On December 20, the Senate Appropriations Committee released draft text for a $1.7 trillion omnibus spending deal (H.R. 2617) for fiscal year (FY) 2023, including $772.5 billion for non-defense discretionary programs and $858 billion in defense funding through September 23, 2023, along with a variety of other extenders and policy riders, including those focused on health care, retirement, and emergency assistance. Efforts for a robust tax title to be included in the year-end bill were not successful. The omnibus does not include business tax provisions like relief from the IRC Section 174 R&D amortization requirement or modifications to IRC Section 163(j) — both of the TCJA cliffs that took hold this year — tax extenders, or an expanded Child Tax Credit (CTC).

The health care provisions include a two-year extension of Medicare telehealth policies tied to the public health emergency (PHE) and the CARES Act provision allowing high-deductible health plans with health savings accounts (HDHP-HSAs) to offer telehealth before the deductible, a partial offset to looming Medicare physician payment cuts for 2023 and 2024, and policies to address Medicaid redetermination, mental health and substance use disorder (SUD), Food and Drug Administration (FDA) modernization, and more. The bill also includes the SECURE 2.0 ACT retirement package, $40.6 billion in emergency natural disaster relief for the United States, $44.9 billion in additional aid for Ukraine, and provisions to change the way presidential elections are certified by Congress.

Appropriations leaders worked throughout the weekend to finalize policy riders and related issues and Congress is expected to move on the bill quickly with the goal of passing a final package before departing for the holidays and before the current expiration of funding on December 23. Some Republicans have insisted that another short-term patch be enacted to extend funding only into early 2023 to give the GOP more leverage with control of the House next year, and others have suggested that if the bill can't be reviewed before votes, they could slow the process. As such, the Senate is expected to hold a procedural vote as soon as Wednesday (December 21), after which Senators have up to 30 hours of consideration to find the 60 votes needed for passage. This process can be shortened, but it would require the support of all 100 senators. The House would then take up the bill, where it is expected to pass.

Below is a high-level overview of the tax, health, and retirement pieces included in the draft.

• The bill text is available here and summaries of the bill are available here.

Tax, Health, & Retirement Provisions in the Omnibus Package

Tax

Efforts for a robust tax title to be included in the year-end bill were not successful. The omnibus does not include business tax provisions like relief from the IRC Section 174 R&D amortization requirement or modifications to IRC Section 163(j) — both of the TCJA cliffs that took hold this year — tax extenders, or an expanded Child Tax Credit (CTC). Democrats insisted upon an expanded CTC as a condition for supporting business tax items, a deal with Republicans didn't materialize, and the debate continues in 2023.

The omnibus includes language consistent with the Charitable Conservation Easement Program Integrity Act (S. 2256), to impose a limitation on the tax deduction for qualified conservation contributions made by certain partnerships if the amount of the contribution exceeds 2.5% times the sum of each partner's relevant basis in the partnership. Like an amendment reflecting the Act that was adopted by the Senate Finance Committee in relation to its retirement legislation approved in June, the proposal would apply only to contributions made after the date of enactment. The Omnibus adds reporting requirements for conservation contributions plus safe harbors and the opportunity for donors to correct certain deed errors.

Revenue offsets would allow employers to offer employees the ability to treat employee and employer SEP contributions as Roth; require that all catch-up contributions to qualified retirement plans by employees paid at least $145,000 are subject to Roth tax treatment; allow defined contribution plans to provide participants with the option of receiving matching contributions on a Roth basis; extend and modestly expand authority for sponsors of overfunded pension plans to transfer funds to retiree health accounts.

Retirement

A SECURE 2.0 retirement security package is included, melding bills approved by House and Senate committees. Provisions include:

• Requiring new 401(k) and 403(b) plans to automatically enroll participants upon becoming eligible;
• Phase-in of an increase in the age for required mandatory distributions to 75;
• A higher catch-up limit to apply at ages 60, 61, 62, and 63;
• Treatment of student loan payments as elective deferrals for purposes of matching contributions;
• New Starter 401(k) plans for employers with no retirement plan;
• Making long-term part-time workers eligible to participate after two years rather than three;
• Allowing employers to offer pension-linked emergency savings accounts to non-highly compensated employees;
• Deferral of tax for certain sales of employer stock to an ESOP sponsored by an S corporation;
• Tax and penalty free rollovers from 529 accounts to Roth IRAs;
• Changing the Saver's Credit to a federal matching contribution deposited into a taxpayer's plan;
• IRA or retirement plan;
• A tax credit to encourage small employers to make military spouses eligible for retirement plan participation;
• A Retirement Savings Lost and Found searchable database at Treasury and the Department of Labor;
• Increasing the dollar limit for mandatory distributions to $7,000;
• Relief from early withdrawal penalties for various situations;
• Requiring paper statements to be provided at least once annually to defined contribution plan participants and at least once every three years to defined benefit plan participants;
• Multiple Employer Plan provisions that would allow 403(b) plans to participate in MEPs and would make the start-up tax credit more available to MEPs; and
• Allowing 403(b) plans to offer unregistered collective investment trusts and separate account insurance products as plan investments (the provision does not make corresponding changes to securities laws that are needed to make the proposal workable).

