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January 2021 Issue:

Democrats Win the Trifecta: Control of Presidency, Senate and House

The margins are narrow—legislation will not be easy given the wide differences among Democrats ranging from far-left progressives to moderate centrists. But the January 5 Georgia run-off elections resulted in two newly-elected Democrats (Raphael Warnock and Jon Ossoff) to the Senate. That means that in 2021-2022 Democrats control the agenda at the White House and in both the Senate and House.  

Here are the numbers as of January 10, 2021:  

Presidency: Joseph R. Biden will be inaugurated as the 46th president of the United States on January 20.  

A moderate Democrat, Biden got some eight million more votes than incumbent Donald Trump—who himself got more votes than anyone, other than Biden, in history. President-Elect Biden faces significant challenges as he begins his four-year term. His majorities in both the House and Senate are razor-thin. His fellow Democrats continually struggle to find consensus between their far-left progressive flank and those moderates who are more centrist. He has a history of working with GOP lawmakers on compromise proposals, but the toxic partisanship of the last decade (or more) has not been eliminated.  

Senate: In the Senate, the partisan split is 50-50, with Democrat Vice President Kamala Harris the tie-breaking vote. That gives control of the agenda to the Democrats. 

The 50-50 split in the Senate, with the tie-breaker coming from the Democratic vice president, allows no margin for intra-caucus disagreement. That means centrists and Republicans of a mind to negotiate will have great influence. It also means the GOP will have the power to stop Democratic initiatives that must meet the filibuster-proof 60-vote threshold, or that do not win unanimous Democratic support on those votes that require only a simple majority. 

House of Representatives: The House now has 222 Democrats and 211 Republicans. There is one vacancy, due to a death from COVID of a newly-elected Republican from Louisiana (a seat likely to continue to be held by the GOP after the seat is filled). There is still one seat, New York’s 22nd Congressional District, that is not yet decided. There is a 29-vote difference between the Republican who is leading and the incumbent Democrat, with the court reviewing hundreds of disputed ballots.  

The current 222-211 House split means a maximum potential of 222-213 for Republicans or 224-211 for Democrats. That means Democrats can lose only five or six votes on any partisan measure. Again, compromise-minded Republicans can shape legislation. Or, the GOP can stay united to kill Democratic proposals that do not win near-unanimous support from the Democratic caucus.  

Prospects: Opinions on what to expect are mixed, but most insiders agree that 2021 will bring some of each of three kinds of legislative initiatives:  

(1) Proposals that have bipartisan support—an example could be the bipartisan generation two pension bill that was offered late last year by the leaders of the House Ways & Means Committee (and viewed favorably by both GOP and Democratic Senators); or perhaps a new coronavirus aid bill 

(2) “Reconciliation” legislation (more on what that means below) that will require only 51 votes to pass the Senate 

(3) Gridlock that will block enactment of legislation caught in it. 

It is at this point too soon to tell how many of each kind of legislative initiative will surface early. A round-up of what Washington insiders expect is below.  

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Presidential Transition Fraught by Unrest, Controversy

Demonstrations that turned violent inside the U.S. Capitol on January 6, the day that Congress counted the Electoral College vote, have roiled the transition to the Biden presidency. The House has voted to approve an article of impeachment against President Trump. Ten Republicans joined all Democrats in 232-197 vote supporting impeachment.   

Tensions are high among severely shaken lawmakers from both sides of the aisle. Five people died, and the Capitol was physically damaged. There are reports that extremists are planning another “occupy the Capitol” effort before Inauguration Day. It may take a while before things settle down and lawmakers turn their attention to actual legislation.  

Prospects: It is impossible to overstate the impact of the January 6 unrest (some are calling it an insurrection; others say it was a riot) on Congress. There is a lot of finger-pointing along with grief and horrified shock. It is unclear at this point what the impact will be on legislation, but it is very clear that whatever that impact is, it will be significant. We will keep you posted. 

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org  

Michigan and Arkansas Adopt Best Interest Rule on Annuities 

Michigan and Arkansas have become states number four and five to adopt a best interest annuity rule based on the National Association of Insurance Commissioners’ (NAIC’s) revised Suitability in Annuity Transactions Model Regulation. 

