U.S. House and Senate Reach Agreement on Uyghur Forced Labor Prevention Act

On December 14, 2021, lawmakers in the House and Senate announced that they had reached an agreement on compromise language for a bill known as the Uyghur Forced Labor Prevention Act or “UFLPA.”  Different versions of this measure passed the House and the Senate earlier this year, but lawmakers and Congressional staff have been working to reconcile the parallel proposals. The compromise language paves the way for Congress to pass the bill and send it to President Biden’s desk as soon as this week.

The bill would establish a rebuttable presumption that all goods originating from China’s Xinjiang region violate existing US law prohibiting the importation of goods made with forced labor. The rebuttable presumption would go into effect 180 days after enactment.  The compromise bill would also require federal officials to solicit public comments and hold a public hearing to aid in developing a strategy for the enforcement of the import ban vis-à-vis goods alleged to have been made through forced labor in China.

This rebuttable presumption will present significant challenges to businesses with supply chains that might touch the Xinjiang region.  Many businesses do not have full visibility into their supply chains and will need to act quickly to map their suppliers and respond to identified risks.  Importers must present detailed documentaton in order to release any shipments that they think were improperly detained, a costly and time-consuming endeavor.  Notably, the public comment and hearing processes will guide the government’s enforcement strategy, providing business stakeholders an opportunity to contribute to an enforcement process that could have implications for implementation of the import ban more broadly.

China’s Xinjiang region is a part of several critical supply chains, lead among them global cotton and apparel trade, as well as solar module production.  According to the Peterson Institute:

Xinjiang accounts for nearly 20 percent of global cotton production, with annual production greater than that of the entire United States. Its position in refined polysilicon—the material from which solar panels are built—is even more dominant, accounting for nearly half of global production. Virtually all silicon-based solar panels are likely to contain some Xinjiang-sourced silicon, according to Jenny Chase, head of solar analysis at Bloomberg New Energy Finance. If signed into law, the bill will send apparel producers and the US solar industry scrambling to find alternative sources of supply and prices are bound to increase.

Article By Ludmilla L. Kasulke and Rory Murphy of Squire Patton Boggs (US) LLP

For more legal news and legislation updates, click here to visit the National Law Review.

© Copyright 2021 Squire Patton Boggs (US) LLP

H.R. 3684: Infrastructure Investment and Jobs Act

On November 5, the U.S. House of Representatives approved a $1.2 trillion infrastructure spending bill that will make historic investments in core infrastructure priorities including roads and bridges, rail, transit, ports, airports, the electric grid, and broadband.

The legislation, titled the Infrastructure Investment and Jobs Act (“IIJA”), will have major implications for states and municipalities of all sizes, as well as the entities involved in responding to governments’ needs for hard and cyber infrastructure.

Improvements to roadways, ports and mass transit are the focus of the legislation and the majority of the funding is targeted at these traditional hard infrastructure projects. U.S. Senator Rob Portman (R-OH) has championed the massive infrastructure bill and pushed for its passage.

This weekend, Senator Portman noted the massive impact the IIJA will have on Ohio, highlighting the bill’s bridge investment program which will award competitive grants to certain governmental entities to improve the condition of bridges. “This additional federal funding means we are one step closer to a solution for the Brent Spence Bridge,” Portman said.

The Brent Spence Bridge, which connects Cincinnati, Ohio with Covington, Kentucky has one of the busiest trucking routes in the nation. Questions about its safety and long shutdowns for repair have long concerned area residents as well as the business owners responsible for the more than $400 billion of freight which passes over the bridge every year.

While hard infrastructure priorities like bridge maintenance, port modernization, freight rail, and highway improvements account for a majority of the new spending appropriated by the bill (which totals $550 billion over five years), a sizable portion is dedicated to the expansion of broadband networks and the improvement of cybersecurity.

The new cybersecurity grant program and record-setting investments in broadband development could be game changing for state and local leaders wishing to modernize and protect their communities in these ways.

The U.S. Senate approved the IIJA in August 2020. Friday’s vote means the infrastructure bill will now move to the desk of President Joe Biden, who has indicated a bill signing ceremony will happen soon. Answers to questions about the billions of dollars in new infrastructure grants and programming are below.

Question: How will the money be distributed? 

Answer: The IIJA contains formulaic allocations of funds as well as earmarks and competitive grants. Some categories and sub-categories contain both non-competitive and competitive grants.

  • NON-COMPETITIVE FUNDING ALLOCATION PROCESSES
    • Formulas dictated by the bill are based on criteria like state population, or, potentially for specific items, users (ex: transit funds potentially determined by ridership)
    • Once the money is directed to the states, the local bureaucrats are able to make the important decisions about which projects deserve the funding.
    • States can also decide to allocate some of the funding to the county or city governments within their state
  • EARMARKS AND COMPETITIVE GRANT PROCESSES
    • Earmarks override state plans for how infrastructure funds should be spent. “Earmarks come out of the money that the state was going to get anyway.”
    • Localities must compete for Competitive Grants via an application process. The U.S. Department of Transportation’s Discretionary Grant Process is officially outlined on their website.
    • Generally, the award of competitive grants can be influenced by advocates who confer with decisionmakers in the Executive Branch about the merits of certain proposals.

Question: Which projects will qualify for funding?

Answer: The bill details specific funding streams for the specific projects included in its provisions. Categories of projects included in the $550 billion in new spending are below.

  • Roads, Bridges, & Major Projects: $110B — Funds new, dedicated grant program to replace and repair bridges and increases funding for the major project competitive grant programs. Preserves the 90/10 split of federal highway aid to states.
  • Passenger and Freight Rail: $66B — Provides targeted funding for the Amtrak National Network for new service and dedicated funding to address repair backlogs. Increases funding for freight rail and safety.
  • Safety and Research: $11B — Addresses highway, pedestrian, pipeline, and other safety areas (highway safety accounts for the bulk of this funding).
  • Public Transit: $39.2B — Funds nation’s transit system repair backlog, which includes buses, rail cars, transit stations, track, signals, and power systems. This allocation also includes money to create new bus routes and increase accessibility to public transit for those with physical mobility challenges.
  • Broadband: $65B — Funds grants to states for broadband deployment and other efforts to address access issues in rural areas and low-income communities. Expands eligible private activity bond projects to include broadband infrastructure.
  • Airports: $25B — Increases Airport Improvement grant amounts for runways, gates, & taxiways and authorizes a new Airport Terminal Improvement program.
  • Ports and Waterways: $17.4B — Provides funding for waterway and coastal infrastructure, inland waterway improvements, port infrastructure, and land ports of entry through the Army Corps, DOT, Coast Guard, the GSA, and DHS.
  • Water Infrastructure: $54B — Provides a $15 billion for lead service line replacement and $10 billion to address PFAS in water, in addition to other items.
  • Power and Grid: $65B — Funds grid reliability and resiliency projects and support for a Grid Development Authority; critical minerals and supply chains for clean energy technology; key technologies like carbon capture, hydrogen, direct air capture, and energy efficiency; and energy demonstration projects from the bipartisan Energy Act of 2020.
  • Resiliency: $46B — Funds cybersecurity projects to address critical infrastructure needs, flood mitigation, wildfire, drought, coastal resiliency, waste management, ecosystem restoration, and weatherization.
  • Low-Carbon and Zero-Emission School Buses & Ferries: $7.5B — Funds and authorizes the adoption of low-carbon and zero-emission school buses, including through hydrogen, propane, LNG, compressed natural gas, biofuel, and electric technologies. Provides support for a pilot program for low emission ferries and rural ferry systems.
  • Electric Vehicle Charging: $7.5B — Funds alternative fuel corridors and a national build out of electric vehicle charging infrastructure. The federal funding will have a particular focus on rural and/or disadvantaged communities.
  • Reconnecting Communities: $1B — Provides dedicated funding for planning, design, demolition, and reconstruction of street grids, parks, or other infrastructure (funding is especially targeted at infrastructure which is deteriorating due to age).
  • Addressing Legacy Pollution: $21B — Funds to clean up brownfield and superfund sites, reclaim abandoned mine lands, and plug orphan oil and gas wells, improving public health and creating good-paying jobs.