Health

The omnibus includes funding increases for medical research; public health and preparedness; food, drug, and medical device safety; and veterans' health care. This includes $47.5 billion for the National Institutes of Health (NIH), $9.2 billion for the Centers for Disease Control and Prevention (CDC), $1.5 billion for the Advanced Research Projects Agency for Health (ARPA-H), $950 million for the Biomedical Advanced Research and Development Authority (BARDA), and $118.7 billion for veterans' medical care. The bill also includes new investments in mental and behavioral health, substance use disorder treatment, maternal health, and nutrition, including $154 billion for the Supplemental Nutrition Assistance Program, $28.544 billion for Child Nutrition Programs, and $6 billion for the Special Supplemental Nutrition Program for Women, Infants and Children.

The package also includes several health care provisions related to telehealth, Medicare reimbursements, Medicaid, mental health, the COVID-19 public health emergency, FDA policies, and more.

Telehealth

The omnibus would extend several Medicare telehealth waivers included in the Consolidated Appropriations Act through December 31, 2024. Those waivers, which are currently set to expire 151 days after the end of the COVID-19 PHE, address Medicare's originating site and geographic requirements (e.g. allowing patients to receive telehealth at home); in-person visit requirements and audio-only limitations; payment for non-physician providers; and facility fees for new sites of care. In addition, the omnibus would extend through December 31, 2024, the CARES Act provision that allows commercial plans to offer people with high-deductible health plans access to telehealth coverage before their deductible.

The bill requires HHS to study telehealth utilization to determine, among other things, how virtual care impacts total visit volumes and downstream services, and to audit Medicare claims to identify potential fraud. Interim results are due to congressional committees on Oct. 1, 2024, which is three months before the Medicare telehealth extensions in the bill would expire. The final report is due to Congress no later than April 1, 2026.

Physician Medicare reimbursements and extenders

The omnibus would partially offset a 4.47% cut to the Medicare Physician Fee Schedule (MPFS) conversion factor set to take effect January 1, 2023, by passing a one-time 2.5% payment increase for FY 2023, and a one-time 1.25% payment increase for FY 2024. If passed, the MPFS conversion factor would decline by 1.97% for FY 2023.

As expected, Congress postponed the statutory Pay-As-You-Go (PAYGO) cuts preventing an additional 4% cut to Medicare until 2025. The bill does not, however, mitigate the 2% Medicare sequester cut which was on hold during most of the public health emergency (PHE) but which resumed June 30, 2022.

In addition, the bill extends the advanced alternative payment model (APM) bonus through 2025 but lowers the bonus from a 5% Medicare Part B incentive payment to a 3.5% payment.

The bill also delays by one year a looming payment cut of up to 15% for certain tests paid under the Clinical Lab Fee Schedule, as well as data reporting requirements.

In addition, the bill extends payment adjustments for low-volume hospitals and the Medicare-dependent hospital program through September 30, 2024, extends add-ons for Medicare-covered ambulance services through December 31, 2024, and eliminates the annual cap on total payments and excludes any resulting increase from factoring into calculations for nursing and allied health education payments for such hospitals for 2010 through 2019.

Other health provisions linked to the PHE

The omnibus includes several other provisions that address or extend flexibilities granted during the PHE. The bill would sunset the Families First Coronavirus Response Act's Medicaid continuous coverage requirement effective April 1, 2023, allowing states to resume Medicaid redeterminations. Throughout the pandemic, states that received additional federal Medicaid funding have been unable to disenroll people from their Medicaid program and Medicaid directors previously asked for clarity on when and how the continuous enrollment requirements would end. The bill requires states to conduct redeterminations over at least a 12-month period and if they meet certain conditions, such as notification requirements and monthly limits on redeterminations, states can continue receiving the enhanced Medicaid funding rate through December 31, 2023.

In addition, the omnibus includes parts of the bipartisan PREVENT Pandemics Act and grants several extensions to existing waivers and flexibilities. For example, the bill:

• Allows Medicare Part D to cover oral antiviral drugs that FDA has granted an emergency use authorization for through December 31, 2024;
• Extends through December 23, 2023, the 1% add-on payment for home health agencies that service areas with low population density;
• Extends through December 23, 2023, the CARES Act's temporary blended payment rates for durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) in certain non-competitive bid areas; and
• Extends through December 31, 2024, the Acute Hospital Care at Home initiative, which enables hospitals to deliver care in a patient's home.