Michigan Gov. Gretchen Whitmer signed the measure into law on December 29. The Arkansas Department of Insurance approved its rule on the same day. 

The model aligns with the Security and Exchange Commission’s Regulation Best Interest and provides significant consumer protections:   

  • It requires financial professionals to act in the best interest of annuity purchasers and not put their own financial interests ahead of the consumers’ interests.  
  • It sets forth clear obligations that must be met to satisfy the requirement to act in a consumer’s best interest.  
  • It requires financial professionals to provide consumers user-friendly disclosure materials to help them make informed decisions, all while preserving access to valuable financial advice and products.  
  • It safeguards the ability of small and moderate savers to access the financial guidance to plan for their own financial futures.  

NAIFA is working with the American Council of Life Insurers (ACLI) as advocacy partners to promote the adoption of the NAIC model in every state to ensure consistent, common-sense protections for consumers.  

Recent research conducted by LIMRA shows that despite regulatory concern over conflicts of interest, nine in ten consumers agree that their financial professionals always put their interests first. NAIFA believes that a consistent, uniform standard of care for annuity recommendations will help alleviate regulatory attempts to put in place standards that would be disruptive to NAIFA’s members’ business practices and unintentionally reduce consumers' choices and access to financial products and services. 

“States that adopt the NAIC model, as written, essentially reject a fiduciary-only approach,” said NAIFA State Chapter Director Julie Harrison. “The model, along with the SEC’s Regulation Best Interest, serves as a common-sense combination of policies that will enhance protections for consumers who want to purchase guaranteed lifetime income in retirement through annuities.”

NAIFA Staff Contact: Julie Harrison –State Chapter Director, at JHarrison@naifa.org

More Coronavirus Aid Tops Early 117th Congress' Agenda

When the 117th Congress gets to work after the presidential inauguration on January 20, it is widely expected that a new coronavirus aid bill will be the first substantive legislation on the agenda. Key issues include $2,000 per eligible taxpayer direct stimulus payments, more money to states and local governments, extended unemployment benefits, and some kind of liability protection against potential lawsuits by COVID victims. 

Other legislation likely to get early action from the new Congress includes: 

  • An increase in the federal minimum wage—the first proposal likely to be offered would raise the current federal minimum wage from $7.25/hour to $15/hour. 
  • Creation of some kind of federal paid leave—this could start as an expansion of the now-expired federal coronavirus-related paid leave rules, but is likely to move quickly into a debate over guaranteed paid sick and/or family leave even after the pandemic ends.  
  • A health bill that could trigger debate on whether to add a government option to the Affordable Care Act (ACA) exchange-based health insurance options, and/or to increase ACA subsidies.  
  • A federal statutory definition of independent contractor versus employee—the debate will almost certainly start with the worker classification provisions in last Congress’ PRO Act. Those provisions are modeled on California’s “ABC test,” which unless modified (as California has done), could create adverse conditions for many financial advisors who are classified as independent contractors by their companies.  
  • A climate change bill
  • An immigration reform bill
  • An infrastructure bill—a package aimed at funding road, bridge, railway and other key infrastructure projects around the country. This legislation will be fraught with risk as lawmakers struggle to either raise the funds to pay for these projects through tax increases, or decide to add to the burgeoning federal deficit. 

Prospects: Some of these issues could win bipartisan support—for example, it is possible that Democrats and Republicans could agree on a package that increases the minimum wage and creates a federal paid leave policy or program. Some are more likely to be controversial, but not necessarily partisan—an example of that is the worker classification issue. Infrastructure, climate change, immigration reform, and ACA expansion are all almost certain to be partisan, and therefore more likely than not a victim of gridlock unless they can be handled in a reconciliation bill. See below for what a reconciliation bill is, and how one might be put together this year.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org  

Key Biden Priorities May Be Addressed in a Reconciliation Bill

There is a budget law process that allows Congress to enact filibuster-proof “reconciliation” legislation. Many Democrats say reconciliation is their best hope for enactment of some key Biden priorities, including the Affordable Care Act (ACA) expansion and, potentially, changes to the 2017 tax reform law, the Tax Cuts and Jobs Act (TCJA). Such potential tax law changes include a hike in the corporate tax rate from the current 21 percent to 25 percent or even 28 percent, and possibly repeal or modification of the section 199A deduction for non-corporate business income. Let’s start with a primer on just what a reconciliation bill is.  

