March 20, 2020

Senate Republicans' Round 3 COVID-19 Response Legislation

Holland & Knight Alert
Christopher J. Armstrong | Nicole M. Elliott

Following President Donald Trump's signing of round two legislation, the Families First Coronavirus Response Act, into law, all eyes are on the quickly developing round three legislation that is currently being negotiated. Senate Majority Leader Mitch McConnell, who accurately described the challenge as "a health crisis with an economic crisis strapped to its back," released the Senate Republican proposal for round three, which is summarized below and is now the subject of negotiation between Senate Democrats and Republicans. This proposal has been met with some criticism and is subject to change as negotiations continue.

Meanwhile, the House of Representatives, after several members tested positive for coronavirus (COVID-19), House Majority Leader Steny Hoyer announced that the House will remain out of session until there is legislation to vote on in order to avoid large numbers of members being on the floor together at any one time. Both the House and Senate are likely to remain in town until round three legislation and the supplemental appropriation requested by the Administration are passed. What happens legislatively after round three and the supplemental appropriation remains unclear.

McConnell Introduces the Coronavirus Aid, Relief, and Economic Security Act (CARES Act)

Senate Majority Leader Mitch McConnell introduced Republican's round three proposal, a $1 trillion package which includes provisions on small business relief, tax relief for individuals and businesses, liquidity assistance for distressed business and health care provisions. A brief summary of these policies is outlined below and drawn from Senate summaries.

Small Businesses Provisions: the Keeping Workers Paid and Employer Act

Chairs Rubio, Collins and Alexander, of the Small Business and Entrepreneurship, Aging, and HELP Committees drafted a $300 billion small business emergency economic relief plan that includes the following policies for those impacted by COVID-19:

  • Provides cash-flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during this emergency. If employers maintain payroll, the loans would be forgiven. This would help with employee retention and assist affected small businesses in recovery.
  • Expands the allowable uses for 7(a) loans to permit payroll support, including paid sick leave, supply chain disruptions, employee salaries, mortgage payments and other debt obligations to provide immediate access to capital for small businesses.
  • Provides $240 million in grants for SBA Small Business Development Centers and Women's Business Centers for counseling, training and related services for small business owners.
  • Authorizes $25 million for SBA to provide grants to associations representing resource partners to establish an online platform that consolidates resources across multiple Federal agencies and a training program to educate small business counselors on those resources to ensure counselors are directing small businesses appropriately.
  • Provides $10 million in grants for Minority Business Development Agency's Minority Business Centers to offer small business owners impacted by COVID-19 counseling, training, and technical assistance.

Tax Relief for Individuals

Senate Finance Committee Chairman Charles Grassley drafted major provisions to provide relief to individual taxpayers. These policies include:

  • Recovery checks of up to $1,200 will be put into the hands of many taxpayers, providing cash immediately to individuals and families. Married couples who file a joint return are eligible for up to $2,400. These amounts are increased by $500 for every child. Recovery check amounts are reduced for higher income taxpayers and begin phasing out after a single taxpayer has $75,000 in adjusted gross income (AGI) and $150,000 AGI for joint filers. The IRS will base AGI amounts on 2018 tax returns. The recovery check amount is reduced by $5 for each $100 a taxpayer's income exceeds the phase-out threshold. The recovery check amount is completely phased-out for single taxpayers with incomes exceeding $99,000 and $198,000 for joint filers.
  • Delaying the April 15, 2020, filing date to July 15, 2020, giving individuals more time to file their income tax returns. The filing date would be aligned with the extended payment filing date already announced by the IRS. In addition, the provision also allows all individuals to postpone estimated tax payments until Oct. 15, 2020. There is no cap on the amount of estimated tax payments that can be postponed, and any individual required to make estimated tax payments can take advantage of the postponement. This delay should increase the available cash flow for individuals experiencing cash shortfalls as a result of the COVID-19 outbreak.
  • Consistent with previous disaster-related relief, the bill also waives the 10 percent early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for COVID-19 related impacts.

Tax Relief for Businesses

The Senate Finance Committee under Chairman Grassley has also proposed the following measures to provide relief to businesses:

  • Allows corporations to postpone estimated income tax payments until Oct. 15, 2020. There is no cap on the amount of estimated tax payments postponed. The bill also allows businesses to delay payment of employer payroll taxes (the 6.2 percent collected for the Social Security Administration), which must be repaid over 2021 and 2022.
  • Relaxes limitations on a company's use of losses from prior years, also known as Net Operating Losses. NOLs are currently subject to a taxable income limitation, and they cannot be carried back to reduce income in a prior tax year. The bill provides that a loss from 2018, 2019, or 2020 can be carried back five years. The provision also temporarily removes the taxable income limitation to allow an NOL to fully offset income.
  • Modifies the loss limitation applicable to pass-through businesses and sole proprietors, so they can benefit from the NOL carryback rules described above and access critical cash flow to maintain operations and payroll for their employees.
  • The corporate Alternative Minimum Tax (AMT) was repealed as part of the Tax Cuts and Jobs Act, but corporate AMT credits were made available as refundable credits over several years, ending in 2021. The bill accelerates the ability for companies to recover those AMT credits, permitting companies to claim a refund now.
  • Increases the amount of interest expense businesses are allowed to deduct on their tax returns, by increasing the 30 percent limitation to 50 percent of the taxable income for 2019 and 2020.
  • Concerning qualified improvement property, the bill includes a technical correction to an error in the Tax Cuts and Jobs Act, which will enable businesses, especially in the hospitality industry, to immediately write off costs associated with improving facilities instead of having to depreciate those improvements over the 39-year life of the building.