Article By Katherine M. Caprez of Roetzel & Andress LPA

For more legislative and legal news, read more from the National Law Review.

©2021 Roetzel & Andress

While Democrats Whittle Down Pro-Labor Provisions Of Social Spending Bill, Civil Penalties Remain

As we discussed here, members of the House Education and Labor Committee have been attempting to end-run the procedural hurdles that have prevented the Protect the Right to Organize Act (“PRO Act”) legislation from becoming law, through a process called “budget reconciliation.”  (For a refresher on the PRO Act, see our blog posts on the proposed legislation here and here.)

In September, the Committee released its proposed language for the federal budget incorporating several key provisions from the PRO Act that would have drastically amended federal labor law, such as establishing civil penalties for violations of the National Labor Relations Act (“NLRA”), personal liability for officers and directors, and newly-defined unfair labor practices that would effectively prohibit employers from utilizing some of the economic weapons traditionally thought to be lawful under the NLRA.  Through the budget reconciliation process, these provisions have a greater chance of becoming law where the bill only requires majority support in both the House and Senate and is not subject to a filibuster.

However, as the social spending bill faced challenges from both parties, the Administration presented a revised framework on October 28, 2021, entitled the “Build Back Better Act.”  The new bill  among other major edits, significantly pared down the proposed pro-labor provisions.

Even under the revised framework, there still exists for the first time ever civil penalties for those who commit unfair labor practices. If passed into law in its current form, the Build Back Better Act would:

  • Impose civil penalties of up to $50,000 per violation of the NLRA;
  • Double civil penalties up to $100,000 for NLRA violations that resulted in discharge or serious economic harm where the employer committed another similar violation within the past 5 years; and
  • Assess civil penalties against directors and officers where the facts indicate that personal liability is warranted.

Fortunately, some of the most significant PRO Act-inspired provisions of the prior reconciliation bill have been dropped from this spending bill; specifically, language that would have made it an unfair labor practice to:

  • Permanently replace strikers;
  • Discriminate against a worker who has unconditionally offered to return to work based on participation in a strike;
  • Lockout, suspend, or otherwise withhold employment from employees prior to a strike;
  • Misrepresent to a worker that they are excluded from the definition of “employee” under the Act, such as misclassifying independent contractor or supervisor;
  • Require or coerce employees to attend so-called “captive audience meetings” or other campaign activities;
  • Enter into, enforce, coerce, or retaliate against employees with respect to class or collective action waivers

The revised spending bill framework is now up for discussion and debate in both the House and the Senate. The bill needs majority support in both chambers in order to become law, and the amendments in the proposed language must withstand potential challenges in the Senate (called the Byrd Rule), which (as we discussed here) is intended to limit amendments that change the substantive policy of federal law, rather than limited to taxes or spending.  The significantly narrowed labor law amendments in the revised bill would seem to have a greater likelihood of withstanding a Byrd Rule challenge than the prior iteration.

As always, we will monitor this situation and report updates as they occur.

© 2021 Proskauer Rose LLP.

For more articles on labor law, visit the NLR Labor & Employment section.

Paycheck Protection Program Flexibility Act of 2020 – Changes To The CARES Act

On Wednesday, June 3, 2020, the U.S. Senate passed the Paycheck Protection Program Flexibility Act of 2020 (“Act”) by voice vote.  The bill had passed the U.S. House on May 28 nearly unanimously.  It now heads to the President’s desk for signature.

Summary of Key Provisions

The Act provides important new flexibility to borrowers in the Paycheck Protection Program (“PPP”) in a number of key respects:

Loan Maturity Date: The Act extends the maturity date of the PPP loans (i.e. any portion of a PPP loan that is not forgiven) from 2 years to 5 years.  This provision of the Act only affects borrowers whose PPP loans are disbursed after its enactment.  With respect to already existing PPP loans, the Act states specifically that nothing in the Act will “prohibit lenders and borrowers from mutually agreeing to modify the maturity terms of a covered loan.”

Deadline to Use the Loan Proceeds: The Act extends the “covered period” with respect to loan forgiveness from the original 8 week period after the loan is disbursed to the earlier of 24 weeks after the loan is disbursed or December 31, 2020.  Current borrowers who have received their loans prior to the enactment of the Act may nevertheless elect the shorter 8 week period.

Forgivable Uses of the Loan Proceeds: The Act raises the cap on the amount of forgivable loan proceeds that borrowers may use on non-payroll expenses from 25% to 40%.  The Act does not affect the PPP’s existing restrictions on borrowers’ use of the loan proceeds to eligible expenses: payroll and benefits; interest (but not principal) on mortgages or other existing debt; rent; and utilities.

Safe Harbor for Rehiring Workers: Loan forgiveness under the PPP remains subject to reduction in proportion to any reduction in a borrower’s full-time equivalent employees (“FTEs”) against prior staffing level benchmarks.  The Act extends the PPP’s existing safe harbor deadline to December 31, 2020: borrowers who furloughed or laid-off workers will not be subject to a loan forgiveness reduction due to reduced FTE count as long as they restore their FTEs by the deadline.

New Exemptions from Rehiring Workers: The Act also adds two exemptions to the PPP’s loan forgiveness reduction penalties.  Firstly, the forgiveness amount will not be reduced due to a reduced FTE count if the borrower can document that they attempted, but were unable, to rehire individuals who had been employees on February 15, 2020 (this codifies a PPP FAQ answer discussed on a previous post) and have been unable to hire “similarly qualified employees” before December 31, 2020.  Secondly, the forgiveness will not be reduced due to a reduced FTE count if the borrower, in good faith, can document an inability to return to the “same level of business activity” as prior to February 15, 2020 due to sanitation, social distancing, and worker or customer safety requirements.

Loan Deferral Period: The Act extends the loan deferral period to (a) whenever the amount of loan forgiveness is remitted to the lender or (b) 10 months after the applicable forgiveness covered period if a borrower does not apply for forgiveness during that 10 month period.  Under the unamended PPP, a borrower’s deferral period was to be between 6 and 12 months.

Payroll Tax Deferral: The Act lifts the ban on borrowers whose loans were partially or completely forgiven from deferring payment of payroll taxes.  The payroll tax deferral is now open to all PPP borrowers.

Summary

The Act provides much-needed flexibility to businesses who needed to spend PPP loan proceeds but could not open in order to do so.  As with the initial rollout of the PPP, it will be up to the Department of the Treasury and the Small Business Administration to provide regulations with respect to the Act.


© 2020 SHERIN AND LODGEN LLP

For more on the PPP, see the National Law Review Coronavirus News section.

Congress Tackles PFAS on Multiple Fronts

With the enactment of the PFAS Act of 2019 and related provisions in December, opposing forces in Congress came together to force regulatory action on several different aspects of per- and poly-fluorinated substances (PFAS). Issues on which agreement was not reached are now before the Senate in House-passed legislation. While the PFAS debate continues in Congress, federal agencies are now tasked with multiple obligations related to PFAS. Companies that handle PFAS will have added PFAS reporting obligations under both the Toxics Release Inventory and the Toxic Substances Control Act.

