House Passes the Heroes Act

Manatt, Phelps & Phillips, LLP

The Big Picture

On May 15, the House of Representatives passed the Health and Economic Recovery Omnibus Emergency Solutions (Heroes) Act (H.R. 6800, as amended by a manager’s amendment) along mostly party lines (208–199). While Senate Minority Leader Chuck Schumer (D-NY) is supportive of the legislation, Senate Majority Leader Mitch McConnell (R-KY) characterized the bill as a list of “pet priorities” and has indicated that the Senate does not feel the urgency to consider an additional round of stimulus right now. It will likely be many weeks before the Senate and House are able to reach agreement on another stimulus package—the scheduled expiration of the Coronavirus Aid, Relief, and Economic Security (CARES) Act’s increased unemployment benefits at the end of July could provide Congress with its next deadline.

H.R. 6800 provides an important look at Democratic priorities for the next stimulus package, including additional economic impact payments to individuals, an extension of unemployment benefits, additional support for small businesses through changes to the Payroll Protection Program, and myriad provisions to support healthcare providers and the public health system. Among the most important healthcare provisions in the bill are:

  • An additional $100 billion for the Provider Relief Fund established under the CARES Act;
  • $915 billion in state and local relief funds;
  • A time-limited increase in the Medicaid matching rate to support the Medicaid program as enrollment rises;
  • 100% subsidies for Consolidated Omnibus Budget Reconciliation Act (COBRA) coverage to help shore up commercial market coverage;
  • Special enrollment periods for Medicare and Marketplace coverage;
  • Coverage of COVID-19 treatment with no cost sharing across public and commercial market coverage, including in states that adopt optional Medicaid coverage (at 100% federal match) for uninsured individuals;
  • $75 billion for testing, contact tracing, surveillance, containment, and mitigation of COVID-19;
  • $180 billion in grants for essential workers, including healthcare workers;
  • Targeted funding to help nursing homes respond to the coronavirus;
  • New flexibilities with respect to Federal Emergency Management Agency funding, including expanding eligible expenses and removing the 25% nonfederal cost-sharing obligation for states, localities, and nonprofits;
  • New requirements for the Department of Health and Human Services (HHS) to collect and report detailed demographic data (including race, age, gender, geography) on those tested for and diagnosed with COVID-19, and to develop a plan to modernize data collection for health inequities and grant funding to states and local governments to implement modernized methods;
  • Risk corridors to stabilize premiums for the individual and commercial markets and Medicare Advantage (added by the manager’s amendment); and
  • Nondiscrimination protections applying to the Heroes Act and selected provisions in previously passed stimulus legislation (added by the manager’s amendment).

Below are more details about several key healthcare provisions in the Heroes Act. (For more detail about other healthcare provisions included in the introduced bill, please see the House section by section summary of the full bill.)

Funds for Providers

Among the most significant provisions of the Heroes Act are changes to the $175 billion Provider Relief Fund (Fund) that was established by the CARES Act and provided with an additional infusion of funding by “Stimulus 3.5.” The Heroes Act appropriates an additional $100 billion to the Provider Relief Fund,1 for HHS to make payments through grants or another mechanism to healthcare providers for expenses and lost revenues due to COVID-19. In addition to adding another $100 billion to the Fund (bringing total funding to $275 billion),2 the Heroes Act adds considerable new specificity to how HHS must allocate funds among providers; these new requirements would apply to the additional $100 billion in funding and the unobligated balance of all amounts appropriated to the Fund by prior stimulus bills. To date, Fund payments have been made at the broad discretion of HHS.

The Heroes Act prescribes a methodology for calculating each provider’s payment amount. Each provider would be eligible to receive reimbursement for 100% of eligible expenses (defined as building or constructing temporary structures, construction or leasing of properties, construction or retrofitting of facilities, medical supplies and equipment including personal protective equipment, tests, increased workforce and training, emergency operation centers, mobile testing units, surge capacity, retention of workforce, and other items defined by HHS) plus 60% of lost revenues (for providers with lost revenue that equals or exceeds 10% of their net revenue) minus any funds that the provider received from COVID-19 stimulus bills during that quarter.3 The bill increases Medicaid and Medicare revenue by different amounts to account for lower reimbursement in those programs compared with commercial insurance, which ensures that Medicaid-heavy providers are not disadvantaged.

