United States: COVID-19 Policy Update-March 23, 2020

Senate Falters on Phase 3 Vote But Inches Closer to Bipartisan Deal

As another procedural vote failed to move a Phase 3 Coronavirus package forward this afternoon, frustration and tensions flared on the Senate floor with Republicans and Democrats trading partisan blame. Despite the ongoing tension, negotiations continue with the possibility of a bipartisan Phase 3 package over the next 24 hours.

On Thursday, March 19, Leader McConnell unveiled an initial proposal for Phase 3 of the Coronavirus response, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Following two days of bipartisan negotiations, he offered up a revised Phase 3 package (bill language and summaries are available at the links below). Despite hope that the bipartisan nature of the negotiations would lead to a strong vote on a procedural measure to set up a vote on the Phase 3 legislation, the first attempt to pass the motion failed last night.

Congressional and White House negotiators deliberated late into the night and started again early this morning. Another vote was scheduled for 9:15 a.m., but it was pushed back to noon. As the vote approached, a deal remained elusive, setting up yet another failed attempt to pass the motion to proceed to H.R. 748, which serves as the legislative vehicle for Phase 3 of the Coronavirus response. The motion failed by a vote of 49-46. Once again, Leader McConnell changed his vote in order to preserve the right to reconsider the vote at a later time while negotiations continue.

House Democrats took matters into their own hands today, releasing their own proposal, the "Take Responsibility for Workers and Families Act." The House Democratic proposal, as currently drafted, contains many key Democratic priorities, such as funding to administer unemployment insurance activities and accountability requirements for industry relief. The measure stipulates that corporations receiving federal assistance must restrict executive compensation and ban golden parachutes, stock buybacks and payment of dividends. It also establishes requirements for airlines receiving federal funds to increase accountability and protect airline workers and consumers. While we do not foresee the House taking the lead and passing a Phase 3 package first, the House proposal presents alternative approaches to several policies for Congressional Democrats to leverage in the ongoing negotiations.

Negotiators are likely to remain at the table well into the night given the increasing urgency to pass the economic stimulus package. As political jockeying over the legislation continued in Washington today, more states issued orders for people to stay home and businesses to close. Single-day U.S. fatalities from COVID-19 exceed 100 for first time, pushing our country's death toll past 500. And after the first U.S. senator tested positive for coronavirus yesterday, leading to two more entering into self-quarantine as a precaution, senators and staff are anxious to pass a stimulus package and leave the Capitol.

As federal, state and local governments continue to escalate their responses to the pandemic, the latest actions and developments may be found below. Akin Gump will continue to provide regular policy developments related to COVID-19.

Summary of Key Provisions in the House Democratic Proposal and Revised Senate GOP Proposal:

Health Provisions

The House Democratic proposal includes numerous provisions that mirror the Senate GOP proposal, including eliminating sequestration payment cuts to Medicare providers from May 1 through the end of 2020, providing add-on payments to hospitals for treating COVID-19 patients, mandating coverage of testing and treatment for COVID-19 without cost-sharing and expanding telehealth services for health centers.

The bill omits key Senate provisions that would provide flexibility to dialysis providers, post-acute care facilities and durable medical equipment suppliers. The House Democratic proposal also includes a number of provisions not included in the Senate GOP proposal, such as provisions that would:

• Increase the federal matching rate for various Medicaid enrollees
• Prohibit the Centers for Medicare and Medicaid Services (CMS) from finalizing the Medicaid Fiscal Accountability Regulation (MFAR) proposed rule
• Extend states' current 1115 Medicaid waivers
• Guarantee issue of Medigap policies
• Establish a risk corridor program for Medicare Advantage
• Establish a special enrollment period for federal insurance exchanges
• Create COBRA subsidies, among other policies.

The Department of Health and Human Services (HHS) is authorized to make up to $100 billion in grant payments to public and non-profit entities, as well as Medicare and Medicaid enrolled providers and suppliers (including for-profit entities) to prevent, prepare for and respond to the COVID-19 outbreak. The grants could also go toward reimbursing providers for health care-related expenses or lost revenues directly attributable to the outbreak. HHS would also receive billions of dollars for different agencies to replenish the strategic stockpile of critical equipment; produce vaccines, therapeutics and diagnostics; and acquire and construct privately owned next-generation manufacturing facilities.