The PFAS Act of 2019 is title LXXIII of the massive National Defense Authorization Act for Fiscal Year 2020 (NDAA), Public Law 116-92 (Dec. 20, 2019). This alert summarizes its six subtitles, as well as other PFAS provisions in the NDAA related to the Department of Defense (DOD). It then provides a preview of future legislative developments.

PFAS Act of 2019 Provisions

Subtitle A – Drinking Water Monitoring

EPA must include certain PFAS and classes of PFAS in the fifth Unregulated Contaminants Monitoring Rule (UCMR 5), expected later this year. EPA’s PFAS Action Plan (Feb. 2019) had called for EPA to take this action, but Subtitle A requires it to do so. EPA had included six PFAS in UCMR 3.

The PFAS to be included are all PFAS and classes of PFAS for which EPA has a validated test method for drinking water and that are not subject to a national primary drinking water standard under the Safe Drinking Water Act (SDWA). EPA has a validated test method for 18 PFAS, which it adopted in 2009 and expanded in 2018, EPA Method 537.1. The PFAS Action Plan had predicted additional test methods in 2019, but this did not occur.

The SDWA limits the number of unregulated contaminants that may be included in each UCMR to 30, but the NDAA excludes the listed PFAS from that limit.

Subtitle A also provides grant eligibility through the Drinking Water State Revolving Funds to address PFAS.

Subtitle B – Toxics Release Inventory

EPA’s PFAS Action Plan had set as a long-term action exploring data availability for listing some PFAS as toxic chemicals for purposes of the Toxics Release Inventory (TRI) under section 313 of the Emergency Planning and Community Right-to-Know Act of 1986 (EPCRA). EPA had begun that lengthy process with an advance notice of proposed rulemaking, published on December 4, 2019.

The NDAA disrupted this process later that month. By its terms, Subtitle B automatically added multiple PFAS to the TRI list as of January 1, 2020, and others will be automatically added as certain milestones are reached. EPA posted a list of 160 PFAS that were added as of January 1, 2020. The reporting threshold for all of the chemicals is set at 100 pounds unless revised by EPA within the next 5 years. Reporting on these 160 PFAS will be due by July 1, 2021.

Future automatic additions to the TRI list (as of January 1 of the following year) are mandated whenever:

  • EPA finalizes a toxicity value for a PFAS. (EPA has a provisional peer-reviewed toxicity value for PFBS, adopted in 2014.) Toxicity values are used in risk assessments under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).
  • EPA finalizes a significant new use rule (SNUR) under the Toxic Substances Control Act (TSCA) for a PFAS or class of PFAS.
  • EPA adds a PFAS or class of PFAS to an existing SNUR.
  • EPA designates a PFAS or class of PFAS as active on the TSCA Inventory.

In addition, over the next two years, EPA must determine whether certain listed PFAS meet any of the listing criteria in section 313. If so, EPA must add them to the TRI list within two years of making that determination.

These additions to the TRI list are subject to the provision that, if any PFAS chemical identity is claimed confidential, the PFAS is not added to the list until EPA reviews a substantiation of that claim. If EPA upholds the claim, that PFAS must be added to the list in a manner that does not disclose its identity (such as through a generic name).

Subtitle C – USGS Performance Standard and Sampling

Subtitle C directs the United States Geological Survey (USGS) to coordinate with EPA to develop an appropriate testing methodology for PFAS that is “as sensitive as is feasible and practicable,” with the ability to detect as many “highly fluorinated compounds” as possible. Highly fluorinated compounds are defined to mean PFAS with at least one fully fluorinated carbon atom. USGS must also develop quality assurance and quality control measures to ensure accurate sampling and testing, as well as a training program.

In addition, USGS must carry out nationwide sampling for PFAS. The nationwide sampling program must start with drinking water near locations with known or suspected sources of PFAS. Later stages of sampling will be based on an evaluation by USGS in consultation with the states and EPA to determine where sampling should occur, with an emphasis on direct human exposure through drinking water. The results of the sampling must be sent to EPA and, upon request, the states. In addition, USGS must prepare a report and submit it to certain committees and members of Congress.

EPA’s PFAS Action Plan called for EPA to collaborate with USGS, the Army Corps of Engineers, and universities to lead the science of PFAS.

Subtitle D – Emerging Contaminants

Subtitle D encourages research into “emerging contaminants,” defined broadly to include any physical, chemical, biological, or radiological substance or matter in water for which there is no national primary drinking water standard and that may have an adverse impact on the health of individuals. It mandates several actions to improve the level of technical understanding as well as support for states.

First, EPA, in collaboration with states and other stakeholders, must establish a strategic plan for improving existing federal efforts to identify, monitor, and assist in the development of treatment systems for emerging contaminants and to assist states in responding to human health risks posed by such contaminants.

Second, Subtitle D requires the establishment of a Working Group within 180 days of enactment to coordinate federal activities identifying and analyzing public health effects of emerging contaminants in drinking water. The Working Group will be comprised of representatives from several federal entities, including EPA, the National Institutes of Health, the Centers for Disease Control and Prevention, the Agency for Toxic Substances and Disease Registry, USGS, and others in the discretion of EPA.

Third, it requires the Director of the Office of Science and Technology Policy to establish the National Emerging Contaminant Research Initiative within 180 days of enactment. The goal will be improving the identification, analysis, monitoring, and treatment methods for emerging contaminants, including identifying priority emerging contaminants for research emphasis. Within one year after establishing the research initiative, involved agencies must issue solicitations for grant proposals for research projects consistent with that strategy.

Finally, Subtitle D requires EPA to study the actions it can take to increase technical assistance and support to states with respect to drinking water in emerging contaminants and issue a report to Congress within 18 months. Based on the findings in that report, EPA must develop a program to provide technical assistance to states within three years of enactment. When evaluating applications submitted by states seeking assistance, EPA must give priority to states with affected areas, primarily in financially distressed communities. Emergency assistance may be provided without application. EPA must also establish and maintain a database of available resources developed to assist states with testing for emerging contaminants and make it available to states and stakeholder groups with a scientific or material interest, such as drinking water utilities. The database must be searchable and available through the EPA website.

Subtitle E – TSCA Provisions

Subtitle E requires EPA to take two actions regarding TSCA – finalize amendments to two SNURs for certain PFAS substances by June 22, 2020, and issue a final rule by January 1, 2023, requiring manufacturers of PFAS to report detailed information about their PFAS.

The two PFAS SNURs and the effect of Subtitle E on EPA’s timetable for finalizing them are discussed in another Beveridge & Diamond alert, available here.

Subtitle E also amends TSCA § 8(a) so as to direct EPA to issue a final rule that would require each person who has manufactured a PFAS in any year since 2011 to submit a report that includes, for each year since 2011, detailed information on that PFAS. EPA must issue the rule by January 1, 2023.

The information that a PFAS manufacturer must provide includes, for each such PFAS:

  • Its common or trade name, chemical identity, and molecular structure.
  • Its categories or proposed categories of use.
  • The total amount manufactured or processed, reasonable estimates of the total amount to be manufactured or processed, the amount manufactured or processed for each of its categories of use, and reasonable estimates of the amount to be manufactured or processed for each of its categories of use or proposed categories of use.
  • A description of the byproducts resulting from its manufacture, processing, use, or disposal.
  • All existing information concerning its environmental and health effects.
  • The number of individuals exposed to it, and reasonable estimates of the number who will be exposed to it in their places of employment and the duration of such exposure.
  • The manner or method of its disposal.

Subtitle F – Guidance on Disposal; Research

EPA must publish interim guidance on the destruction and disposal of PFAS within one year of enactment. The guidance must address aqueous film-forming foam (AFFF), soil and biosolids, textiles (other than consumer goods) treated with PFAS, spent water treatment equipment, landfill leachate containing PFAS, and waste streams from facilities manufacturing or using PFAS. EPA must publish revisions at least every three years.