Reconciliation legislation starts with a budget agreed to and passed by both the House and the Senate. This “budget resolution” is not a law and does not require a signature by the President. It can and often does include instructions on specific policy goals—but those instructions/goals are up to the committees of jurisdiction to write into law; they have no force of law themselves. Indeed, it is not even required that the committees of jurisdiction must accommodate such instructions. Budget resolutions are usually partisan, and often difficult to pass. 

A budget resolution may authorize up to three separate reconciliation bills—one dealing with health, one dealing with revenue, and one dealing with the debt limit. A reconciliation bill is subject to limits on debate (20 hours in the Senate), which means it cannot be filibustered by 41 (or more) Senators declining to vote to cut off debate (this is the 60-vote legislative filibuster in the Senate). A reconciliation bill is also subject to a series of other rules—a key one is that it must impact revenue—that means no pure policy provisions can go into a reconciliation bill.  These rules mean use of reconciliation for such priorities as a minimum wage increase or a paid leave program is unlikely. There is also a rule preventing a reconciliation bill from adding to the deficit “outside the budget window” (usually a budget resolution uses a 10-year window, but it could be five years). And, a provision’s revenue impact must be calibrated year-by-year within the budget window. Another rule is that no reconciliation bill can affect Social Security. 

So, a reconciliation bill is subject to significant limits, but a key provision is that a reconciliation bill can pass the Senate with a simple majority (usually, 51 votes). That makes reconciliation an appealing option, despite the restrictions with which lawmakers must live, for legislation that is unlikely to win 60 votes in the Senate.  

Keep in mind all provisions in any of the three potential reconciliation bills must impact federal revenue (the so-called “Byrd Rules” will require excision of any provision that does not meet this requirement, unless at least 60 Senators vote to waive the requirement). That makes reconciliation ideal for changing tax rules, but harder if not impossible for pure policy initiatives. So, tax hikes that have virtually no chance of winning 60 Senate votes become possible in a reconciliation bill. And, the ACA changes that President-Elect Biden wants can be written so that they impact revenue. So, reconciliation could be a way to add a government option to ACA exchange-based health insurance options and also a mechanism for increasing ACA subsidies. 

Reconciliation has a long history—it was the process by which Congress enacted the ACA, the TCJA, the 2001 and 2003 tax cut laws, the COBRA continuation health insurance coverage rules, and others. It can be arcane, but it is familiar to the lawmakers who serve on the committees that will write reconciliation legislation. And it can be a potent tool when there is majority, but not super-majority, support for a bill. 

Prospects: Congress can’t do a reconciliation bill unless they first agree to a budget resolution. And agreement on a budget could be a tall order given that virtually all budgets are partisan, and there is a huge gulf in priorities between the Democratic party’s left flank and its more centrist members. The slim margin in the House, and no room for disagreement among Democrats in the Senate will make what will probably have to be near-unanimous Democratic support a real challenge.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org  

Biden Announces First Legislative Initiative

On January 8, President-Elect Biden said he would be sending, this week, to Congress a coronavirus aid package that will be his first legislative initiative. The multi-trillion package will include $2,000 individual stimulus payments, billions in funding for vaccination efforts, extension of unemployment benefits, and other priorities. 

“The price tag will be high,” Biden said. But he said the huge bill is an investment in the economy now that would pay off, and even would help keep the federal debt under control later. “If we don’t act now, things are going to get much worse,” he said. “And it will be harder to get out of the hole later.” He added, “We should be investing in deficit spending in order to generate economic growth.” 

The elements Biden intends to include in the package include:

  • Individual stimulus payments, of $2,000 per eligible taxpayer 
  • Extended unemployment benefits (current benefits will expire this spring) 
  • Aid for housing (rent/mortgage assistance, eviction moratorium extension) 
  • Health care proposals (he did not provide specifics on this, but during the campaign he called for including a government option in Affordable Care Act (ACA) exchange-based insurance options, and for increases in ACA subsidies) 
  • Infrastructure proposals (jobs creation) 

Other Democratic priorities that may make it into this package include hazard pay for frontline workers and first responders, paid leave, and more funding for state and local governments struggling with coronavirus-related needs.  