The Heroes Act also bans surprise billing for commercially insured COVID-19 patients and requires acceptance of Provider Relief Fund payments as payment in full for uncompensated care; caps at $10 billion the amount of Provider Relief Fund payments that may be paid to providers for providing uncompensated care including, as noted above, any unobligated Provider Relief Fund monies from previously enacted COVID-19 stimulus bills; and establishes a standard process through which healthcare providers would submit quarterly applications to HHS to access the funds.4 The Heroes Act also requires various reports related to the Provider Relief Fund, including public reporting by HHS of provider-level payment data and regular recipient reporting, as required by HHS.

Subsidizing COBRA

The Heroes Act provides full premium subsidies, through January 2021, to allow workers to maintain their employer-sponsored coverage if they are eligible for COBRA due to a layoff or reduction in hours, and for workers who have been furloughed but are still active in their employer-sponsored plan. Individuals who choose COBRA typically pay 102% of the cost of the premium. If adopted by the Senate, this provision would likely preserve employer-based coverage for many individuals who lose their job-based coverage as a result of the COVID-19 pandemic.

Stabilizing Premiums Through Risk Corridors

The Heroes Act re-establishes a risk corridors program for the Affordable Care Act’s individual and small group markets for 2020 and 2021. The program, which is a “one-sided” version of the original risk corridors program in effect for 2014–2016, is designed to protect insurers who price too low and end up with excessive claims costs. The program does not directly penalize insurers who price too high, but it does encourage competitive pricing by reimbursing insurers for most of their costs if claims turn out to be higher than expected. The 2020–2021 version of the program covers 75% of claims costs that exceed expected costs by more than 5%. Unlike the original risk corridors program, which did not expressly appropriate funds for risk corridors, requiring insurers to win a recent Supreme Court case to collect a $12 billion shortfall, the updated program expressly appropriates federal funds to cover program costs.

The Heroes Act authorizes similar reimbursement of excessive claims costs (75% reimbursement for claims costs in excess of 105% of expected costs) to insurers offering large group coverage and Medicare Advantage, as well as to self-insured employers.

Medicaid and CHIP

The Heroes Act includes a number of provisions that expand on Medicaid and Children’s Health Insurance Program (CHIP) provisions that were originally enacted in the Families First Coronavirus Response Act (FFCRA), most notably further increasing the Medicaid Federal Medical Assistance Percentages (FMAP) and broadening coverage under the optional uninsured testing group to include vaccines and treatment. The Heroes Act adjusts the 6.2-percentage-point FMAP increase provision included in FFCRA by increasing it to 14 percentage points for the period between July 1, 2020, and June 30, 2021. If the public health emergency continues thereafter, the FMAP would return to a 6.2-percentage-point increase and remain at that level through the last day of the quarter on which the emergency period ends. Ongoing availability of the increased FMAP would not be tied, however, to ongoing unemployment or other economic indicators, as Congress provided in 2009 fiscal relief legislation, for example.

The bill includes other provisions to help deliver additional Medicaid funding to states and providers (e.g., additional funding for home and community-based services, additional Medicaid Disproportionate Share Hospital funding) and to promote access and continuity of coverage for beneficiaries (e.g., codifying Medicaid’s nonemergency medical transportation benefit and extending coverage to inmates of correctional institutions during the 30 days before their release). It is unlikely that all of these House provisions will survive in negotiations with the Senate; House leadership ultimately may be most committed to protecting the increased FMAP provisions here, which directly respond to pleas from governors to provide support for their Medicaid programs at a time when state revenues are declining and Medicaid enrollment is growing.

