HR3200 – Reading The Bill: Hostility Toward SMBs That Self-Insure
I’m really getting sick of supporters of ObamaCare admonishing those who oppose it to read the bill. So, I’m working on a series in which I do just that, framing my opposition to the bill by referencing the actual wording of the proposed legislation.
Up next: HR3200's hostility toward Small and Medium Businesses (SMBs) that self-insure.
We'll start with a look at SEC. 113, INSURANCE RATING RULES. Refer to page 21 line 23 through page 22 line 11, Sec. 113(b)(1)(C):
The Commissioner, in coordination with the Secretary of Health and Human Services and the Secretary of Labor, shall conduct a study of the large group insured and self-insured employer health care markets. Such study shall examine...[t]he financial solvency and capital reserve levels of employers that self-insure by employer size.
Now, I'm not a businessperson; I'm just an engineer. That said, I don't understand how one can "examine...[t]he financial solvency and capital reserve levels" of a company without looking at that company's books. I have seen the argument from the left that this information is available in normal IRS paperwork, but I don't think so. Such IRS documents involve a company's income, expenditures, and losses for a given fiscal year. "Financial solvency and capital reserve levels" cannot be gleaned solely from such data.
Perhaps this information can be gleaned from the publicly available annual financial reports; however, publicly traded companies (which are the ones required to publish annual financial reports) are, I would assume, less likely to self-insure. It is the SMBs that would be most likely to self-insure - and at the same time, less likely to be publicly traded and therefore less likely to publish annual financial reports.
So, from where will the Commissioner get these data, without auditing the books of companies that self-insure?
Further, the bill explicitly states that its intent is to eliminate tax incentives for SMBs to self-insure. Refer to page 22 line 23 to page 23 line 3, Sec. 113(b)(2):
Such report shall include any recommendations the Commissioner deems appropriate to ensure that the law does not provide incentives for small and mid-size employers to self-insure or create adverse selection in the risk pools of large group insurers and self-insured employers.
To make matters worse, under Title VIII, Section 1802, Comparative Effectiveness Research Trust Fund, subsection 1802(b)(1), the bill actually amends Chapter 34 of the Internal Revenue code, adding a new Subchapter B to impose a fine (tax) on companies that self-insure. Refer to page 830, lines 1-9, Sec. 1802(b)(1), quoting Internal Revenue code Chapter 34, Subchapter B, Section 4376, Self-Insured Health Plans:
SEC. 4376. SELF-INSURED HEALTH PLANS.
(a) IMPOSITION OF FEE.—In the case of any applicable self-insured health plan for each plan year, there is hereby imposed a fee equal to the fair share per capita amount determined under section 9511(c)(1) multiplied by the average number of lives covered under the plan.
(b) LIABILITY FOR FEE.—
(1) IN GENERAL.—The fee imposed by subsection (a) shall be paid by the plan sponsor.
So, what is the "fair share per capita" fee amount? It is defined as follows:
Subject to subparagraph (B), the fair share per capita amount under this paragraph for a fiscal year (beginning with fiscal year 2013) is an amount computed by the Secretary of Health and Human Services for such fiscal year that, when applied under this section and subchapter B of chapter 34 of the Internal Revenue Code of 1986, will result in revenues to the CERTF of $375,000,000 for the fiscal year.
In other words, take $375 million, divide by the total of all employees under an employer self-insurance plan, and you get the "fair share per capita amount".
According to this report, 73 million Americans were in self-insurance plans in 2007. Using this number, employers who self-insure will be taxed at least $5 per employee, just to help fund the Health Care Comparative Effectiveness Research Trust Fund (CERTF).
So, to summarize, HR3200 is hostile toward SMBs that self-insure:
- SMBs that self-insure will be subjected to auditing in order to examine... financial solvency and capital reserve levels"
- Recommendations will be made to ensure that tax laws "does not provide incentives for small and mid-size employers to self-insure"
- SMBs that self-insure will be subjected to a "fair share per capita" tax to help fund the Health Care Comparative Effectiveness Research Trust Fund (CERTF)
For reference and context, below are the above-referenced excerpts from HR 3200:
Page 21•HR 3200
22 (b) STUDY AND REPORTS.—
23 (1) STUDY.—The Commissioner, in coordina
24 tion with the Secretary of Health and Human Serv
25 ices and the Secretary of Labor, shall conduct a
26 study of the large group insured and self-insured
Page 22•HR 3200
1 employer health care markets. Such study shall ex
2 amine the following:
3 (A) The types of employers by key charac
4 teristics, including size, that purchase insured
5 products versus those that self-insure.
6 (B) The similarities and differences be
7 tween typical insured and self-insured health
9 (C) The financial solvency and capital re
10 serve levels of employers that self-insure by em
11 ployer size.
12 (D) The risk of self-insured employers not
13 being able to pay obligations or otherwise be
14 coming financially insolvent.
