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Should HR executives care about budget reconciliation?
Yes! Most of the changes in retirement and health programs over the past 29 years have come about through budget reconciliation.
That's because reconciliation short-circuits most of the normal legislative processes that make it difficult for Congress to pass legislation. And that is why the GOP is now making such a big deal about not wanting it to be used. They know that they used the process over three decades, while controlling one or the other house of Congress, to make program changes the Democrats did not want.
Thus, they know that something like healthcare reform can happen through budget reconciliation. The Republicans know they would have more leverage to negotiate details of the reforms if the normal legislative process is used.
Reconciliation is more of a steamroller. Former President George W. Bush achieved all of his initial tax cuts during his first months in office by getting 51 votes for a budget-reconciliation bill.
Other changes included in past reconciliation bills are like a trip down memory lane for most HR executives.
In the 1980s, President Ronald Reagan and the GOP-controlled Senate used the process to enact reductions in the allowable contribution and benefit limits for both defined-benefit and defined-contribution plans.
The process has also been used to enact top-heavy requirements and tightened non-discrimination testing. It set the age of 59-1/2 for earliest non-penalized single-sum distributions, and initiated joint and survivor spousal opt-out requirements, incremental takeaways related to executive life insurance, and COBRA healthcare continuation.
It set in motion requirements to continue retiree health and life benefits by firms in Chapter 11 and all of the increased limits for defined-benefit and defined-contribution plans in 2001. And the list goes on.
The Employee Retirement Income Security Act and the Pension Protection Act of 2006 are two of the significant changes in health and retirement policy since 1974 that have been accomplished through stand-alone legislation.
Healthcare reform should be a bipartisan issue, but there are core public-sector versus private-sector issues of ideology that could keep it from being one.
Congress will finish its budget resolution before the end of April, and a great deal is being made of whether or not it will include "reconciliation instructions" on healthcare reform.
In fact, it doesn't much matter.
Congress can pass another budget resolution on the fly with 50 votes in the Senate, plus the vice president's vote, any time it needs to do so. In reality, the budget game is not over until the opera diva sings -- and that is not until Congress adjourns for the year.
Reconciliation has been known to get finished just before Christmas when contentious issues are part of the process.
Healthcare reform is surely a contentious issue. As of now, three very contentious proposals have been put forth.
The first is a proposal for a public-plan option for those without employer-based coverage. It could allow some or all employers to direct their workers to that public plan in lieu of maintaining coverage at the workplace with private carriers of self insurance.
Second, is a proposal for either pure "pay or play," allowing the employer to avoid extra payments to the government as long as they provide healthcare coverage, or a modified "pay or play" plan that would require an addition, but lower, payment to the government to fund premium subsides for low-income individuals, children, etc., even when you provide your workers with health insurance.
Third, is a proposal to tax individuals on some of the value of employer-paid insurance benefits.
There are many alternative tax approaches and they vary dramatically in their complexity and fairness, making it difficult to predict who the ultimate winners or losers will be under such an initiative. Workers have always told pollsters they think it is a bad idea, while employers have been inconsistent on the issue.
All three of these contentious issues will be difficult for the Democrats to agree upon among themselves, and agreement across the aisle adds to the challenge of reaching a consensus.
By the time the Senate needs to vote, however, there are likely to be 59 Democratic senators, making it plausible that healthcare reform could be enacted without resorting to reconciliation.
Democrats are unlikely to opt for quick resolution, but will use reconciliation as a last resort if bipartisan agreement cannot be reached because health reform is going to affect every American worker and their families, as well as those under 65 who are not working.
The repeal of Medicare catastrophic legislation and Section 89 health non-discrimination requirements, combined with the controversy over the Medicare prescription-drug adoption -- by one vote in the House -- make it far more desirable to enact reform as regular legislation with the involvement and support of both parties.
What that means for HR executives is that this will be a process that will stretch forward many months and provide the opportunity for involvement, education and evaluation of the implications of the alternative proposals -- and their impact for employers and their workers.
It will also provide time for employers to come up with their own ideas for reforms -- other ways to continue to provide coverage or move workers to new system options. Or to redesign plans around other possible changes in tax treatment.
The safe bet for employers is that significant healthcare reform will be enacted by Congress and signed by President Barack Obama before the end of 2009. Major portions of the legislation are likely to be put on a fast track for implementation.
The time to begin assessment and planning is now!
Dallas Salisbury, an expert on economic-security issues, is president and CEO of the nonpartisan
Employee Benefit Research Institute
in Washington. The views expressed, however, are his own and should not be attributed to EBRI or others.
April 13, 2009
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