The Power of A

Sen. Chuck Grassley (R-IA), ranking member of the Senate Finance Committee, has filed two amendments to the health care reform bill introduced by Senate Finance Chairman Max Baucus (D-MT) that directly impact tax-exempt organizations.

These amendments were filed along with more than 500 others before the end of last week, and are being considered in the markup of the Baucus bill that got underway Sept. 22.

One of Grassley’s amendments would give the IRS statutory authority to require that tax-exempt organizations report governance and management information as part of their annual Form 990 reporting requirements. The IRS revised the Form 990 for the 2008 tax year to include a new section on governance, among other changes. The section asks filing organizations questions about board composition, governing body review of the 990, and whether certain policies are in place for conflicts of interest, whistleblower and document retention, as well as a process for determining executive compensation. In drafting the new section, the IRS acknowledged it lacked explicit statutory authority to scrutinize nonprofit governance practices, but included the section because it believes good governance leads to improved compliance.

Grassley’s amendment would protect the IRS from “wasteful” legal challenges by adding language to specifically mandate that the agency require governance reporting by tax-exempt organizations.

The second amendment proposed by Grassley is a revenue raiser that would remove the safe harbor providing tax-exempt organizations a “rebuttable presumption of reasonableness” in setting the compensation of its officers and directors. In explaining the amendment, Grassley cited studies by the IRS of executive compensation practices at charities and nonprofit hospitals. These studies showed very high salaries and little recourse for the government to challenge the reasonableness of compensation paid by the organizations in question. Many organizations were able to use rebuttable presumption procedures to demonstrate compensation was set comparable to executives in other organizations, even in some instances for-profit organizations.

Grassley’s amendment would adopt a 2005 recommendation by the Joint Committee on Taxation to remove the rebuttable presumption defense and require organizations to disclose in their annual 990 filings a summary of the comparable information used to determine an executive’s compensation. In a report this week, BNA quoted a Grassley spokesperson as saying the changes to existing compensation rules would apply only to Section 501(c)(3) and (c)(4) organizations.

ASAE is attempting to determine the intent of this amendment, and analyzing its implications for tax-exempt organizations. Giving the IRS express authority to determine what is reasonable compensation and what are appropriate comparables would be viewed by many as a potentially dangerous extension of authority. ASAE will study this amendment closely, and report its findings.

Quick Hits

Senate Finance begins its markup … Baucus modifies his chairman’s mark.

As expected, Senate Finance Committee Chairman Max Baucus (D-MT) introduced his health care reform bill today after months of negotiating with three Democrats and three Republicans on his committee, dubbed the Gang of Six.

“This is a unique moment in history where we can finally reach an objective so many of us have sought for so long,” Baucus said in a statement today.

The Finance Committee mark up is scheduled to begin Sept. 22. Considered a more moderate alternative to the health care bills produced in the House and the Senate HELP Committee, the Baucus bill eschews the public insurance option in favor of creating membership-run nonprofit cooperatives to compete with the private insurance companies. The bill contains many of the other reforms endorsed by President Obama in his speech to Congress last week, including creating a state-based exchange through which individuals and small businesses could obtain insurance; providing tax credits for lower-income individuals and small businesses to help offset the cost of premiums; and requiring that most U.S. citizens and legal residents purchase health insurance or have health coverage through their employer.

According to Baucus, the Congressional Budget Office has estimated the cost of the bill at $856 billion over 10 years. Baucus said the bill will be fully paid for without adding to the federal deficit. To offset the cost, the bill calls for imposing a 35 percent tax on high-value insurance plans and new fees on insurers and other industry players.

The unveiling of the Senate Finance Committee’s bill has prompted renewed grousing from both sides of the aisle. Sen. Chuck Grassley (R-IA), the committee’s ranking member, has spent months at the bargaining table as one of the Gang of Six, but signaled this week he will not vote for the end product.

“Unfortunately, we’re operating under an artificial deadline set by the Democratic leadership and the White House,” Grassley said in a Sept. 15 statement. “I’m disappointed because it looks like we’re being pushed aside by the Democratic leadership so the Senate can move forward on a bill that, up to this point, does not meet the shared goals for affordable, accessible health coverage that we set forth when this process began.”

Grassley said he still has concerns that federal funds could be used for abortions, that illegal aliens could receive subsidies to help obtain insurance, and that medical liability reform measures aren’t tough enough.

The other two Republican members of the Gang of Six, Sens. Mike Enzi (R-WY) and Olympia Snowe (R-ME), haven’t yet said whether they will support the Finance bill, though many observers have said Snowe is probably the only hope for a bipartisan bill.

Meanwhile, liberal Senate Democrats are also balking at the Baucus bill. Sen. John Rockefeller (D-WV) told reporters Sept. 15 he won’t support the bill in its present form. Rockefeller has been pushing hard for a government-run public option and also opposes the excise tax on high-value health insurance plans included in the Finance bill. What do you think of the long-awaited bill unveiled by Sen. Baucus? How should the Senate proceed in the absence of Republican support for the bill?