Prospects: This bill will not be a slam-dunk. The process for this proposal is unclear. House rules allow for legislation addressing coronavirus aid (and climate change) without having to offset the cost. So, Congress could try to move this legislation without using the reconciliation process. But, many lawmakers—in both parties—are concerned about its price tag. Some want the aid to individuals to be more targeted. The GOP in particular will want liability protection included. So, lawmakers may use the reconciliation process. But, if reconciliation is the process by which the bill passes, Congress must first approve a budget. The effort could be delayed by ongoing Trump impeachment efforts. Lawmakers will want to move this bill quickly, but a months-long debate is possible, maybe even probable.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org   

IRS Release Guidance Implementing HR 133's Deduction for Business Expenses Paid with Forgiven PPP Funds 

On January 6, the Internal Revenue Service (IRS) issued Revenue Ruling 2021-2 which implements the new law that allows a deduction for business expenses paid with tax-free forgiven Paycheck Protection Program (PPP) loan funds. Congress enacted the law (H.R.133) creating the deduction in December of last year. 

Rev. Rul. 2021-2 reverses Notice 2020-32 and Rev. Rul. 2020-27, which had denied the deduction. It makes these rulings “obsolete,” according to Rev. Rul. 2021-2. Accordingly, expenses paid with forgiven (or expected to be forgiven) PPP funds are deductible under usual rules as if they were paid with funds other than tax-free forgiven PPP loan money. 

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org, or Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org

DOL Finalizes Its New Fiduciary Rule

On December 15, the Department of Labor (DOL) released its new, final fiduciary rule. The rule tracks with the Securities and Exchange Commission’s (SEC’s) best interest standard (Reg BI). It formally reinstates the historic five-part test for determining when an advisor has a fiduciary duty to clients, and preserves the ability of advisors to advise on and sell proprietary products. It also preserves traditional treatment of insurance products, and protects commission-based compensation. 

The new final rule—which is scheduled to take effect in mid-February, but may be frozen before then by the incoming Biden Administration—also covers roll-overs from employer-sponsored retirement savings plans to individually-owned IRAs. That was a key area of debate during development of the rule.  

The final rule contains only minor changes to the rule as it was proposed. Those changes include eased record-keeping and disclosure requirements, and a clarification involving retroactive review applicable to a plan sponsor’s senior executive officers. 

Prospects: It is widely expected that the incoming Biden Administration will review this “midnight regulation” released by the outgoing Trump Administration. That review is likely to tighten the rule. It may also become a legislative issue, and/or the subject of court challenges. Thus, this issue is still a long way from being settled.

NAIFA Staff Contacts: Diane Boyle – Senior Vice President – Government Relations, at DBoyle@naifa.org; Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org   

DOL Issues Final Worker Classification Rule  

On January 6, the Department of Labor (DOL) finalized its new worker classification rule. It was published in the Federal Register on January 8, giving it a March 8 effective date. 

DOL proposed last September a regulation that would condition classification of a worker as an independent contractor on a test based on economic dependence. Two core factors would be considered in determining whether that economic dependence exists: the nature and degree of the employer’s control over the work; and the worker’s opportunity for profit or loss based on personal initiative or investment. 

The Trump Administration had prioritized finalizing this proposed rule, at least in part to stave off imposition of an “ABC type” test to determine whether a worker is an employee or an independent contractor. The ABC test was developed in California and is the standard used in legislation (that has not passed Congress, but is likely to be a high-priority effort in 2021). It is a much tighter, narrower definition that classifies many more workers as employees.  

Generally, the ABC test classifies a worker as an independent contractor only if the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; the worker performs work that is outside the usual course of the hiring entity’s business; and the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed. 

Prospects: Many of NAIFA’s members are classified as independent contractors by the insurers they represent, and this classification could run afoul of an ABC-type test, but not of the economic dependence test adopted in the final DOL rule. NAIFA successfully fought to modify the California ABC test to exclude insurance agents and financial advisors, and is working with Congress to include that modification in federal legislative proposals.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org   

Biden to Block Not-Yet Final Trump-Era Regulations, including Fiduciary, Worker Classification (Independent Contractor) Rules

On December 30, President-Elect Joe Biden announced he will issue a memo, effective on January 20 (his inauguration day) that will freeze late-breaking Trump Administration regulations that have not yet taken effect. This impacts the new, finalized fiduciary rule and the just-finalized worker classification regulation.  