EPA’s Office of Research and Development must examine the effects of PFAS on human health and the environment and make that information public It must also develop a process for prioritizing PFAS and classes of PFAS for additional research. A total of $15 million per year for each of the next five years is authorized for appropriation for this research.

DOD-Related PFAS Provisions of the NDAA

The National Defense Authorization Act includes several PFAS provisions in Title III, related to DOD operations and maintenance at military bases. AFFF containing PFAS, used for putting out fires, is the subject of several provisions. These include prohibiting the uncontrolled release of AFFF containing PFAS, with limited exceptions for emergency response as well as incineration requirements for the disposal of AFFF that must meet the Resource Conservation and Recovery Act (RCRA). The use of PFAS AFFF must be phased out by October 1, 2024, and the use of PFAS in packaging for meals ready-to-eat (MREs) must end by October 1, 2021. There are also provisions for information sharing with municipal drinking water utilities located adjacent to military installations.

Additional PFAS Legislation

During the conference to reconcile the House and Senate versions of the NDAA, the House managers pushed for additional PFAS provisions, but the two sides did not reach agreement on those provisions. On January 10, 2020, the House passed a revised H.R. 535, the PFAS Action Act of 2019, with the votes of 24 Republicans, and sent it to the Senate for its consideration. Senate passage is probably unlikely, particularly in light of the rejection by Senate conferees on the NDAA of some of these provisions.

As revised, H.R. 535 would require a number of regulatory actions on PFAS, including:

  • A requirement that EPA designate PFOA, PFOS, and their salts as hazardous substances under CERCLA § 102(a) within one year of enactment, and determine within five years of enactment whether to designate additional PFAS as hazardous substances.
  • An amendment to TSCA § 4 directing EPA to adopt a rule requiring comprehensive toxicity testing on all PFAS, with a proposed test rule due six months after enactment and a final rule due two years after enactment.
  • An amendment to TSCA § 5 eliminating exemptions for PFAS (such as those for R&D, impurities, and the low-volume exemption).
  • An amendment to TSCA § 5 providing that, for five years after enactment, all PFAS that are the subject of premanufacture notices or significant new use notices are deemed to present an unreasonable risk. EPA would be required to issue orders to prohibit all manufacture, processing, and distribution of those PFAS.
  • An amendment to SDWA § 1412(b) directing EPA to promulgate a national primary drinking water regulation for PFAS (including at last PFOA and PFOS) within two years of enactment. It would also require EPA to publish a health advisory for a PFAS not subject to a national primary drinking water regulation within one year of a finalized PFAS toxicity value or effective quality control and testing procedure for a PFAS, whichever is later.
  • A provision that EPA may not impose a financial penalty for violation of a PFAS national primary drinking water regulation until five years after its adoption.
  • An amendment to the SDWA requiring EPA to establish a program to award grants to affected community water systems.
  • A requirement that EPA adopt a final rule adding PFOA, PFOS, and their salts to the list of hazardous air pollutants under the Clean Air Act § 112(b) within six months of enactment, and to determine within five years of enactment whether to issue final rules adding other PFAS to that list.
  • An amendment of RCRA § 3004 to prohibit unsafe incineration of PFAS.
  • A requirement that EPA revise the Safer Choice Standard of the Safer Choice Program within one year of enactment to identify requirements for certain consumer products to meet to be labeled with a Safer Choice label, including a requirement that they not contain any PFAS.
  • A requirement that EPA issue guidance on minimizing the use of AFFF and related equipment containing PFAS within one year of enactment.
  • A requirement that EPA investigate methods and means to prevent contamination of surface waters by GenX.
  • A prohibition of introducing PFAS pollutants to a treatment works under the Federal Water Pollution Control Act (FWPCA) without first notifying the treatment works of the identity and quantity of each PFAS; whether the PFAS is susceptible to treatment by the treatment works; and whether the PFAS would interfere with the treatment works.
  • A requirement that EPA establish a website containing information on the testing of household well water within one year of enactment.
  • A requirement that EPA develop a risk-communication strategy to inform the public about potential hazards of PFAS.
  • A requirement that EPA publish a plan under FWPCA § 304(m) by September 30, 2021, that contains the results of a review of the introduction into treatment works or discharge of PFAS from categories of point sources (other than publicly owned treatment works). Based on that results of that review, EPA would be required to initiate as soon as practicable the process for adding certain PFAS to the list of toxic pollutants under FWPCA § 307(a), and within two years of publication of the plan to publish human health water quality criteria for other PFAS. EPA would also be required to adopt human health water quality criteria for PFOA, PFOS, and their salts within two years of enactment for each priority industry category, and to adopt a final rule within four years of enactment establishing effluent limitations and pretreatment standards for those PFAS for each priority industry category.

The White House announced on January 7, 2020, that it strongly opposes H.R. 535 and that President Trump’s senior advisors may recommend the bill be vetoed if passed by both Houses.


© 2020 Beveridge & Diamond PC

For more on PFAS regulation, see the Environmental, Energy & Resource section of the National Law Review.

House Vote on Cannabis Industry-Related SAFE Banking Act Scheduled for September 2019

As early as September 23, 2019, the United States House of Representatives is expected to vote on the widely anticipated Secure and Fair Enforcement (SAFE) Banking Act. First introduced in both chambers of Congress in 2017, re-introduced in the House in March of 2019, and amended this past June, the SAFE Banking Act has garnered bipartisan support as a necessary solution to the dilemma created by conflicting federal and state cannabis law regimes, particularly as it relates to financial service providers.

According to a press release issued by the House Committee on Financial Services on March 26, 2019, committee chairwoman, Representative Maxine Waters (D-CA), remarked, the SAFE Banking Act “addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash.” The Act joins the ranks of congressional efforts such as the Rohrabacher-Farr amendment to omnibus spending bills, Section 728 of the Consolidated Appropriations Act of 2019, the pending Blumenauer amendment, and proposed Strengthening the Tenth Amendment Through Entrusting States (STATES) Act—all of which seek to reconcile the federal government’s failure to enact comprehensive marijuana and, until recently, hemp policy despite widespread support on the state and local level. Status in the Senate is uncertain, as the chair of the Banking Committee has indicated an intent to poll those in Idaho, a state that has failed to legalize any form of cannabis, regarding the issue.

Today’s cannabis industry encompasses the growth, processing, distribution, and other ancillary services related to both hemp and marijuana. While hemp and marijuana are both derived from the plant Cannabis sativa L, they are legally distinguished on both a federal and state level by their THC content. As a result, marijuana remains a controlled substance under federal law, while hemp, boasting lower THC levels, is classified as an agricultural product within the purview of the United States Department of Agriculture (USDA). This federal distinction, however, has not prevented more than 40 states from legalizing marijuana for medical and/or recreational adult use. Unfortunately, the businesses that choose to take advantage of such progressive state marijuana laws must do so without the support of traditional financial institutions that businesses, particularly minority and women-owned, rely on to fund and protect their financial growth.

According to §4(a) of the bill’s text, the SAFE Banking Act will shield depository institutions that serve cannabis-related businesses from federal penalties in states and Indian country where “cultivation, production, manufacture, sale, transportation, display, dispensing, distribution, or purchase” of cannabis is legal. In particular, the Act will prohibit regulators from terminating or limiting deposit or share insurance of financial instruments because an institution’s client participates directly or indirectly in the cannabis industry. Regulators will also be prohibited from penalizing institutions for authorizing, processing, clearing, settling, billing, transferring, reconciling, or collecting payments for a legitimate cannabis-related business for payments made by any means, including a credit, debit, or other payment card, an account, check, or electronic funds transfer. Perhaps, most importantly, the Act will also require the Federal Financial Institutions Examination Council (FFIEC) to develop uniform guidance and examination procedures for depository institutions serving cannabis-related businesses.

