Alert / Employee Benefits
Will 2018 see renewed efforts to resurrect ACA repeal and replace?

As any daytime drama aficionado knows, death does not always mean the end. Republican efforts to repeal and replace the Affordable Care Act (ACA) were pronounced dead last fall, but recent reports suggest a miraculous resurrection may be in the works. In this Lockton Government Relations update, we consider the likelihood of ACA repeal and replace efforts in 2018, a likely death blow to the Department of Labor’s fiduciary rule, increased efforts among states to regulate retirement and health plans, and when to expect final association health plan rules. 

Is comprehensive health reform back on the agenda for 2018?

Recent reports have suggested conservatives in Congress are attempting to compel leadership to take another swing at comprehensive repeal and replace of the ACA. This latest iteration of repeal and replace is said to be based on legislation previously proposed by Sens. Lindsey Graham, R-S.C., and Dr. Bill Cassidy, R-La. That version of Graham-Cassidy had momentum last fall but never received a vote before a procedural deadline killed its chances.

Lockton comment: We discussed the original Graham-Cassidy proposal in a prior Alert. Of note for employers, the Graham-Cassidy proposal eliminates the federal employer mandate but may give states a green light to implement their own employer mandates. See below for more information about state efforts to regulate employer-sponsored retirement and health benefits

There is smoke; however, our discussions with member offices suggest the fire is largely coming from outside interest groups pressing Republican majorities to act before the midterm elections, and not coming from the halls of Congress. Indeed, there are strong headwinds, both political and procedural, that make us believe it is highly unlikely we’ll see either the House or Senate seriously consider another ACA repeal and replace package this year. For instance, there are fewer Republicans in the Senate today than there were during the failed repeal and replace attempts last fall, and Republicans haven’t yet passed a budget, which is necessary to allow the remaining Republicans to pass a reform bill without some Democrat support.

Lockton comment: Members will continue to work on repeal and replace legislation behind the scenes. Lockton has worked with several offices on these efforts to ensure the interests of employers are considered. Even though it is highly unlikely that legislation will be introduced this year, it is certainly possible a future Congress may look to previously developed policy options when political expediency makes comprehensive repeal and replace more viable. 

State retirement and health mandates continue to gain steam

States have become increasingly determined to get ahead of what they see as a looming retirement crisis not addressed by the employer-sponsored system. Five states (California, Connecticut, Illinois, Maryland and Oregon) now have live retirement savings programs for private-sector employers that do not already offer sufficient plans to their employees, and another 30 states passed legislation to study options or take steps toward retirement savings mandates. 

State retirement plan mandates can take various forms, but many are introducing some form of an auto-IRA. Auto-IRAs are designed so that employers are required to automatically deduct contributions from employee paychecks and deposit them into IRAs, with no required employer contribution.

For example, Oregon’s mandate, which began last year, has been viewed as a model. Oregon’s program requires each enrolled participant to have a state-sponsored individual Roth IRA. Deductions begin at 5 percent of gross pay and increase by 1 percent each year until reaching a maximum 10 percent. Employers are prohibited from making matching contributions. Participants can opt out if they so choose. The first $1,000 in each account is invested in a professionally managed money market fund. Additional contributions are directed into a target-date fund based on the worker's age.

Lockton comment: Employers with employees or operations in Oregon, California, Illinois, Maryland and Connecticut should immediately review the applicable state’s rules and determine the impact on their business. There may be required filings, opt out periods or employee communications. Employers in other states should keep monitoring their state’s progress. There are so many uncertainties and questions about these programs, so employers should remain diligent. Employers should not assume just because they offer a plan, they are exempt. Some plans exclude part-time workers, have age and service requirements, or have other provisions that may trigger state regulations. These mandates have largely flown under the radar of many employers but should be taken seriously. 

Similarly, states continue to look to employers to help stabilize their individual health insurance and Medicaid markets. Such efforts include additional taxes, individual and employer mandates, and consideration of government-provided healthcare systems that eliminate employer-sponsored health coverage in exchange for significantly higher taxes. See our recent webcast for a comprehensive discussion of state-based health reform efforts.

May the fiduciary rule rest in peace

As described in our prior update, the Department of Labor’s (DOL) nearly decade-long attempt to expand the definition of fiduciary under the Employee Retirement Income Security Act (ERISA) has come up against a formidable roadblock called the federal Fifth Circuit Court of Appeals. In that ruling, the court found the DOL’s embattled fiduciary rule to be legally impermissible, effectively erasing the rule from ever existing. 

Recently, interested parties including the AARP, California, Oregon and New York attempted to convince the Fifth Circuit to reconsider its ruling. The court’s declination to reconsider coupled with the DOL’s subsequent decision to not appeal the ruling likely kills the expanded fiduciary rule. And if additional confirmation was necessary, the DOL recently announced it will not attempt to enforce the rule.

Lockton comment: The bulk of the fiduciary rule’s compliance burden was expected to be borne by services providers, but some additional obligations were put on employers. Employers struggling to understand the rule and related obligations should find comfort in this ruling and the DOL’s announcement of nonenforcement. Barring any surprising Supreme Court decision to hear this case, we think employers can finally put this to bed … at least until a new administration takes office. 

Final association health plan rules expected soon

The wait is almost over for employers looking forward to final rules expanding the use of association health plans (AHPs). We understand the final rules have been written and are awaiting approval from the Office of Management and Budget (OMB), which is a function of the executive branch that reviews most federal regulations to ensure they are in line with the president’s policy views. We expect OMB to complete its review any day now.

Lockton comment: We talked about the proposed regulations here. The two biggest things to look for in the final regulations are:

  • Whether the final rules carve out a safe harbor allowing self-funded AHPs to avoid onerous state regulations.
  • And whether the final rules modify the proposed nondiscrimination rules that limit when the AHP can vary premiums for participating employers based on the participating employer’s unique risk characteristics.

The DOL has suggested statutory constraints limit its ability to make it easier for AHPs to be self-funded, but we continue to be cautiously hopeful that the nondiscrimination rules will be relaxed.

In addition to the final regulations at OMB, we are closely watching the farm bill, which contains a provision allocating funds to encourage agriculture-based AHPs. The bill failed to pass the House last week, but we understand it is a must-pass bill, which will need to be reconsidered int he near future.

Scott Behrens, J.D.
Director, Government Relations
Lockton Benefit Group

Sam Henson, J.D.
Director, Legislative & Regulatory Affairs
Lockton Retirement Services 

Not Legal Advice: Nothing in this Update should be construed as legal advice. Lockton may not be considered your legal counsel and communications with Lockton's Government Relations group are not privileged under the attorney-client privilege.

The communication is offered solely for discussion purposes. Lockton does not provide legal or tax advice. The services referenced are not a comprehensive list of all necessary components for consideration. You are encouraged to seek qualified legal and tax counsel to assist in considering all the unique facts and circumstances. Additionally, this communication is not intended to constitute US federal tax advice, and is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending any transaction or matter addressed herein to another party.

This document contains the proprietary work product of Lockton Government Relations and is provided on a confidential basis. Any reproduction, disclosure, or distribution to any third party without first securing written permission is expressly prohibited.

Investment advisory services offered through Lockton Investment Advisors, LLC, an SEC-registered investment advisor. For California, Lockton Financial Advisors, LLC, d.b.a. Lockton Insurance Services, LLC, license number 0G13569.

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