Other Trump-era regulations may also get a new look, even if they are not subject to the freeze memo. Among such regulations is the Trump DOL’s “skinny health plan” rule that allows a year-long health insurance plan that is not compliant with the Affordable Care Act (ACA). Such a plan could be purchased for up to three years under the Trump rule.  

Prospects: It is clear that the incoming Biden Administration is not a fan of either the new Trump Administration fiduciary rule or its worker classification regulation. However, it is not clear—beyond the expected freeze—just what that incoming Administration will do. Among the options is a rewrite of the worker classification regulation—likely aligning it much more closely to the ABC test; or imposing a stricter fiduciary test in the case of the fiduciary rule. It is also possible that the new Administration could work with Congress to enact a new worker classification law—the issue is part of the PRO Act, which is expected to be a high priority of the new 117th Congress. It is very likely, though, that neither the worker classification nor the fiduciary rule regulations will be allowed to stand as is. Thus, these are issues to watch early in 2021.

NAIFA Staff Contacts: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org   

DOL Updates FFCRA Paid Leave Q&As

On December 31, 2020, the Department of Labor (DOL) updated its questions and answers (Q&As) on the Family First Coronavirus Response Act (FFCRA) paid leave law. The Q&As now include two new items that make clear that the law does not require coronavirus-related paid leave in 2021, but does require employers to pay for coronavirus-related leave taken between April 1 and December 31, 2020. 

The two new questions and their answers are: 

 Question 104 

I was eligible for leave under the FFCRA in 2020 but I did not use any leave. Am I still entitled to take paid sick or expanded family and medical leave after December 31, 2020? (added 12/31/2020) 

Your employer is not required to provide you with FFCRA leave after December 31, 2020, but your employer may voluntarily decide to provide you such leave. The obligation to provide FFCRA leave applies from the law’s effective date of April 1, 2020, through December 31, 2020. Any change to extend the requirement to provide leave under the FFCRA would require an amendment to the statute by Congress. The Consolidated Appropriations Act, 2021, extended employer tax credits for paid sick leave and expanded family and medical leave voluntarily provided to employees until March 31, 2021. However, this Act did not extend an eligible employee’s entitlement to FFCRA leave beyond December 31, 2020. 

Employers with questions about claiming the refundable tax credits for qualified leave wages should consult with the IRS.  Information can be found on the IRS website (http://www.irs.gov/coronavirus/new-employer-tax-credits). 

Question 105 

I used 6 weeks of FFCRA leave between April 1, 2020, and December 31, 2020, because my childcare provider was unavailable due to COVID-19. My employer allowed me to take time off, but did not pay me for my last two weeks of FFCRA leave. Is my employer required to pay me for my last two weeks if the FFCRA has expired? (added 12/31/2020) 

 Yes. WHD will enforce the FFCRA for leave taken or requested during the effective period of April 1, 2020, through December 31, 2020, for complaints made within the statute of limitations. The statute of limitations for both the paid sick leave and expanded family and medical leave provisions of the FFCRA is two years from the date of the alleged violation (or three years in cases involving alleged willful violations). Therefore, if your employer failed to pay you as required by the FFCRA for your leave that occurred before December 31, 2020, you may contact the WHD about filing a complaint as long as you do so within two years of the last action you believe to be in violation of the FFCRA. You may also have a private right of action for alleged violations.” 

Prospects: There are bound to be questions in 2021 about coronavirus-related paid leave. The bottom line is that federal law no longer requires employers to provide paid coronavirus-related leave (but some states do continue to require coronavirus paid leave). However, employers may provide such paid leave and if they do, they are entitled to a refundable payroll tax credit through March, 2021.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org       

Biden to Nominate Walsh for DOL Secretary

Boston Mayor Marty Walsh is President-Elect Joe Biden’s choice to head the Department of Labor (DOL). DOL oversees employment-related issues, including the fiduciary rule, rules governing retirement savings and welfare benefit plans, and employer-provided health insurance plans. Accordingly, his influence will be felt by many NAIFA members who provide retirement and financial advice, and/or who work with employer-provided benefits. 