For financial institutions and insurance providers operating in states where cannabis is legal, this creates an immense opportunity and incentive to assist industry participants as they strive to protect and invest their monetary assets without putting the institutions they rely on at risk of federal prosecution. However, because protections under the SAFE Banking Act only apply when legitimate cannabis-related businesses are involved, monitoring clients’ compliance with relevant state laws will be particularly important. In the absence of clear federal marijuana policy and official hemp regulations under the 2018 Farm Bill, in addition to constantly evolving state laws and regulations, this may prove especially challenging. As such, in anticipation of the Act’s passage, financial institutions should enlist the support of experienced legal counsel to ensure the necessary processes for monitoring clients’ compliance are in place. In addition, those seeking to benefit under the Act should still pay close attention to due diligence requirements promulgated by the Financial Crimes Enforcement Network (FinCEN), although many concerns should be alleviated by the Act’s prohibition on civil or criminal prosecution solely based on the provision of financial services or investing income derived from such services.

NOTE: Cannabis as defined under the Act only references marijuana. However, in practice, the bill’s passage should alleviate apprehension surrounding hemp, as many financial institutions and their affiliates have refrained from offering services to hemp businesses under the current financial legal framework, even in the wake of the 2018 Farm Bill and pending USDA regulations.

Read the bill’s text here.


© 2019 Dinsmore & Shohl LLP. All rights reserved.

This article was written by Jennifer K. MasonMichael G. Dailey and Ambur C. Smith of Dinsmore & Shohl LLP.
For more marijuana & cannabis legislation, see the National Law Review Biotech, Food & Drug law page.

Save the Internet Act of 2019 Introduced

On 6 March 2019, Democrats in the House and Senate introduced the “Save the Internet Act of 2019.” The three-page bill (1) repeals the FCC’s Restoring Internet Freedom Order released in early 2018, as adopted by the Republican-led FCC under Chairman Ajit Pai; (2) prohibits the FCC from reissuing the RIF Order or adopting rules substantively similar to those adopted in the RIF Order; and (3) restores the Open Internet Order released in 2015, as adopted by the Democratic-led FCC under Chairman Tom Wheeler.

Major Impacts:

  • Broadband Internet Access Service (BIAS) is reclassified as a “telecommunications service,” potentially subject to all provisions in Title II of the Communications Act.

  • The three bright line rules of the Open Internet Order are restored: (1) no blocking of access to lawful content, (2) no throttling of Internet speeds, exclusive of reasonable network management practices, and (3) no paid prioritization.

  • Reinstates FCC oversight of Internet exchange traffic (transit and peering), the General Conduct Rule that authorizes the FCC to address anti-competitive practices of broadband providers, and the FCC’s primary enforcement authority over the Open Internet Order’s rules and policies.

  • Per the Open Internet Order, BIAS and all highspeed Internet access services remain subject to the FCC’s exclusive jurisdiction and the revenues derived from these services remain exempt from USF contribution obligations.

  • The prescriptive service disclosure and marketing rules of the Open Internet Order, subject to the small service provider exemption, would apply in lieu of the Transparency Rule adopted in the RIF Order.

FCC Chairman Pai promptly issued a statement strongly defending the merits and benefits of the RIF Order.

KH Assessment

  • From a political perspective, Save the Internet Act of 2019 garners support from many individuals and major edge providers committed to net neutrality principles but faces challenges in the Republican-controlled Senate.

  • In comments filed in the proceeding culminating in the RIF Order, the major wireline and wireless broadband providers supported a legislative solution that codified the no blocking and no throttling principles but not the no-paid prioritization prohibition or classifying BIAS as a telecommunications service.

It is highly unlikely that the legislation will be enacted as introduced. Though still unlikely, there is a better chance that a legislative compromise may be reached.

 

© 2019 Keller and Heckman LLP.

Comey’s Testimony Underscores Need for Strong Whistleblower Protections

For me, the most telling moment of former FBI Director Jim Comey’s June 8th testimony occurred early in the hearing, when Mr. Comey choked up as he recalled the White House’s publicly stating that the President had fired him because the “FBI was in disarray.”

This emotional display seemed out of character for Mr. Comey. While U.S. Attorney for the Southern District of New York, he successfully prosecuted organized crime. As Deputy Attorney General during the George W. Bush Administration, Mr. Comey refused to sign an extension of the warrantless domestic spying program and defied the White House Counsel and Chief of Staff. Mr. Comey can fairly be described as a “tough guy.” So how did he go from leading the most powerful law-enforcement agency worldwide to being labeled a “leaking liar”?

To an experienced whistleblower advocate, Mr. Comey’s predicament is not surprising. Mr. Comey’s experience, unfortunately, is like those of many whistleblowers I have represented over more than a decade. President Trump promised to bring a business approach to government—and his retaliation against Mr. Comey is straight out of the corporate defense playbook. Corporations typically take the following steps of escalating retaliation to silence whistleblowers:

Intimidate and Silence the Whistleblower

In his June 8th testimony, Mr. Comey described in detail how the President had asked him to drop the investigation of Michael Flynn and had conditioned Mr. Comey’s job on “loyalty” to him. Senator Rubio expressed skepticism about Mr. Comey’s feeling intimidated by the President and blamed Mr. Comey for not pushing back. But that type of Monday-morning quarterbacking ignored the power dynamics of the conversation. Mr. Comey wanted to keep his job and was understandably reluctant to accuse the President of obstructing an investigation.

Whistleblowers often confront this intimidation tactic in the workplace. A supervisor or senior company official tells the whistleblower to “let it go,” “mind your own business,” or learn to be a “team player.” And in some cases, the whistleblower is told to shut up if he or she wants to remain employed. Threats of retaliation, whether express or implicit, are powerful tools to silence a whistleblower. When a company officer or senior manager orders a subordinate to do something unlawful or to cover up unlawful conduct, holding firm to one’s ethical values is not an easy avenue to follow. As Mr. Comey learned, refusing to carry out an unlawful order may be career suicide, at least in the short term.

Retaliate Swiftly and Severely Against the Whistleblower

Initially, the bizarre method of firing Mr. Comey seemed surprising for a President who perfected the art of firing on his reality show, The Apprentice. Mr. Comey was not given an opportunity to resign; he was not even notified that he had been fired. But now that we know about the President’s real motive for firing Mr. Comey, it’s clear that his tack was deliberate.

Mr. Comey learned of his firing while addressing FBI agents at a Los Angeles field office when the announcement flashed across a television screen. The White House had announced Mr. Comey’s firing without notifying Mr. Comey himself. President Trump sent a loud and clear message to Mr. Comey and to every senior government official about the consequence of disloyalty.

In the corporate workplace, whistleblower-employees are similarly humiliated as a warning to their colleagues. A whistleblower may be escorted out of the office with security guards while other employees are present, pulled out of a meeting and fired on the spot in front of colleagues, or simply fired via text message. When a corporation fires a whistleblower in this humiliating fashion, it ensures that all other employees know the consequence of whistleblowing.

Badmouth the Whistleblower and Their Work History

Firing Mr. Comey in a humiliating and offensive manner served only as phase one. President Trump then defamed Mr. Comey and asserted that he fired him because of chaos within the FBI, as well as the alleged loss of confidence in Mr. Comey among FBI agents.

