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Bipartisan Budget Act of 2018 Enacts Changes to Employee Retirement and Health Benefit Plans, and Medicare

Following a brief shutdown of the federal government, on February 9, Congress passed and President Donald J. Trump signed into law the Bipartisan Budget Act of 2018 (Budget Act), which provides Congress until March 23 to enact appropriation and certain other funding measures and establishes a general agreement on spending that will last into 2019. The Budget Act includes various changes that affect employer-sponsored health benefit and retirement plans.

The Budget Act authorizes numerous changes under Medicare programs including Medicare Advantage programs that some employers have implemented to provide coverage to retirees. Changes to Medicare that may be meaningful to health benefit plan sponsors include:

  • Medicare Advantage plans may offer telehealth medical services as supplemental Medicare benefits to chronically ill members beginning in 2020. Telehealth services provide expanded access, via the internet, to health care providers and have increasingly become incorporated into plans offered by plan sponsors in the private sector as well as insurers. The Budget Act further instructs the Department of Health and Human Services (HHS) to develop regulatory guidance to expand the availability of telehealth medical services to all Medicare Advantage enrollees.

  • The Budget Act eliminates the Medicare Independent Payment Advisory Board (IPAB) which was established under the Affordable Care Act (ACA), to develop strategies to control growth in Medicare spending. The Congressional Budget Office (CBO) estimates that eliminating the IPAB will increase federal spending by $17.5 billion between 2018 and 2027.

  • The Budget Act advances the elimination of the "donut hole" in Medicare Part D (the gap in which prescription drug expenses under Part D are not covered) from 2020 to 2019. In addition, a larger discount will apply to Part D prescription drugs, reducing the amount that health plans will need to cover.

The Budget Act also addresses specific federal government funding changes for health care, including increased funding for opioid addiction treatment and prevention and community health centers. As with Medicare Advantage plans, the Budget Act aims to expand access to telehealth services through Accountable Care Organizations (ACOs). Following on the heels of the six-year extension to the Children's Health Insurance Program (CHIP) under last month's Congressional agreement, the Budget Act adds an additional four years of funding for CHIP. The Budget Act also provides for a further two-year delay in the ACA's gradual elimination of funding for hospitals that serve a disproportionate share of Medicaid and uninsured patients (DSH). Under the Budget Act, the reductions in DSH funding will not start until 2020.

Notably, the Budget Act does not contain any provisions to stabilize costs in the individual health insurance markets. In particular, the Budget Act does not provide any interim funding for the ACA's cost-sharing reduction subsidies (CSRs) that are designed to assist low-income individuals with out-of-pocket health insurance costs and which the Trump administration stopped funding in October 2017. While legislation was considered to establish certain funding mechanisms, such as reinsurance pools, to provide further stability for health insurance markets, the Budget Act did not adopt any such proposals.

The Budget Act enacts the following modifications to hardship rules for employer-sponsored retirement plans which are effective for plan years beginning after December 31, 2018. Employers wishing to adopt these new rules will need to amend their retirement plan document and summary plan description. They include:

  • Elimination of the six-month suspension of deferral contributions following a hardship withdrawal.

  • Availability of earnings on deferral contributions, qualified matching contributions (QMACs), and qualified non-elective contributions (QNECs) for hardship withdrawals.

  • Elimination of the requirement that a participant take all available nontaxable plan loans prior to requesting a hardship withdrawal.

The Budget Act also establishes special loan and distribution rules for individuals suffering losses due to the California wildfires in 2017. The relief available under these provisions is generally comparable to other programs offered by the Federal Emergency Management Agency following natural disasters. Eligible individuals may receive up to $100,000 as a qualified wildfire distribution that is not subject to the typical restrictions on distributions or penalties (including the 10 percent early withdrawal penalty for participants who are under age 59½). Any amount required to be included in the participant's gross income may be included ratably over a three-taxable-year period. Alternatively, participants may repay these distributions back to the retirement plan over a three-year period. The Budget Act also increases the loan amount from a retirement plan available to California wildfire victims to the lesser of a participant's vested account balance or $100,000 (increased from the previous $50,000 limit).

Lastly, under the Budget Act, individuals who obtained retirement plan distributions to pay for IRS levies, which are later deemed invalid, may repay these amounts to the plan and thus avoid taxation and possible penalties.


Copyright © by Ballard Spahr LLP


About this Author

 Jean C. Hemphill, LAWYER at Ballard Spahr, Philadelphia, Health Care, Employee Benefits and Executive Compensation, Exempt Organizations, Health Care Reform

Jean C. Hemphill is the Co-Leader of Ballard Spahr's Health Care Group. Ms. Hemphill has a general corporate and regulatory practice, specializing in health care, employee benefits, and nonprofit law. She represents academic medical centers, medical schools, health systems, physician practice groups, clinical laboratories, social service agencies, pension and welfare plans, employers, business groups, and other entities. She is also active in higher education matters.

Before joining Ballard Spahr in 1997, Ms. Hemphill was Vice President and General Counsel of the Board of Pensions...

Edward I. Leeds, Philadelphia attorney, Ballard Spahr Law firm, Employee Benefits and Executive Compensationattorney

Edward I. Leeds concentrates on issues relating to the design, administration, and taxation of health and other welfare benefit plans. His practice has evolved with the laws and market forces that shape those plans. Mr. Leeds advises clients about compliance with the Affordable Care Act, HIPAA, HITECH, COBRA, cafeteria plan rules, and other legal requirements. He prepares clients for audits of their privacy and security measures under HIPAA and advises them about the rules governing wellness initiatives.

Mr. Leeds represents employers in the negotiation and drafting of contracts with insurers, third-party administrators, and other vendors. He helps them establish Medicare-related programs, such as  Medicare Advantage plans and EGWPs. He assists in the drafting of plan documents, summary plan descriptions, and communications, advises clients about reporting requirements under the Affordable Care Act and ERISA, and helps prepare health plans, healthcare procedures, and their vendors for the prospect of HIPAA audits.

Mr. Leeds is the firm's HIPAA Privacy Counsel.

Brenda Ching, Ballard Spahr Law Firm, Business, Finance, Labor and Employment Attorney
Of Counsel

Brenda M. Ching has 15 years of experience advising clients on the design and operation of employer-sponsored programs including employee welfare benefit programs, retirement plans and nonqualified deferred compensation plans, incentive compensation programs, and various types of employer stock compensation.

Ms. Ching advises clients on compliance requirements for employee retirement and welfare benefit programs under various laws including ERISA, COBRA, HIPAA, FMLA, the Patient Protection and Affordable Care Act (ACA), as well as Internal...