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).

Over the past 24 hours, a series of events has moved the question of how to pay for health care reform to the forefront of the debate.  The following timeline shows how this issue has become the biggest roadblock to comprehensive health care reform:

•   On June 15, the Congressional Budget Office (CBO) sent a letter to Senator Kennedy (D-MA) and the Health Education Labor and Pensions (HELP) Committee scoring their draft proposal as costing $1 trillion over 10 years but only covering an additional 16 million Americans.  This plan lacked firm language on a public plan or an employer mandate
•   On June 16, CBO also released a score of an unreleased Senate Finance Committee proposal, placing its cost at $1.5 trillion over ten years.  Committee Chair Max Baucus (D-MT) responded that the scored proposal was two weeks old.
•   CBO also told the committee that the president’s plans for expanding health coverage would add to the nation’s federal debt without offsets.  The letter states “without meaningful reforms, the substantial costs of many current proposals to expand federal subsidies for health insurance would be much more likely to worsen the long-run budget outlook than to improve it.”

With these updates, the Democratic leadership has been exploring new ways to pay for their health care plans.  CongressDaily obtained a document circulated by Ways and Means Committee Democrats with a series of proposals to pay for their legislation.  In addition to listing removing the tax-exemption for employers and increasing the tax on soda and alcohol, the document lists the following new ideas as “pay-fors”:

- Reducing deductions taken by pharmaceutical companies for prescription drug advertising expenses
- A 2 percent surtax on individuals earning more than $200,000 and households with $250,000 or more in adjusted gross income
- A 0.375% increase in the Medicare tax on both employers and employees, which will be controversial with small businesses
- Valued-Added Tax (VAT) on goods and services similar to a tax imposed by most European countries.

Interestingly, the limit on charitable tax deductions proposed by the president is not in the document, likely due to the resistance from members of the caucus.

Quick Hits

CBO Director says health care reform is a “hard slog” in USA Today… House Energy and Commerce Committee will release health care bill Thursday or Friday and “it will include some numbers”… The House Republican task force on health care releases its health care outline (details from ASAE to come)… Former U.S. Senate majority leaders Howard Baker, Tom Daschle, and Bob Dole release their bipartisan health care reform plan.

On the heels of a New York Times story yesterday examining the impact of health care reform proposals on small businesses, the House Small Business Committee held a hearing to examine exactly that topic.

“While there is no silver bullet solution to America’s healthcare woes, there is opportunity for improving the system,” Chairwomen Nydia Velazquez said in her written statement. “At the end of the day, small businesses need options, and there are several out there. Whether it is pooling mechanisms, insurance exchanges or refundable tax credits, the one thing we know won’t work is the status quo. That has become abundantly clear.”

Testifying were five small business owners representing a variety of associations, including the U.S. Chamber of Commerce, the U.S. Women’s Chamber of Commerce, the National Federation of Independent Business, and the Printing Industries of America. Despite the variety of industries represented, all agreed on one point: health care costs were affecting their bottom line. Most of the witnesses endorsed the chairwoman’s Small Business CHOICE Act (HR 859) as a help for their concerns.

According to the National Small Business Association statistic (cited in the chairwoman’s remarks) 10% of small firms may drop employee health care coverage in the next year. If you are a small association, is your association (or an association/business/member you know) going to have to drop or significantly modify your health offerings for employees?

Quick Hits
President Obama’s letter to the Senate outlining his preferred health care reforms….Washington Post blogger Ezra Klein interviews White House economist Christine Roemer on health care…… an idea piece in The New Yorker suggests a way to reduce health care costs like the Mayo Clinic has done… Coverage of the Daschle-Leavitt debate on health care at the National Press Club….

According to ASAE’s Policies and Procedures in Association Management, the median association has 10 full time employees, meaning a majority of associations are also categorized as small businesses. Today’s New York Times article on the lack of discussion on health care reform for small business should be uncomfortable for these associations.

According to the article, about half of the nation’s uninsured work for a small business or are self-employed but the major insurance companies lack proposals to address increased coverage for this market. The article suggests that the lucrative nature of providing insurance for the small business market makes insurers hesitant to propose reforms. “These markets generally work,” said Bradley Fluegel of WellPoint in the article. “They are well regulated by states today.”

Michelle Dimarob, manager of legislative affairs for the National Federation of Independent Business (NFIB), disagrees: “If you truly want to build off the strength of the employer-based system and want comprehensive health reform and access to quality affordable health care, why would you only fix the individual market?”

Associations in 2008 faced on average an 11% increase in health care premiums, according to the ASAE Compensation and Benefits Study, so the problems in the small business market hit associations along with for-profit businesses. ASAE is on-board supporting The Small Business CHOICE Act (and the SHOP Act) to help alleviate these problems, but will these proposals get to the heart of the problem? Can allowing small businesses to create insurance pools (in the primary care or catastrophic markets) help alleviate the yearly double-digit premium increases?

Quick Hits

The Obama Administration hints it will not oppose removing the employer tax-exemption on health insurance plans to pay for reform……but it looks like it will leave it to outside groups to push for a “public plan” insurance company……..President indicates affection for MedPAC reform, or creation of a health care federal oversight board……HELP committee bill will include individual mandate and likely public option, according to Sen. Bingaman (D-NM).