These statements stand in stark contrast to the President’s repeated, public praise of Mr. Comey before Mr. Comey refused to comply with the President’s “hope” that Mr. Comey drop the investigation of Flynn. Indeed, if President Trump believed that Mr. Comey’s leadership caused chaos within the FBI, then why did the President invite Mr. Comey to continue to serve as FBI Director?

This patent distortion of Mr. Comey’s performance record is an all-too-common experience of whistleblowers. Prior to blowing the whistle, they receive strong performance evaluations and bonuses; they are valued members of the team. But once they blow the whistle and refuse to drop their concerns, they are suddenly deemed incompetent and unqualified for their position. And when a company realizes that it lacks any existing basis to fire the whistleblower, it creates one by subjecting the whistleblower to heightened scrutiny and setting the whistleblower up to fail. For example, a company might place the whistleblower on a performance-improvement plan that contains impossible objectives, and then fire the whistleblower for not meeting those unattainable goals.

This tactic may backfire and enable a whistleblower to ultimately prevail at trial, but the damage to the whistleblower’s reputation is permanent. Prospective employers are reluctant to hire someone who previously fired for poor performance and are especially reluctant to hire a whistleblower. Many whistleblowers never find comparable employment and must accept lower-level positions, earning a fraction of what they did before their wrongful termination.

Attack the Whistleblower’s Credibility

Apparently, President Trump has no evidence to rebut Mr. Comey’s vivid account of the President’s alleged attempts to obstruct justice. So President Trump called him a “liar.”

Desperate to defend themselves at all costs, corporations frequently employ this tactic—labeling the whistleblower a disgruntled former employee who will say anything to win his or her case. So far, this is not working well for President Trump, whose accusation merely serves to shine a spotlight on his own questionable credibility.

Attacking a whistleblower’s credibility is an effective and pernicious tactic in many whistleblower cases. Once expelled from a company, a whistleblower is marginalized and alienated from former coworkers. The key witnesses continue to work at the company and, fearing retaliation, are reluctant to corroborate the whistleblower’s testimony. Though whistleblowers may still prevail (for example, by using documentary evidence), the attack on a whistleblower’s credibility is odious because the company fired the whistleblower precisely for having integrity.

Create a Post-Hoc Justification for Firing the Whistleblower

Prior to firing Mr. Comey, President Trump papered the file with a post-hoc justification for the firing. After the President decided to fire Mr. Comey, Deputy Attorney General Rod Rosenstein was tasked with drafting a memorandum to the Attorney General outlining concerns about Mr. Comey’s performance. Most of those concerns focus on Mr. Comey’s statements about the investigation of former Secretary of State Hillary Clinton’s use of a private email server. Surely President Trump knew of those public statements when he repeatedly asked Mr. Comey to remain as FBI Director (as long as he could pledge “loyalty” and drop the Flynn investigation).

In this case, the White House’s initial reliance on the Rosenstein memo as the basis for the decision to fire Mr. Comey backfired because President Trump told NBC anchor Lester Holt that he had decided to fire Mr. Comey regardless of the memo. In many whistleblower-retaliation cases, however, these types of pretextual memos may be persuasive. Some judges even rely on such memos, which mask the real reason for a firing or other adverse action, to grant the company summary judgment and deny the whistleblower a jury trial.

On the other hand, creating a post-hoc justification for a retaliatory adverse action sometimes misfires by providing strong evidence of pretext and spurring a jury to award punitive damages. For instance, a former in-house counsel at Bio-Rad Laboratories recently secured more than $11 million in damages at trial in a Sarbanes-Oxley whistleblower-retaliation case. The jury awarded $5 million in punitive damages because Bio-Rad had backdated a negative performance evaluation of the whistleblower that the company drafted after it fired him.

Focus on the Whistleblower’s Alleged Misconduct

To distract attention from what may be obstruction of justice, President Trump and his attorney have focused on Mr. Comey’s leak to the press and have alleged that the leak was unlawful. This accusation seems frivolous because Mr. Comey did not leak classified information, grand jury material, or other sensitive information. Instead, he revealed that President Trump had conditioned his continued service as FBI Director on his agreeing to drop the investigation of Flynn. As a private citizen, Mr. Comey has a constitutional right to blow the whistle to the media about this matter of public concern. Mr. Comey did not reveal to the media information from FBI investigative files or classified information. Yet President Trump and his allies compare Mr. Comey to leakers who illegally disclosed classified information. This is an appalling accusation against the former head of a law-enforcement agency.

But this is another standard corporate defense tactic in whistleblower cases. To divert attention from the wrongdoing that the whistleblower exposed, the company uses its substantial resources to dig up dirt on the whistleblower. The company or its outside counsel examines the whistleblower’s timesheets and expense reports with a fine-tooth comb to find any discrepancy, reviews every email to find some inappropriate communication, and places all of the whistleblower’s work under a microscope to find any shortcoming.

Sue the Whistleblower and Initiate a Retaliatory Investigation

Firing Comey, concocting a pretextual basis for the firing, and branding him a leaking liar apparently was not sufficient retaliation.  So shortly after his testimony, President Trump’s personal attorney announced his intention to sue Mr. Comey and/or file a complaint with the Department of Justice Office of Inspector General (OIG).  I am skeptical that a civil action against Mr. Comey or an OIG complaint poses any real legal threat to Mr. Comey.  To the contrary, such a complaint would likely pose a greater risk for President Trump, including potential counterclaims and the risk of being deposed or questioned under oath by the OIG.

The misuse of legal process against corporate whistleblowers, however, is an especially powerful form of retaliation in that it can dissuade a whistleblower from pursuing their claims.  When I defend against this form of abuse of process, I am always struck at the seemingly endless resources that the company will spend to prosecute claims lacking any merit or value.  Fortunately, these claims can go awry by spawning additional retaliation claims under the whistleblower protection laws.  And a jury can punish the employer for subjecting the whistleblower to abuse of process.

Why Whistleblowers Deserve Strong Legal Protection

In light of Mr. Comey’s distinguished record, he will likely bounce back and rebuild his career. But most corporate whistleblowers never fully recover. Too often they find their careers and reputations destroyed. Even when whistleblowers obtain monetary relief at trial, they are usually blacklisted from comparable positions, especially if they work in a small industry.

Mr. Comey’s experience as a whistleblower is a stark reminder of what can happen to any employee who is pressured by a powerful superior to engage in unlawful conduct or to cover up wrongdoing. When intimidation tactics succeed, the public suffers. The company could be covering up threats to public health or safety, environmental contamination, financial fraud, defective products, or any other conceivable harmful wrongdoing.

Courageous whistleblowers who put their jobs on the line deserve strong protection. As Congress embarks on a mission to gut “job killing” agencies, let us hope it will spare the very limited resources that are spent enforcing whistleblower-protection laws. Without such a large backlog of whistleblower cases, OSHA could have, for example, addressed the complaints of Wells Fargo whistleblowers years ago, potentially curbing or halting the bank’s defrauding of its customers. And Congress should consider filling the gaps in existing whistleblower laws. If Mr. Comey “lacked the presence of mind” to explicitly reject the President’s improper demand for him to drop the Flynn investigation, then surely most employees would also be reluctant to refuse an order to commit an unethical or unlawful act.

After Mr. Comey’s testimony, Speaker Ryan pointed out that “[t]he President’s new at this. He’s new to government.” Mr. Comey’s testimony should be a lesson for the President about how to treat whistleblowers. To make America great again, the President should abandon the Rambo litigation tactics that apparently served him well in New York real-estate disputes, and instead view whistleblowers as allies, not as enemies. As Tom Devine of the Government Accountability Project and I argue in an article in the Emory Corporate Governance and Accountability ReviewDraining the Swamp Requires Robust Whistleblower Protections and Incentives.