Walsh has a long history with construction unions, and had the strong backing of organized labor during the selection process. His background includes time in the state legislature, and he is a long-time friend of President-Elect Biden. He also has a reputation for pragmatism, and for working with and listening to management and employers as well as labor unions. Insiders call him a “deal-making consensus builder.” 

Prospects: Walsh’s early priorities at DOL are expected to include a strengthened response to the COVID-19 pandemic, worker protection standards, paid sick and family leave, and expanded access to unemployment insurance. It is also probable that DOL will take a new look at its recently-finalized new fiduciary and worker classification rules, efforts Walsh will also oversee.  

Nomination confirmations—all of them—may be delayed if the Senate has to convene an impeachment trial. But nominations, along with the new coronavirus aid package, will be among the first things the Senate tackles as the 117th Congress gets underway.

NAIFA Staff Contacts: Judi Carsrud – Assistant Vice President – Government Relations, at jcarsrud@naifa.org, or Michael Hedge – Director – Government Relations, at mhedge@naifa.org   

IRS Issues Grandfathered Health Plan Rules

On December 11, the Internal Revenue Service (IRS) issued a final rule governing the changes that grandfathered Affordable Care Act (ACA) health plans can make. Generally, T.D.9928 gives more flexibility to grandfathered plans, allowing them to change cost-sharing requirements for those plans. 

The rule’s new flexibility for grandfathered health plans includes authority to increase fixed-amount cost-sharing requirements like deductibles to the extent required to allow the plan to maintain its status as a high deductible health plan (HDHP). It also provides an alternative method for measuring permitted increases in fixed-amount cost-sharing plans. 

Prospects: Congressional Democrats are unhappy with the loosened rules for the cost-sharing provisions of grandfathered plans. So, a legislative change to the new rules may be in the offing. It is also possible that the Biden Administration will tighten the rules back up again. We will keep you posted.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org

NAIC and NCOIL 2020 Fall Annual Meetings 

NAIFA attended both the National Association of Insurance Commissioners (NAIC) and the National Council of Insurance Legislators (NCOIL) national meetings in December to cover industry activity, including the approval of anti-rebating revisions to the Unfair Trade Practices Model Act at the NAIC.   

Other highlights of the NAIC meeting include the Producer Licensing Task Force adopting a new assignment to focus on increasing uniformity across states for adjuster licensing and reciprocity issues; the Long-Term Task Force referred its Reduced Benefits Options principles and consumer notices principles to the Long-Term Care Insurance Multistate Rate Review (EX) Subgroup; the Innovation and Technology Task Force announced plans to begin working on a bulletin to highlight COVID-related modifications and modernizations that have been made to various states’ insurance laws and regulations.  

At NCOIL, the Health and Long-Term Care Committee continued the discussion of its draft Telemedicine Model Act. NAIFA is currently working on comments to submit to the committee before the final model is presented for a vote in July. NAIFA encourages telemedicine as part of a company’s employee package and will seek to ensure that the model's payment parity language will not impact the flexibility NAIFA members currently have when designing benefits.   

Other activity that occurred at the NCOIL meeting includes the introduction of the COVID-19 Limited Immunity Model Law. The model provides businesses with blanket civil liability immunity for injuries or damages resulting from COVID exposure, except in cases of intentional torts or “willful or reckless” misconduct. The model specifically carves out workers’ compensation laws. Sponsors of the model introduced it for discussion purposes but noted that it may be moot with pending federal action and/or expected action by several state legislatures early in 2021. NAIFA supports liability immunity for businesses to protect them from a barrage of civil lawsuits related to the exposure to COVID-19.

NAIFA Staff Contact: Julie Harrison – State Chapter Director – Government Relations, at jharrison@naifa.org

NAIFA-Supported Surprise Medical Billing Provision is Part of Year-End Legislation

Congress has passed the final COVID-19 relief package of 2020 to support the economy and provide further relief during the continuing pandemic. Included within the 5,593-page bill is a provision to end surprise medical billing. The surprise medical billing language provides no government rate setting. The inclusion of this provision is arguably the most important patient-protection inclusion since the creation of Medicare Part D. NAIFA worked with congressional leaders in both the Senate and House, advising legislators of the importance of including surprise medical billing in the final bill. 