Medicaid and CHIP

The bill extends funding for CHIP through FY 2029 and requires children to be provided with 12 months of continuous coverage in Medicaid and CHIP effective January 1, 2024. The bill also extends higher federal Medicaid match for Puerto Rico through FY 2027, adds a higher federal Medicaid match for American Samoa, the Commonwealth of the Northern Mariana Islands, Guam, and the U.S. Virgin Islands; makes permanent the option for states to provide 12 months of continuous post-partum coverage; extends funding for the Medicaid Money Follows the Person Rebalancing Demonstration program at $450 million per year through fiscal year 2027; and extends protections against spousal impoverishment for Medicaid recipients of home and community-based services through fiscal year 2027.

Mental health

The omnibus includes several provisions to increase access to mental and behavioral health services. The bill reauthorizes existing programs and establishes new programs to support mental and behavioral health, funds an additional 200 GME slots targeted to the mental health workforce, establishes a maternal mental health hotline and task force, extends mental health parity to state and local government workers, provides Medicare Part B coverage of mental health counselor and marriage and family therapist services, includes intensive outpatient services in Medicare's partial hospitalization benefit beginning January 1, 2024, and establishes a 50% payment increase in MPFS rates for crisis psychotherapy services when furnished by a mobile unit, as well as additional settings other than a facility or physician office, beginning on January 1, 2024. While lawmakers were able to get some mental health provisions in the year-end package, Congress will continue its work toward passing a more comprehensive mental and behavioral health package in 2023.

User Fee policy riders

The User Fee bill passed in the September continuing resolution left out health care policy riders initially included in a broader bipartisan package. Several of those policies are included in the omnibus, including policies to:

• Increase diversity and engagement of clinical trial participants;
• Increase generic drug competition;
• Expand FDA's authority over the accelerated approval pathway by enabling the agency to require post-approval studies be underway within a specified timeframe; and
• Expand FDA's authority to regulate the cosmetics industry.

Other provisions and funding offsets

The bill also includes several funding offsets, including allocating funding from the Medicare Improvement Fund, extending by one-year the hospice aggregate cap, and extending the 2% Medicare sequestration cut for six months in FY 2032 and adjusting the payment cuts to be 2% for FYs 2030 and 2031.

Not included

The bill notably does not include a bipartisan Medicare Advantage Prior Authorization bill; the PASTEUR Act, which reforms the model for antimicrobial drugs; the VALID Act, which includes changes to diagnostic testing regulations; policies to increase scrutiny for pharmacy benefit managers; or the White House's request for $10 billion in public health funds to continue COVID-19 response. We expect lawmakers will continue examining those policies, as well as those related to maternal health and mental and behavioral health when the 118th Congress convenes on January 3, 2023.

Financial Services

In the area of financial services, the omnibus may be more notable for what it did not include than what's in it. The SAFE Banking Act (S. 910, HR 1996), which would create a safe harbor from prosecution for banks that provide services to cannabis-related businesses, has bipartisan support in the House and Senate and passed the House with 321 votes in April 2021. But it was excluded from the package despite a strong push from Senate Majority Leader Chuck Schumer (D-NY) and others. The bill reportedly has uniform support among Democrats and at least 10 Republicans in the Senate, but Democrats ran out of time to move the legislation to the floor as a stand-alone bill, leaving them to rely on end-of-year vehicles and giving Senate Minority Leader Mitch McConnell (R-KY) the opportunity to kill the measure last week in the annual National Defense Authorization Act (NDAA) and then again in the omnibus.

Chinese company de-listing

The omnibus includes language speeding up the timeline under which public companies from China and Hong Kong can be removed from U.S. stock exchanges if they do not open up their audits to U.S. regulators like the Public Company Accounting Oversight Board (PCAOB). Such companies currently must give the PCAOB "complete access" to their accounting books for three consecutive years or they will be kicked off U.S. exchanges, and the PCAOB last week announced that China had provided the necessary access, starting the three-year clock. But the omnibus, in a move supported by numerous China-hawk lawmakers and SEC Chairman Gary Gensler, would reduce that timeline from three years to two, while giving U.S. regulators more authority to demand Chinese cooperation in their audits.

SEC, CFTC funding

The omnibus' agency allocations included a modest win for the Securities and Exchange Commission (SEC), giving the markets regulator $2.15 billion for FY 2023, an 8% bump from its current FY 22 funding of $1.99 billion, which the SEC supplements with fees collected from firms it oversees. SEC Chairman Gensler had appealed to lawmakers for the additional funds, citing the agency's increased responsibility for policing cryptocurrency trading, rapidly expanding markets and highly litigious defendants in enforcement actions.

The spending bill also proposes flat funding for the Commodity Futures Trading Commission (CFTC), keeping that agency's budget at $365 million for the rest of the fiscal year.

———————————————