This post was written by Jason Zuckerman of Zuckerman Law.

Can Congress Get to “Yes” on Replacing the Affordable Care Act?

Senate Majority Leader Mitch McConnell recently gave a candid assessment of the chances of getting an Affordable Care Act (ACA) replacement bill through the Senate, saying “I don’t know how we get to 50 (votes) at the moment.” That succinctly captures the political dilemma. There has long been broad bipartisan agreement that the nation’s health care system was in need of repair. Something had to be done to contain rapidly rising health care costs, increase the quality of medical outcomes, and to expand coverage. But there was little or no bipartisan agreement on how to do it. Indeed, no major health care initiative since Medicare was enacted in 1965 has enjoyed true bipartisan support.

The most recent effort to overhaul the health care system was no exception. The ACA passed in March 2010 with no Republican votes. That wholly partisan effort, in turn, set off a determined, seven-year-long effort by Republicans to repeal the law. The most recent step on this tortuous journey occurred on May 4, 2017 when the House passed the American Health Care Act (AHCA) by a vote of 217-213. In this case, no Democrats voted for the bill. Twenty Republicans also voted no and the bill passed with just one GOP vote more than the 216 needed to pass.

As we explain below, the ACA and AHCA are “apples and oranges” in their approaches to reforming the healthcare system. Because each proceeds from different philosophical premises, this post briefly examines their key components and primary goals without opining on the merits. Our primary focus is on the political and policy challenges faced by Senate Republicans in getting a bill passed (which remains highly uncertain) and whether such a bill will differ greatly from the House product. In our view, to achieve the GOP’s publicly stated policy objectives, and faced with the constraints imposed by the budget reconciliation rules (explained below), Senate Republicans will be forced to address essentially the same questions as their colleagues in the House—and their solutions likely will differ from those of the House mostly in degree.

What the AHCA Does

In the AHCA, House Republicans singled out a few ACA provisions they had publicly campaigned against—most of which are contained in Title I of the law. These include the mandate that individuals purchase coverage; the narrow, 3:1 modified community-rating corridor that Republicans asserted made coverage prohibitively expensive for younger individuals; and the requirement that plans sold in the individual and small-group market include a comprehensive set of covered medical and related services known as “essential health benefits” (EHBs) The AHCA also would make major changes to Medicaid that go well beyond rolling back the program expansion authorized by the ACA.

The AHCA’s primary purpose is to reduce premium costs and reduce the federal government’s role in health care by giving more authority and flexibility to the states. The ACA’s primary goal, in contrast, was to expand insurance coverage in the individual markets—and it did that, although not as much as had been predicted. Another ACA goal was to make coverage more affordable, at least for low- and moderate-income individuals—and it did that too. But the ACA did little to lower medical costs, and from the available evidence had only a marginal effect on healthcare outcomes. Neither does the AHCA address those issues. It instead focuses mainly on reducing federal expenditures, shifting costs to the states, and constraining the growth of Medicaid. The recently issued report by the Congressional Budget Office and the staff of the Joint Committee on Taxation indicates that the AHCA would achieve significant success in this regard, estimating that the bill would reduce the cumulative federal deficit over the 2017-2026 period by $119 billion.

The GOP Challenge

With their slim 52-48 majority, Republican lawmakers don’t have the votes to repeal the ACA outright. That would require 60 votes to overcome a filibuster. Instead, they must rely on a special budget strategy called “reconciliation.” Created by the Congressional Budget Act of 1974, reconciliation allows certain bills that directly impact federal spending to be passed by a simple majority. For example, reconciliation rules would allow repeal of the ACA’s individual and employer mandates by a simple 51-vote majority because those mandates directly affect revenue; but reconciliation could not be used to repeal the employer reporting rules because those provisions do not directly affect spending. These restrictions severely limit which provisions of the ACA Republicans in the Senate (and by extension the House) can replace without Democratic support. We discuss those provisions below.

The individual mandate

The ACA included an “individual mandate” that requires most U.S. citizens to buy health insurance. The purpose was to ensure broad participation in the individual markets so that there would be enough healthy individuals in the risk pool to subsidize the cost of covering those who are less healthy. Most agree that the ACA penalty for not maintaining coverage was insufficient to induce enough healthy people into the pool. The result has been steep underwriting losses which have prompted major carriers to exit the public exchanges. The AHCA would eliminate the penalty retroactively, to the beginning of 2016. In its place, the bill would impose a “continuous coverage” requirement to induce people to buy coverage and stay covered rather than buying it only when they need it, which drives up costs in the exchanges. Health carriers could assess a 30 percent penalty on individuals who have a gap in coverage of more than 63 days in the prior 12 months. The Health Insurance Portability and Accountability Act (HIPAA) has provided a similar rule for employer-provided group coverage since 1996.

Community rating

Under community rating, premiums can vary by age, among other things. In the case of age rating, actuarial principles dictate that the premiums paid by the oldest subscribers should be about five times what younger subscribers pay. To mitigate the impact on older citizens, the ACA limited the rating range to 3:1. The AHCA allows a ratio of up to 5:1 which actuaries say more closely aligns premiums with the costs associated with age. AHCA proponents assert that the maximum 3:1 ratio dictated by the ACA unfairly penalizes younger, healthier individuals, discouraging them from participating in the individual markets and contributing to the underwriting losses in the ACA exchanges. They also assert that individuals 65 and older are eligible for Medicare and that the workers affected by the 5:1 ratio would be primarily those 54 to 65 years old—generally the highest earning years.

Premium tax credits

The AHCA scraps the ACA’s cost-sharing subsidies, and replaces its premium tax credits. Beginning in 2020, the AHCA would offer credits for U.S. citizens and qualified aliens enrolled in qualified health plans who are not eligible for other sources of coverage. The credit amounts are based on age and adjusted by a formula that takes income into account. Credits would be capped according to a maximum dollar amount and family size. In general, the AHCA subsidies are less generous than those provided by the ACA. According to the CBO report, repeal of the ACA’s tax credits saves some $665 billion while the cost of the AHCA’s tax credits is $375 billion—a net savings of $290 billion.

Medicaid

Medicaid is a health insurance program with shared federal/state authority and financing. Historically, coverage generally was limited to low-income families with children, the elderly, and people with disabilities. The ACA offers states generous federal funding designed to encourage expansion of their programs to cover all Americans under age 65 whose family income is effectively at or below 138 percent percent of federal poverty guidelines ($16,394 for an individual in 2016). Currently, 31 states plus the District of Columbia have expanded their programs.

The AHCA would change the current system of federal funding of Medicaid by placing per capita caps on federal payments to states. Under that approach, each state’s Medicaid spending, beginning in 2020, would be limited based on enrollee categories (i.e., children, disabled, etc.). States that exceed the limits would get less money the following year. Alternatively, states could opt to receive federal block grants (i.e., predetermined fixed amounts) to cover their Medicaid-eligible populations.

The Medicaid changes account for the single largest item of budgetary savings under the AHCA—some $843 billion over 10 years according to the CBO. The savings are important to achieving other GOP objectives such as tax reform, but many of the 16 GOP governors who expanded Medicaid have expressed concerns about the scope and timing of the changes and the impact on their citizens.

States’ ability to opt out

In an effort to persuade House conservatives to support the AHCA, Rep. Tom MacArthur (R-NJ) offered an amendment that would allow states to seek waivers of certain AHCA provisions. The idea was to devolve to those states flexibility to modify their coverage rules to best meet the needs of their constituencies. Under the amendment, states that are granted waivers may:

  • Adopt age-rated premium ratios higher than 5:1 for older individuals buying coverage in the individual and small group markets;

  • Define their own, less generous, “essential health benefits” (EHBs) for plans purchased in the individual and small-group markets instead of the 10 EHBs mandated by the ACA (and which the AHCA otherwise would leave in place); and/or

  • Bypass the 30 percent penalty for individuals who do not maintain continuous health coverage, and instead apply medical underwriting to the pricing of plans in such cases; but states seeking such waivers must have a high-risk pool or participate in the Federal “Invisible Risk Sharing Program” (explained below).

