In my blog debut I take a look back at two overarching themes defined the 2009-2010 congressional agenda: a faltering economic recovery and the enactment of monumental legislation.

The financial collapse of 2008 triggered a cascade of economic difficulties, including the worst recession since the Great Depression of the 1930s. With the loss of some 8 million jobs, the nation faced the highest unemployment rate in 27 years. A precipitous drop in stock prices erased billions in retirement savings. We also experienced an unprecedented seize-up in the housing market and skyrocketing budget deficits for federal, state and local governments.

The hoped-for V-shaped economic bounce back failed to materialize in 2009, leaving lawmakers feeling like firefighters battling multiple blazes. As the economy stumbled, pressure grew for quick action to prevent a double-dip recession. Read more.

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Employer compliance priorities: Looking back…

Fri Sep 17, 2010

In my blog debut I take a look back at two overarching themes defined the 2009-2010 congressional agenda: a faltering economic recovery and the enactment of monumental legislation.

The financial collapse of 2008 triggered a cascade of economic difficulties, including the worst recession since the Great Depression of the 1930s. With the loss of some 8 million jobs, the nation faced the highest unemployment rate in 27 years. A precipitous drop in stock prices erased billions in retirement savings. We also experienced an unprecedented seize-up in the housing market and skyrocketing budget deficits for federal, state and local governments.

The hoped-for V-shaped economic bounce back failed to materialize in 2009, leaving lawmakers feeling like firefighters battling multiple blazes. As the economy stumbled, pressure grew for quick action to prevent a double-dip recession.

Economic Recovery Legislation
By now, most people are familiar with Washington’s antirecession legislative program, beginning with the $1 trillion economic stimulus package and its hallmark Making Work Pay 6.2 percent income tax credit enacted in early 2009.

The package included a special $7 billion, 65 percent COBRA premium assistance subsidy to help those involuntarily terminated at the start of the recession in September 2008. By mid-2010, the COBRA subsidy had been extended four times and expanded from nine months to 15 months.

Employers were mandated to play major roles in implementing both the economic stimulus tax credit and the COBRA subsidy, huge new compliance responsibilities, with only weeks to prepare.

Unemployment insurance was also extended, up to a maximum of two years in 2010, in recognition that many of the jobs lost in this recession were not expected to return.

HIRE Act Tax Exemption
As 2010 unfolded and the unemployment rate still hovered near 10 percent, President Obama and Congress concluded that targeted jobs legislation was needed to more directly boost hiring. Democrats and Republicans, on a bipartisan basis, developed a new legislative idea to stimulate jobs — the Hiring Incentives to Restore Employment (HIRE) Act.

Essentially, the HIRE Act is a Social Security tax “holiday.” It offers employers a 6.2 percent payroll tax exemption for wages paid after March 19, 2010, to those who have been unemployed for more than 60 days and who are hired after February 3, 2010, and before January 1, 2011.

No information is available yet on how much of a hiring incentive the HIRE Act tax exemption has been. However, strong bipartisan support remains for the basic concept that during times of grave economic distress, special incentives are in order to encourage employers to hire new workers.

Taken together, Washington’s economic recovery program appears to have had limited success. By August 2010, the unemployment rate remained near 10 percent and recovery seemed anemic. Housing remained depressed and the middle class continued to suffer a pernicious erosion of median incomes. While it could be argued that the recession would have been worse without economic stimulus legislation, economists said it would take years to grade the economic stimulus as “Pass” or “Fail.”

More targeted remedies, such as the COBRA subsidy to help the unemployed pay their monthly health insurance premiums and the HIRE Act employer tax exemption to boost new hiring, as well as extended unemployment insurance benefits, appear to have helped cushion two major symptoms of recession: the loss of health coverage and persistent joblessness.

Legislative Landmarks
The White House and the congressional leadership made a strategic decision early in 2009 to double-down on their legislative program with two monumental legislative measures separate from economic recovery — health care reform and financial system restructuring.

After a bitter partisan debate that continues to reverberate, President Obama’s health care reform proposal, the Patient Protection & Affordable Care Act (PPACA), was signed into law on March 23, 2010. Four months later, the president signed the financial reform legislation into law — fundamentally reshaping Wall Street business practices and standards.

Without question, the PPACA is the Mt. Everest of domestic policy legislation — there is nothing bigger in health policy and maybe nothing bigger since the 1935 Social Security Act. For employers, the effects of health care reform are immediate and will telescope for years to come, profoundly affecting the architecture of employer-sponsored health benefits.

Beyond health care reform’s potential over time to reengineer employer health benefits, employers face imminent compliance challenges. The PPACA compliance big three — mandates, reporting and taxes — represent a compliance tsunami for employers.

Shortly after the legislation was signed into law, a tidal wave of Labor Department, HHS and Treasury/IRS interim final regulations surged. These regulations spelled out new obligations of health plans, including a mandate to cover children up to age 26, an end to annual and lifetime coverage limits, a ban on preexisting condition exclusions, a prohibition on rescissions of coverage and new appeal rights for workers.

Looking back, 2009-2010 will be remembered as one of the most frenetic legislative periods in history. In many ways, it witnessed a shifting of the regulatory pendulum away from the 1981-2008 deregulation era in the direction of a reregulation era. A more proactive and interventionist federal government has asserted a major role in the economy, which includes housing, automobiles, banking, energy and now health care, with dramatic new compliance responsibilities for employers.

It remains uncertain whether the pendulum will swing further in the direction of more regulations. Much will depend on the health of the economy and on the legislative agenda for 2011.

Next month: Looking Ahead
Five constellations of policy issues are likely to dominate Washington’s 2011-2012 calendar: health care reform implementation, targeted jobs creation measures, tax policy, retirement security and immigration.