The surprise billing provisions are designed to protect consumers from surprise medical or “balance” bills from out-of-network (OON) providers in certain situations. The final package also includes several new transparency requirements, most notably a broker disclosure obligation that encompasses all brokers and consultants to an employer health plan (including service providers like third-party administrators and pharmaceutical benefits managers) and that requires up-front disclosure of any compensation expected to be received (both directly and indirectly) in connection with services provided to that plan. 

Broker/Consultant compensation disclosures 

Consistent with language in a prior Senate HELP Committee bill, the package requires disclosure of direct and indirect compensation by brokers/consultants who:

  • Enter into a contract or arrangement with a group health plan; and 
  • Reasonably expect to receive at least $1,000 in direct or indirect compensation (whether paid to the broker, an affiliate, or subcontractor) for any of the following services: 

o  Brokerage services (e.g., help with selecting insurance products, recordkeeping services, benefits administration, wellness services, compliance services, TPA services, etc.); or 

o  Consulting (e.g., development or implementation of plan design, insurance product selection, medical management services, tpa services, pbm services, etc.). 

The disclosure must be provided in writing to a responsible plan fiduciary “not later than the date that is reasonably in advance of the contract date” and any extension/renewal date, and must include:

  • A description of the services to be provided to the plan; 
  • If applicable, a statement that the broker/consultant plans to offer fiduciary services to the plan; 
  • A description of all direct compensation the broker expects to receive (in the aggregate or by service); 
  • A description of all expected indirect compensation (including: vendor incentive payments, a description of the arrangement under which the compensation is paid, the payer of the compensation, and any services for which the compensation will be received); 
  • Separately, any transaction-based compensation (e.g., commissions, finder’s fees) for services and the payers and recipients of the compensation; and 
  • A description of any compensation the broker/consultant expects to receive in connection with the contract’s termination (and how any prepaid amounts will be calculated and refunded upon termination). 

The “descriptions of compensation” may be expressed as a dollar amount, a formula, or a per capita charge for enrollees.  If these methods cannot reasonably be used, the broker may use a good faith estimate and supporting explanation, methodologies, and assumptions. 

Brokers/consultants have 60 days to update the disclosure based on new information.  They also must provide, upon request from a plan fiduciary or administrator, “any other information relating to the compensation received in connection with the contract or arrangement.”  Good faith errors and omissions in the disclosure will not be considered a violation if they are corrected within 30 days of the broker/consultant becoming aware of them.  Plan fiduciaries must report brokers/consultants to the Department of Labor if they do not comply with these requirements. 

Regarding individual health insurance coverage, a health insurance issuer offering individual health insurance coverage or a health insurance issuer offering short-term limited duration insurance coverage must provide disclosures to enrollees and must report direct or indirect compensation provided by the issuer to an agent or broker associated with enrolling individuals in such coverage. Disclosures must be made prior to the individual finalizing their plan and must include any documentation confirming the individual’s enrollment. 

A health insurance issuer must annually report to the Secretary, prior to the beginning of open enrollment, any direct or indirect compensation provided to an agent or broker associated with enrolling individuals in such coverage. 

These new disclosure requirements go into effect one-year from the date of enactment, which should roughly be January 1, 2022.

When OON services covered by the new law are provided, the payor can respond to the initial request for payment by offering to pay the pertinent “qualifying payment amount.” If after a negotiation period the parties cannot agree on a payment amount, the dispute is submitted to a special arbitrator who in resolving the dispute must first consider the applicable “qualifying payment amount” and the information submitted by the disputing parties about why deviations from that amount are warranted. 

Specifically, the new law caps cost-sharing obligations for patients who receive OON care to their applicable in-network levels (and requires plans to make up the difference) in the following circumstances: 

For emergency services performed by an OON provider and/or at an OON facility and for post-stabilization care after an emergency if the patient cannot be moved; When non-emergency services are performed by OON providers at in-network facilities (includes hospitals, ambulatory surgical centers, labs, radiology facilities, and imaging centers); and For air ambulance services provided by OON providers.  