High-risk pools

High-risk pools are state programs that provide funding to cover the health care costs of individuals with catastrophic or pre-existing medical conditions and who are unable to purchase affordable coverage in the individual market. The AHCA embraces state high-risk pools as a way to contain the cost of medical premiums for healthy individuals. It does this by creating two risk pools: one for healthy individuals or those with continuous coverage, and the other for those with high-cost or pre-existing conditions. The idea is to lower premiums for healthy people while at the same time providing coverage for those with serious health conditions using a separate funding mechanism.

To fund coverage for high-risk individuals, the AHCA provides a total of $138 billion over 10 years through various mechanisms as follows:

  • A State Stability Fund in the amounts of $15 billion in 2018 and 2019, and $10 billion each year thereafter through 2026;

  • An additional $15 billion in 2020 that states could use for maternity coverage and newborn and prevention, treatment, or recovery support services for mental or substance use disorders;

  • An additional $8 billion for the period 2018-2023 to states with a “MacArthur waiver” (previously discussed); and

  • A Federal Invisible Risk Sharing Program to help with high-cost medical claims of certain individuals who buy coverage in the individual market.

The MacArthur waivers are not without controversy. The two biggest issues are the potentially large cost increases to older citizens and whether individuals with pre-existing health conditions will be adequately protected. Another question is how many states actually will seek waivers and assume the financial (and political) responsibility for protecting older and sicker workers if the federal dollars under the AHCA prove insufficient. The CBO makes an educated guess as to how many people might be affected by states getting waivers, but they are guesses nonetheless.

Ways to get to Yes

The CBO report estimates that from 2017 to 2026, the AHCA would reduce direct spending by $1.111 trillion and revenues by $0.992 trillion (resulting in a net deficit reduction of $119 billion—and that 23 million fewer people would have health coverage (CBO does not count as health coverage limited benefit plans, including so-called “mini-med” plans and fixed-dollar indemnity plans). These numbers are a direct consequence of the AHCA’s stated goals—to reduce the role of the federal government in regulating and financing health care, specifically in the individual market, Medicaid, and the uninsured.

Senate Republicans broadly share those goals, but they differ on how to achieve them, as did many of their House colleagues. To further mitigate the impact on individuals, the Senate could adjust the AHCA’s spending and revenue levels, as well as the timing of certain provisions—for example, they could push back the phase-out of the ACA’s Medicaid expansion provisions from 2020 to a later date. Similarly, the AHCA’s per-capita caps and block grant provisions could be adjusted to provide more money to the states. The trade-off would be higher spending levels than the House bill, but this could be offset by modifying the AHCA’s tax repeal provisions. For example, the ACA’s so-called “Cadillac” tax on high-cost employer plans, which the House bill delayed until 2026, could be allowed to go into effect earlier, thus generating more revenue. To the same effect, the Senate could push back repeal of the ACA’s Medicare payroll tax on high income individuals. Another step might be to provide additional subsidies for those aged 50 to 64 to mitigate any adverse effect of the increase in the premium age-rating ratio proposed by the House.

We are under no illusions that the policy differences among Senate Republicans can be reconciled—and if they can, that the House and Senate can reach agreement when they go to conference. All we know now is that the GOP is stuck with its seven-year public commitment to creating a better system with still no clear path forward. Democrats may be enjoying the Republicans’ predicament, but neither party is likely to be viewed favorably if the current system continues to falter and ultimately fails. If that happens, the price of our polarized political environment could be steep for both sides.

The sheer magnitude of the dollars at stake should compel policymakers to find a breakthrough. The Centers for Medicare and Medicaid Services reports that national spending on health care grew 5.8 percent to $3.2 trillion in 2015, accounting for 17.8 percent of GDP. Medicare spending alone was $646.2 billion, 20 percent of the total. Medicaid another $545.1 billion, or 17 percent. Thus, the most urgent practical question may not be whose theory of government is more correct, but whether the current rate of health care spending is sustainable. We can’t think of a better answer than economist Herbert Stein’s wry observation that, “if something cannot go on forever, it will stop.”

This post was written by Alden J. Bianchi andEdward A. Lenz of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

Key Tax Changes in the American Health Care Act

The American Health Care Act (“AHCA”), passed by the House of Representatives on May 4, 2017, repeals many of the taxes added by the Affordable Care Act (“ACA”) and makes changes to other tax rules.  Some of the notable changes proposed to be made to the Internal Revenue Code are:

            1. The individual mandate to maintain health insurance and the employer mandate to offer health insurance remain in the Code, but the taxes are “zeroed out” effective retroactively to 2016.

            2. The following taxes, fees, credits and limitations are repealed as of the year shown below:

·         The net investment income tax (NIIT) (2017)

·         The 0.9% additional Medicare tax (2023)

·         The small employer health insurance credit (2020)

·         The $2500 limitation on contributions to a health flexible spending account (FSA) (2017)

·         The annual fee on branded prescription drug sales (2017)

·         The medical device excise tax (2017)

·         The annual fee on health insurance providers (2017)

·         The elimination of a deduction for expenses allocable to the Medicare Part D subsidy (2017)

·         The 10% tanning salon tax (June 30, 2017)

            3.         The “Cadillac” tax on high cost health plans is delayed until 2026.

            4.         Individuals may be reimbursed for over-the-counter medications under a health savings account (HSA), health FSA or a health reimbursement arrangement (HRA) (2017).

            5.         The penalty tax on withdrawals from an HSA not used for a qualified medical expense is reduced from 20% to 10% (2017).

6.         The bill would replace the current ACA premium tax credit with a new refundable, advanceable tax credit effective January 1, 2020.  The credit could be applied toward the cost of any eligible health insurance coverage, whether purchased on or off the Exchange.  The credit is age-based as follows:

Age

Annual Credit

Under 30

$2,000

30 – 40

$2,500

40 – 50

$3,000

50 – 60

$3,500

60 and over

$4,000

The maximum credit for a family is $14,000. The credit is adjusted each year by CPI + 1%.

The credit is phased out depending on the individual’s modified adjusted gross income (MAGI) for the year.  It begins phasing out for an individual with income of $75,000 ($150,000 for joint filers) by $100 for every $1,000 in income above those thresholds.  The MAGI dollar limitations are also indexed for inflation beginning in 2021.              To be eligible to claim the credit, the individual must be covered by “eligible health insurance,” not be eligible for “other specified coverage” (including employer coverage or a government sponsored health program) and be a U.S. citizen or a qualified alien.

7.         The bill would make the following changes to health savings accounts, effective in 2018:

§  The maximum contribution to an HSA would be increased to the out-of-pocket maximum (in 2017, $6,550 for self-only and $13,100 for family coverage).  Under current law, HSA contributions are limited to $3,400 for self-only and $6,750 for family coverage.
§  Both spouses could make a “catch-up” contribution to the same HSA.  Under current law, each spouse must have his or her own HSA.
§  If an HSA is established within 60 days after coverage under a high deductible plan begins, the individual could be reimbursed for medical expenses incurred within that 60-day period.  Under current law, an individual cannot be reimbursed for any expense incurred before the HSA is established.

The bill now moves to the Senate where significant changes are expected.

This post was written by Cynthia A. Moore of  Dickinson Wright PLLC.