New Mexico’s state-based exchange with the New Mexico Health Insurance Alliance, a quasi-governmental non-profit agency created in 1994 by the legislature to increase access to health insurance. One major hurdle for the exchange is that lawmakers and the governor have been unable to pass health insurance exchange legislation.

Staying in the west, Governor Gary Herbert (R) of Utah sent President Obama aletter this week asking him to let the state keep its current exchange, Avenue H. While Governor Herbert said he would expand the exchange to serve individuals, he wrote in his letter that, “we never intended for our exchange to administer Medicaid, enforce the individual mandate, or distribute federal tax credits.” If Utah’s exchange were allowed to operate without adhering to those portions of the ACA, Governor Herbert suggests that it could be a game changer for other governors still on the fence. In his letter, Governor Herbert writes “I am confident that if you make this change, several other states will join Utah and request certification for ‘state based exchanges’ based on our model.” Today, (Friday), Secretary Sebelius wrote back to Governor Herbert with an upbeat letter that could present an opportunity for Utah’s exchange to be certified in its current form. While we haven’t seen the full letter, according to an excerpt from an AP article, Secretary Sebelius wrote, “We look forward to working with you toward certifying the Utah exchange, ensuring that consumers and small businesses have access to affordable, high-quality coverage.”

Also this week, on Wednesday, Rhode Island submitted its Blueprint to operate a state-based exchange. Rhode Island has been diligently planning to operate a state-based exchange and should be publicly announcing its selection of an IT vendor for the backbone of its health insurance exchange in the near future.

On the topic of Partnership exchanges, after meeting with various members of the state legislature, Governor Mike Beebe (D) of Arkansas announced that he is no longer planning to pursue a state-based exchange. After HHS pushed back the November 16 deadline for states to declare a state-based exchange and submit their Blueprint, Governor Beebe decided to see if legislators were interested in creating a state-based exchange. Instead, Arkansas will revert to pursuing a Federal-State Partnership exchange, an option the state has been planning for since late 2011.

Iowa submitted a letter to HHS Secretary Kathleen Sebelius today (Friday) declaring that Iowa will pursue a Federal-State Partnership exchange. While the state had been examining the possibility of moving forward with a state-based exchange, according to Governor Terry Branstad’s (R) letter, the “cost of building and maintaining a state-financed and based exchange, estimated at $15.9 million annually” was too high for the state. Currently, five states including Arkansas, Delaware, Illinois, Iowa and North Carolina are known to be moving forward with a Partnership exchange while a few others are still evaluating the option.

And finally, the Hawaii Health Connector awarded a $53 million, four year contract to CGI technologies to develop and support the Connector’s IT system last Friday. CGI currently has extensive IT contracts with the federal government to develop the technology infrastructure for the FFE and a contract to develop the IT backbone for Colorado’s health benefit exchange.

Weekly Health Policy Update: HHS Announced New Guidance for States

Aligning Standards: U.S., Canada Improve Regulatory Cooperation

Late last month, the U.S. and Canadian governments delivered on a promise to publish a progress report on efforts made to date to reform cross-border regulations. As part of the joint initiative, “Canada-United States Regulatory Cooperation Council,” (RCC), launched in 2011 by President Barack Obama and Prime Minister Stephen Harper, the report follows up on the RCC Action Plan to improve regulatory cooperation between both countries.

Despite proximity and the largest trading relationship in the world, the U.S. and Canada have long dealt with unnecessary differences between regulatory approaches that have impeded the ability to do business across the border in a most efficient way. The launch of the RCC followed by the Joint Action Plan were significant steps forward to address the issues of regulatory barriers to trade, which include higher operating costs for businesses and, as a result, higher costs for consumer products.

The Joint Action Plan addresses approximately 29 issue areas, including, for example: common approaches to food safety; equivalency of meat safety systems; mutual reliance of food testing results; meat and poultry products export certification; increased symmetry and access with respect to pest control and crop protection; simultaneous reviews of technical sections of veterinary drug applications; zoning for foreign animal diseases; increase fairness and effectiveness of the marketing of agriculture and food trade; aligned regulations and testing procedures for existing and new motor vehicle safety standards; joint safety inspections for foreign vessels in the Great Lakes and St. Lawrence Seaway; joint development of options to reduce locomotive and light-duty vehicle emissions; and common classification and labeling requirements for workplace hazardous chemicals.

After close to a year of consultation with private and public stakeholders across numerous sectors, the RCC achieved progress on a large number of the work plans, including various pilot projects as detailed in the release of the progress report last month. The resulting consultations, in such areas noted above as food and agriculture, motor vehicles and rail, emissions reductions, pharmaceuticals, personal care products and nanotechnology have produced several examples of specific progress. However, a significant amount of work and collaboration remains and 2013 will be a crucial year for the governments of the U.S. and Canada to carry forward the momentum that exists in such efforts to align similar regulatory approaches, target existing or emerging misalignments, and focus on creating systemic mechanisms to secure regulatory alignment in the future.

What to expect as 2013 unfolds?

The government agencies in both countries engaged in implementing the work plans will continue to carry out the action items set out in the 29 work plans, further engage with stakeholders, and regularly report on progress. The Obama and Harper Administrations remain committed to fulfilling the vision they set out by creating the Regulatory Cooperation Council, and the private sector has clearly shown strong interest in being involved in the initiative and making sure concrete progress is achieved in the interest of improving North America’s economic competitiveness.

To keep track of the RCC efforts, please visit: http://trade.gov/rcc/.

Aligning Standards: U.S., Canada Improve Regulatory Cooperation