Funds for States and Localities

Responding to calls from state and local officials for additional funds to support their response to COVID-19 and to stabilize economies, the Heroes Act provides an additional $915 billion to states, localities, and tribes, spread across two new state and local relief funding pools: a $540 billion Treasury Department fund to assist state, territorial, and tribal governments with the fiscal impacts from the COVID-19 public health emergency and a $375 billion fund for payments to counties, metropolitan cities, and other units of general local government (e.g., towns, villages, parishes). Conditions for the use of these funds appear to be even more flexible than those for the CARES Act’s Coronavirus Relief Fund: The new state and local relief funds are directed to be used “to respond to, mitigate, cover costs or replace foregone revenues not projected on January 31, 2020, stemming from the public health emergency, or its negative economic impacts” and are available until expended. Passage of the new funding is expected to be particularly contentious in the Senate because Majority Leader McConnell has expressed strong reluctance to provide federal financial aid to states.

In addition to providing new funds, the Heroes Act also clarifies that states and localities may use the CARES Act Coronavirus Relief Fund for revenue replacement. State and local officials have been requesting this authority, which the Treasury Department has to date rejected.

Testing-Related Funding and Provisions

The Heroes Act includes a number of provisions to build capacity for testing, tracing, surveillance, containment, and mitigation of COVID-19, directing funding to the Centers for Disease Control and Prevention and states, localities, and tribes and requiring reporting to support both access and monitoring. The Heroes Act authorizes and appropriates $75 billion for the COVID-19 National Testing and Contact Tracing Initiative.5 These sections require HHS, in collaboration with state, local, tribal, and territorial health departments, to establish and implement a national evidence-based system for testing, contact tracing, surveillance, containment, and mitigation of COVID-19; strengthen the existing public health surveillance system; issue guidance and policies to public health departments regarding testing best practices and payment policies; establish awareness campaigns; and conduct related activities. The legislation also authorizes $6 billion for HHS to establish a core public health infrastructure by awarding grants to state, local, tribal, and territorial health departments; establishing a voluntary public health accreditation program for these departments and public health laboratories; and implementing the accreditation program. The bill does not specify the total funding that should be applied specifically to the state grant program. However, at least 50% of the total amount of funds awarded as grants must be awarded to state health departments, using a formula based on population size and other factors established by the Secretary of HHS within the guardrails of the legislation; and at least 30% must be awarded on a competitive basis to state, local, tribal, or territorial health departments. The funds should be used for core public health infrastructure, including workforce capacity and competency, laboratory systems, testing capacity, health information and analysis, disease surveillance, and other enumerated purposes.

1 The bill includes a $100 billion appropriation for the Public Health and Social Services Emergency Fund (see page 87 of the bill), subject to the requirements outlined in Section 30611.

2 The CARES Act provided $100 billion to the Fund, the majority of which HHS has allocated to date; Stimulus 3.5 provided an additional $75 billion to the Fund. (For more information on allocations to date, see Manatt Health’s April 24 newsletter.)

3 Includes all four stimulus bills passed to date: the Coronavirus Preparedness and Response Supplemental Appropriations Act (P.L. 116-123), the Families First Coronavirus Response Act (P.L. 116-127), the CARES Act (P.L. 116-123), and the Paycheck Protection Program and Health Care Enhancement Act, commonly referred to as “Stimulus 3.5” (P.L. 116-136).

4 To date, providers have automatically received payment for some allocations (e.g., the first $30 billion of the $50 billion General Fund and, for some providers, the second $20 billion as well), have submitted information to HHS to “apply for” and inform distribution of some allocations (e.g., the $12 billion allocation for “hot spot” hospitals), and have submitted claims to receive reimbursement (e.g., the Health Resources and Services Administration COVID-19 Uninsured Program). For more information, see Manatt Insights’ May 5 newsletter.

5 The bill includes a $75 billion appropriation for the Public Health and Social Services Emergency Fund (see page 88 of the bill), subject to the requirements described in Sections 30561–30568.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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