Quick Hits

The full text of the chairman’s mark  … Reaction to the bill from Senate Minority Leader Mitch McConnell  … Ways and Means Chairman Charlie Rangel (D-NY) is skeptical about Senate plan (subscription required).

Yesterday, the House Democratic leadership unveiled their comprehensive healthcare legislation.  The legislation has a few changes from the discussion draft circulated last month (you can see the changes here) but the major ones include a new surtax on high-income families and a sliding scale penalty for small businesses that do not offer health insurance coverage.  To help associations make sense of the provisions, ASAE below has outlined below what the bill could mean for associations and their employees:

Businesses (Including Associations)

1. Businesses would be required to provide a minimal level of coverage for employees or pay a penalty of 8% of their payroll. The minimum level of coverage is specified in the bill and can be further specified by the Health Benefits Advisory Committee.

2. Employers would be required to contribute 72.5% of the cost of premiums for FTEs’ coverage and 65% of family plans.

3. Five years after the bill is passed, all businesses would be required to meet the minimum coverage standards required of those in the Exchange. Also, employers could no longer place annual or lifetime caps on plans.

4. Employers that offer health insurance must provide a process to automatically enroll employees into their health plan with the lowest premium. Those same employees are eligible to opt-out of the plan.

Small Business

1. Small businesses, based on size, are eligible to participate in the Health Insurance Exchange to find insurance for employees. Companies with ten or fewer employees can participate in the first year, and it expands to 20 or fewer employees in the second year. After the second year, participation can be extended to additional businesses. Businesses that participate in the Exchange have their plans for employees managed by the Exchange.

2. All businesses with payroll under $250,000 are exempt from the employer mandate. Businesses with payroll between $250,000 and $400,000 that do not provide insurance would pay a modified fee based on their payroll size (2% for $250k-$300k; 4% for $300k-$350k; and 6% for $350k-$400k).

3. A tax credit is provided to small businesses that offer health insurance.

Individuals

1. Individuals not covered by their employers may participate in the Health Insurance Exchange to find coverage fitting themselves or their family, either through private insurance or a public insurance plan.

2. “Affordability credits” would be available for individuals and families up to 400% of the federal poverty level ($43,000 for individuals and $88,000 for families) on a sliding scale. The credits would be administered through the Exchange. Families and individuals at or below 133% of the federal poverty level are eligible to be covered by Medicaid.

3. The bill imposes an individual mandate; the penalty for failure to have coverage would be 2.5% of the person’s modified AGI but would not exceed the average cost of a health care policy in the Exchange.

4. If an employee’s insurance costs their employer more than 11% of that employee’s AGI, that employee can leave the employer plan and enter the Exchange.

5. Families whose income exceeds $350,000 (or individuals whose income exceeds $280,000 annually) would pay a surtax to finance the reform. Families earning between $350,000 and $500,000 would pay a 1% surtax; those earning between $500,000 and $1,000,000 would pay a 1.5% surtax. Those families earning above $1,000,000 annually would pay a 5.4% surtax. The surtax numbers could increase if the anticipated healthcare revenue does not meet the expected level.

Does the House proposal positively or negatively affect associations?

Quick Hits

HELP Committee passes its version of the healthcare bill… The Blue Dog coalition is not entirely pleased with the House bill, but the Progressive Caucus is… The Wall Street Journal analyzes on how the bill would affect small businesses… House Republicans prepare to release their own healthcare overhaul language… Is the Senate Finance Committee considering stricter reporting on corporations’ 1099 forms to pay for their legislation? (subscription)… Or are they considering a windfall profit tax on private insurers?… President Obama will speak on healthcare in the Rose Garden today with the American Nurses Association.

After holding a private session with all members of the Senate Finance Committee yesterday, Chairman Max Baucus (D-MT) said that any bill passing the Senate will have a public option and despite hesitation from committee members he is dedicated to passing legislation before the August recess.

The public plan has long been considered essential by most Democrats but a non-starter by Republicans. Baucus stated that, in addition to opposition over the public plan, he has received complaints from members that they had not had time to review actual legislative language, nor had a chance to see a CBO score of the proposals to see the cost and what offsets are needed. He acknowledged these concerns but also stated that he would stick to a timeline of unveiling language the week of June 15th and begin mark-ups the week of June 22nd.

After the meeting, ranking member Charles Grassley (R-IA) voiced his frustration over the discussions: “Our caucus is very, very much against a public option,” he said. “It is just very, very difficult. But I suppose that somewhere out there is something politically realistic that is not a public option that satisfies Republicans and Democrats but isn’t a government-run system.” He and other Republicans who participated in the discussions stated their opposition any bill including a public option and a mandate for employers to provide health insurance.

On the House side, Ways and Means Committee Chairman Charles Rangel (D-NY) held a press conference today unveiling his timeline for his committee’s health care bill. He expects to release language in mid-June and have a mark-up after the July 4th recess. Rep. Rangel held a meeting of the committee’s Democrats to discuss various components of health care reform, but did not discuss specific funding mechanisms.

Quick Hits
Baucus staff sat down with the business community after his committee walk-through (subscription)….. Is Senator Kennedy’s illness preventing health care reform?…. Washington Post columnist Michael Gerson on the proposed health care reforms.