The bill also directs several studies to be conducted, including a study on the effects of the Act and its impact on provider and plan integration, overall health care costs, and access to care, and a separate study on the impact of the Act on network participation, state surprise billing and network adequacy requirements, access to providers and health insurance plans (premiums, out-of-pocket costs and network adequacy). The Government Accountability Office is also directed to undertake separate, stand-alone studies on the adequacy of provider networks and on the performance of the independent dispute resolution (IDR) process. 

Prospects: NAIFA is continuing to monitor the developments during the next steps of implementation, including during the rule-making process. At that point further guidance on reporting is expected. NAIFA plans to work to prevent any additional burdens, with the focus on how added restrictions or hurdles could disincentivize agents and brokers from participating in the market.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Spending Bill Loosens Restrictions on Flexible Spending Accounts

As part of the COVID relief package passed by Congress, NAIFA-backed Flexible Spending Account (FSA) relief was included to relieve some of the financial burden consumers face regarding healthcare costs and health spending account allocations. Known as the Consolidated Appropriations Act, 2021, it includes provisions extending FSA benefits to those enrolled in such plans.  

Under the CAA, employers sponsoring flexible spending account programs may elect to adopt some or all the following changes: 

  • Health FSAs and dependent care FSAs may allow any remaining balances at the end of plan years ending in 2020 and 2021 to roll into the following plan year. 
  • Health FSAs and dependent care FSAs may extend grace periods for plan years ending in 2020 and 2021 to up to 12 months.  
  • Health FSAs may allow employees who terminate participation during 2020 or 2021 to spend down unspent balances through the end of the plan year (similar to what is already permitted for dependent care FSAs).  
  • Dependent care FSAs may extend the age limit for qualifying children from 13 to 14 for a plan year for which open enrollment ended before January 31, 2020, and for any unspent funds from that plan year that are available (either by rollover or grace period) to the employee during the following plan year. 
  • FSAs may allow prospective election changes during 2021 without regard to any change of status requirements. 

Employers electing to adopt any or all these changes may implement them immediately and then amend their plan documents in the following calendar year.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org

Senate Votes to Repeal the McCarran-Ferguson Antitrust Exemption for Health Insurance Companies

On December 22, the Senate voted to repeal the McCarran-Ferguson antitrust exemption for health insurance companies by passing HR 1418, the Competitive Health Insurance Reform Act. The House passed the bill on Sept. 21.  

According to advocates for the bill, repeal of the McCarran-Ferguson antitrust exemption would empower federal agencies, like the Federal Trade Commission and U.S. Department of Justice, to enforce the full range of federal antitrust laws against health insurance companies engaged in “anticompetitive conduct.” 

NAIFA has been a staunch defender of McCarran since its enactment in 1945. For NAIFA, the McCarran Act is the bedrock of the state insurance regulatory system because it dictates that the States – who currently have the only insurance regulatory expertise – are the sole regulators of the business of insurance. 

States have the expertise and global understanding necessary to ensure that regulation and enforcement work together, ultimately, for the protection of consumers. For this reason, no other regulated sector of the financial services marketplace is subject to FTC unfair trade practices oversight.   

The segment of the industry likely to be most immediately affected by changes to McCarran is small and medium-size insurance companies, which now are permitted by state law to share some loss cost data and trending information through state regulated third party entities. Without access to such actuarial data, small and medium-size insurers will be unable to price new risk and enter the insurance markets. Thus, the repeal of the McCarran-Ferguson Act will create an impact that will ensure there are fewer insurers in the marketplace and less competition – which will negatively impact consumers.  

NAIFA opposes the repeal of the McCarran federal antitrust and FTC unfair trade practice exemptions. Such repeals would limit competition and undermine the only insurance regulatory authorities – the States – to the detriment of both policyholders and small and medium-size insurance carriers.  

Prospects: President Trump is expected to sign the bill into law. Repealing the McCarran-Ferguson Act will weaken states’ authority and harm American consumers, while in no way working to increase competition in health insurance markets. Elimination of McCarran-Ferguson will only serve to reduce competition, choice, and innovation in the health care arena.

NAIFA Staff Contact: Michael Hedge – Director – Government Relations, at mhedge@naifa.org