To refresh, the Senate GOP proposal would require the Food and Drug Administration (FDA) to expedite the review of drug applications and inspections to mitigate a drug shortage, as well as establish new reporting requirements for device shortages. The measure aims to speed up innovation by removing the cap on other transaction authority (OTA) and extending the FDA's priority review voucher program.

The revised GOP proposal includes new regulatory waivers for post-acute care providers to take on surge capacity and provides $1.32 billion in supplemental funding to community health centers to test and treat patients for COVID-19. The revisions remove proposals to establish new coding and coverage processes for novel treatments, to make direct primary care eligible HSA expenses and other items deemed too tangential to the COVID-19 response.

Tax Provisions

The House Democratic proposal, as released today, provides up to $1,500 in immediate assistance per individual, and up to $7,500 for a family of five. The same annual income restrictions would apply as the Senate GOP proposal, but instead of the individual receiving a reduced check up front, the filer would be required to pay back part or all of the assistance over three years, depending on income level. Net Operating Losses (NOLs) would still allow businesses to carry back losses from 2018, 2019 and 2020 to the last five years, and the legislation also suspends the 80 percent taxable income limitation.

For employers, the House Democratic proposal includes an Employee Retention Credit, which allows employers to claim an 80 percent credit on wages up to $10,000 per employee (eligible employers must have no more than $41.5 million in gross receipts or no more than 1,500 full-time equivalent employees to qualify).

On the retirement front, the legislation waives the 10 percent penalty on early withdrawals, allows individuals three years to repay distributions, increases loan limitations to the lesser of $100,000 or 100 percent of participants' vested account balance, and delays loan repayments by one year. The legislation also broadens the Earned Income Tax Credit (EITC), Child Tax Credit (CTC) and Child & Dependent Care Tax Credit (CDCTC), and expands the tax credits for paid sick leave and paid family leave in the Families First Coronavirus Response Act.

To refresh, the revised version of the Senate GOP proposal released yesterday would grant a one-time tax rebate check of $1,200 per individual and $500 per child, with the amounts beginning to reduce at annual incomes of $75,000 for individuals, $112,500 for head of households and $150,000 for married couples. Eligibility for checks will be based on 2018 and 2019 returns. The proposal would also waive the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes. Income attributable to such distributions would be subject to tax over three years. There is also additional flexibility for loans from certain retirement plans for coronavirus-related relief.

The revised GOP proposal would further waive the required minimum distribution rules for certain defined contribution plans and IRAs for calendar year 2020 and would also allow filers to deduct up to $300 of cash contributions to charitable organizations in 2020, whether filers itemize deductions or not. For individuals, the 50 percent of adjusted gross income limitation is suspended for 2020. For corporations, the 10 percent limitation is increased to 25 percent of taxable income. The provision also increases the limitation on deductions for contributions of food inventory from 15 percent to 25 percent.

The Senate GOP proposal also outlines several business provisions, allowing employers and self-employed individuals to defer payment of the employer share of the Social Security tax over the following two years, with half of the amount required to be paid by December 31, 2021 and the other half by December 31, 2022. Regarding NOL, the measure would provide that a loss from 2018, 2019 and 2020 may be carried back five years and also temporarily removes the taxable income limitation to allow an NOL to fully offset income.

The bill would further modify the loss limitation applicable to pass-through businesses and sole proprietors, and accelerate the ability of companies to recover corporate alternative minimum tax (AMT) credits, allowing them to claim a refund and obtain additional cash flow. The GOP proposal would temporarily increase the amount of interest expense that businesses are allowed to deduct by increasing the 30 percent limitation to 50 percent of the taxable income (with adjustments) for 2019 and 2020. Finally, the measure would allow businesses immediately to write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of a building.

Small Business Provisions

The House Democratic proposal released today would provide $100 billion in direct Small Business Administration (SBA) business stabilization loans, $100 billion in economic injury grants and $25.74 billion in disaster loans for small businesses. It would also provide $16.8 billion for small business debt relief, $10.2 million for direct business loans and $50 million for the Intermediary Lending Program. The measure would further provide $190 million for grants to small business development centers and $90 million for grants to women's business centers and chapters of the service corps of retired executives.