15 (E) The extent to which rating rules are
16 likely to cause adverse selection in the large
17 group market or to encourage small and mid
18 size employers to self-insure
19 (2) REPORTS.—Not later than 18 months after
20 the date of the enactment of this Act, the Commis
21 sioner shall submit to Congress and the applicable
22 agencies a report on the study conducted under
23 paragraph (1). Such report shall include any rec
24 ommendations the Commissioner deems appropriate
25 to ensure that the law does not provide incentives
Page 23 •HR 3200
1 for small and mid-size employers to self-insure or
2 create adverse selection in the risk pools of large
3 group insurers and self-insured employers. Not later
4 than 18 months after the first day of Y1, the Com
5 missioner shall submit to Congress and the applica
6 ble agencies an updated report on such study, in
7 cluding updates on such recommendations.
Page 830 •HR 3200
1 ‘‘SEC. 4376. SELF-INSURED HEALTH PLANS.
2 ‘‘(a) IMPOSITION OF FEE.—In the case of any appli
3 cable self-insured health plan for each plan year, there is
4 hereby imposed a fee equal to the fair share per capita
5 amount determined under section 9511(c)(1) multiplied by
6 the average number of lives covered under the plan.
7 ‘‘(b) LIABILITY FOR FEE.—
8 ‘‘(1) IN GENERAL.—The fee imposed by sub
9 section (a) shall be paid by the plan sponsor.
10 ‘‘(2) PLAN SPONSOR.—For purposes of para
11 graph (1) the term ‘plan sponsor’ means—
12 ‘‘(A) the employer in the case of a plan es
13 tablished or maintained by a single employer,
14 ‘‘(B) the employee organization in the case
15 of a plan established or maintained by an em
16 ployee organization,
17 ‘‘(C) in the case of—
18 ‘‘(i) a plan established or maintained
19 by 2 or more employers or jointly by 1 or
20 more employers and 1 or more employee
22 ‘‘(ii) a multiple employer welfare ar
23 rangement, or
24 ‘‘(iii) a voluntary employees’ bene
25 ficiary association described in section
Page 831 •HR 3200
1 the association, committee, joint board of trust
2 ees, or other similar group of representatives of
3 the parties who establish or maintain the plan,
5 ‘‘(D) the cooperative or association de
6 scribed in subsection (c)(2)(F) in the case of a
7 plan established or maintained by such a coop
8 erative or association.
9 ‘‘(c) APPLICABLE SELF-INSURED HEALTH PLAN.—
10 For purposes of this section, the term ‘applicable self-in
11 sured health plan’ means any plan for providing accident
12 or health coverage if—
13 ‘‘(1) any portion of such coverage is provided
14 other than through an insurance policy, and
15 ‘‘(2) such plan is established or maintained—
16 ‘‘(A) by one or more employers for the
17 benefit of their employees or former employees,
18 ‘‘(B) by one or more employee organiza
19 tions for the benefit of their members or former
21 ‘‘(C) jointly by 1 or more employers and 1
22 or more employee organizations for the benefit
23 of employees or former employees,
24 ‘‘(D) by a voluntary employees’ beneficiary
25 association described in section 501(c)(9),
Page 832 •HR 3200
1 ‘‘(E) by any organization described in sec
2 tion 501(c)(6), or
3 ‘‘(F) in the case of a plan not described in
4 the preceding subparagraphs, by a multiple em
5 ployer welfare arrangement (as defined in sec
6 tion 3(40) of Employee Retirement Income Se
7 curity Act of 1974), a rural electric cooperative
8 (as defined in section 3(40)(B)(iv) of such Act),
9 or a rural telephone cooperative association (as
10 defined in section 3(40)(B)(v) of such Act).
Page 825 •HR 3200
5 ‘‘(c) FAIR SHARE PER CAPITA AMOUNT.—
6 ‘‘(1) COMPUTATION.—
7 ‘‘(A) IN GENERAL.—Subject to subpara
8 graph (B), the fair share per capita amount
9 under this paragraph for a fiscal year (begin
10 ning with fiscal year 2013) is an amount com
11 puted by the Secretary of Health and Human
12 Services for such fiscal year that, when applied
13 under this section and subchapter B of chapter
14 34 of the Internal Revenue Code of 1986, will
15 result in revenues to the CERTF of
16 $375,000,000 for the fiscal year.
17 ‘‘(B) ALTERNATIVE COMPUTATION.—
18 ‘‘(i) IN GENERAL.—If the Secretary is
19 unable to compute the fair share per capita
20 amount under subparagraph (A) for a fis21
cal year, the fair share per capita amount
22 under this paragraph for the fiscal year
23 shall be the default amount determined
24 under clause (ii) for the fiscal year.
Page 826 •HR 3200
1 ‘‘(ii) DEFAULT AMOUNT.—The default
2 amount under this clause for—
3 ‘‘(I) fiscal year 2013 is equal to
4 $2; or
5 ‘‘(II) a subsequent year is equal
6 to the default amount under this
7 clause for the preceding fiscal year in
8 creased by the annual percentage in
9 crease in the medical care component
10 of the consumer price index (United
11 States city average) for the 12-month
12 period ending with April of the pre
13 ceding fiscal year.
14 Any amount determined under subclause
15 (II) shall be rounded to the nearest penny.
16 ‘‘(2) LIMITATION ON MEDICARE FUNDING.—In
17 no case shall the amount transferred under sub
18 section (b)(4)(B) for any fiscal year exceed