The House bill suggests $2 billion for operational assistance grants but indicates that this funding level is still under negotiation. The measure also directs the Federal Reserve to establish a credit facility to provide loans to small businesses and directs the Treasury Department to establish a Small Business Financial Assistance Program to provide loans and loan guarantees to small businesses. The bill additionally suspends small business and non-profit loan payments during the COVID-19 emergency.

In comparison, the revised Senate GOP proposal would create a $299.4 billion "paycheck protection program" to provide small employers who maintain their payroll with eight weeks of cash flow assistance in the form of federally guaranteed loans. Loans used for payroll costs, mortgage obligations interest, rent and utilities would be forgiven. The program would be retroactive through February 15, 2020. The measure would provide $240 million in grants to small business development centers and women's business centers and $10 million in grants to minority business centers to provide education, training and advice to impacted small businesses regarding business practices and resources necessary to mitigate against COVID-19. The Senate bill would additionally waive existing matching fund requirements for the Women's Business Center Program.

The GOP proposal would provide $10 billion in emergency Economic Injury Disaster Loans (EIDL) from January 31 through December 31, 2020. Eligible small businesses must be startups with under 500 employees; individual proprietorships or independent contractors; cooperatives with under 500 employees; or an Employee Stock Ownership Plan (ESOP) with under 500 employees. These entities may request an advance of up to $10,000, which the SBA must distribute within 3 days

The revised GOP proposal directs federal agencies to extend small business contract performance periods and quickly pay small business contractors impacted by the virus. Federal agencies would be prohibited from cancelling a contract with a small business in Fiscal Years 2021 and 2022 that defaulted on the terms of the contract due to COVID-19. The bill requires SBA to pay principal, interest and fees for SBA 7(a), Community Advantage, 504 and Microloan for six months. The measure also grants the Treasury Department the authority to expand the number of financial institutions that participate in the small business interruption loan program until the COVID-19 national emergency declaration expires.

Administration Updates

Coronavirus Task Force Briefing Highlights

On Monday, March 23, the White House Coronavirus Task Force conducted a briefing from the White House Press Briefing Room. Highlights of the discussion include:

• President Trump repeatedly emphasized his intentions to "reopen" the country and economy as soon as possible. He asserted that previous estimates of a necessary 3 to 4 month lockdown is "too long," and expressed his intentions to open businesses back up in a matter of weeks, explaining that decisions on timing will be made at the end of the 15-day separation period.
• The President is continuing to work with both parties in the Senate to reach an agreement on the Phase 3 stimulus package. He stated that he is confident a deal will be reached and expressed his support for current proposals to prohibit stock buybacks.
• The Federal Emergency Management Agency (FEMA) is distributing eight million N95 masks and 13.3 million surgical masks across the country, focusing on New York City, Washington State, and other areas with the greatest needs.
• President Trump announced that he will be postponing the current deadline for compliance with Real ID requirements, noting that he will be announcing a new deadline soon.
• President Trump signed an Executive Order invoking Presidential authority under section 4512 of the Defense Production Act (DPA) to prohibit the hoarding of vital medical equipment and supplies such as personal protective equipment (PPE) and hand sanitizer. The order will give the Secretary of Health and Human Services (HHS) the authority to designate essential supplies as "scare," making it a crime to stockpile them in excessive quantities.
• Attorney General Bill Barr clarified that the Executive Order aims to prohibit hoarding materials for the purpose of reselling and price gouging, or to a degree beyond what is necessary to maintain normal individual consumer or business needs. The Department of Justice (DOJ) and HHS are currently determining which materials will be designated as scare.
• Dr. Deborah Birx, response coordinator for the White House Coronavirus Task Force, revealed a breakthrough today in self-swabbing testing options, some of which will be available as early as this week.
• Vice President Pence announced that HHS will issue guidance tonight to direct all commercial labs to prioritize testing for hospitalized patients.
• When asked about his plans to reopen the country within a few weeks, President Trump explained that the Administration will continue to monitor and quarantine vulnerable populations and virus "hot spots," but reiterated that businesses will eventually need to open in order to save companies and workers. He added that a stimulus package is still necessary to give a "fair start" to workers and businesses.
• President Trump is not currently considering a new round of travel bans, but the Administration could reconsider this decision as the virus continues to spread to new regions of the world.

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