Liquidity Assistance for Distressed Business

Senate Appropriations Committee Chairman Richard Shelby, Senate Majority Whip John Thune, and Senate Commerce Committee Chairman Roger Wicker released as part of the bill The Coronavirus Economic Stabilization Act of 2020. The package provides up to $208 billion in collateralized loans and loan guarantees to specific industries being battered by the economic crisis surrounding the COVID-19 outbreak. Specifically, the measures include:

  • A total of $208 billion to the Secretary of the Treasury, through the Exchange Stabilization Fund, to provide sufficiently collateralized loans and loan guarantees to eligible entities, broken out in the following amounts:
    • Up to $50 billion for passenger air carriers;
    • Up to $8 billion for cargo air carriers; and
    • Up to $150 billion for other eligible entities, such as hotels.
  • The Treasury Secretary is afforded flexibility to provide collateralized loans and loan guarantees to domestic entities that have incurred losses as a direct result of the coronavirus global pandemic so they can maintain operations.

Health Care Provisions

Both the Senate Finance Committee and Senate HELP Committee released part of the bill within their jurisdiction related to health care and other policies. These include the following:

Senate Finance Committee

  • Health Savings Accounts for Telehealth Services: Allows a high-deductible health plan (HDHP) with a health savings account (HSA) to cover telehealth services prior to a patient reaching the deductible, increasing access for patients who may have the COVID-19 virus and protecting other patients from potential exposure.
  • Over-the-Counter Medical Products Without Prescription: Allows patients to use funds in HSAs and Flexible Spending Accounts for the purchase of over-the-counter medical products, including those needed in quarantine and social distancing, without a prescription from a physician.
  • Health Savings Accounts for High-Quality Primary Care: Allows patients with a HDHP to use HSA funds to pay the monthly fee to a direct primary care physician practice that typically provides more remote care, including telehealth.
  • Expanding Medicare Telehealth Flexibilities: Eliminates the requirement in Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020 (Public Law 116-123) that limits the COVID-19 Medicare telehealth expansion authority during the COVID-19 emergency to situations where the physician or other professional has treated the patient in the past three years. This would enable beneficiaries to access telehealth, including in their home, from a broader range of providers, reducing COVID-19 exposure.
  • Allowing Federally Qualified Health Centers and Rural Health Clinics to Furnish Telehealth: Allows, during the COVID-19 outbreak, Federally Qualified Health Centers and Rural Health Clinics to furnish telehealth services to beneficiaries in their home or other setting. Medicare would reimburse for these services at a composite rate similar to payment provided for comparable telehealth services under the Medicare Physician Fee Schedule.
  • Expanding Telehealth for Home Dialysis Patients: Eliminates a requirement during the COVID-19 outbreak that a nephrologist conduct some of the required periodic evaluations of a patient on home dialysis face-to-face, allowing these vulnerable beneficiaries to get more care in the safety of their home.
  • Enabling Physician Assistants and Nurse Practitioners to Order Home Health Services: Allows physician assistants, nurse practitioners, and other professionals to order home health services for beneficiaries, reducing delays and increasing beneficiary access to care in the safety of their home.
  • Increasing Provider Funding Through Immediate Medicare Sequester Relief: Provides prompt economic assistance to health care providers on the front lines fighting the COVID-19 virus, helping them to furnish needed care to affected patients. Specifically, this section would temporarily lift the Medicare sequester, which reduces payments to providers by 2 percent, from May 1 through Dec. 31, 2020, boosting payments for hospital, physician, nursing home, home health, and other care. The Medicare sequester would be extended by one-year beyond current law to provide immediate relief without worsening Medicare's long-term financial outlook.
  • Medicare Add-On for Inpatient Hospital COVID-19 Patients: Increases the payment that would otherwise be made to a hospital for treating a patient admitted with COVID-19 by 15 percent. It would build on the Centers for Disease Control and Prevention (CDC) decision to expedite use of a COVID-19 diagnosis to enable better surveillance as well as trigger appropriate payment for these complex patients.
  • Preventing Durable Medical Equipment Payment Reduction: Prevents a scheduled decrease in payment amounts for durable medical equipment, which helps patients transition from hospital to home and remain in their home, through the length of COVID-19 public health emergency.
  • Using Provider Collaboration Programs to Improve Care in Rural and Underserved Areas: Allows state Medicaid programs to pay for learning programs that enable specialists to train and consult with providers in rural and underserved areas on treating COVID-19 and other public health emergencies.
  • Providing Home and Community-Based Support Services During Hospital Stays: Allows state Medicaid programs to pay for direct support professionals, including caregivers trained to assist with activities of daily living for disabled individuals in the hospital to reduce length of stay and free up beds.
  • Using and Developing DISARM Antimicrobial Drugs: Establishes separate Medicare payment to hospitals when administering a qualified antibiotic or antifungal to treat a serious or life-threatening infection, helping to prevent the spread of serious infection at a time when hospitals are overwhelmed with COVID-19 patients. A hospital must participate in a CDC stewardship program to receive the separate payment, which would be in place for a five-year period with an evaluation of the impact.
  • Speeding Medicare Determinations on Novel Breakthrough Products: Requires Medicare to make quicker coding, coverage, and payment determinations when the Food and Drug Administration approves truly novel drugs, biologics, and devices, such as those that will be necessary to treat COVID-19.

Senate HELP Committee

  • Directs the National Academies to study the manufacturing supply chain of drugs and medical devices and provide Congress with recommendations to strengthen the U.S. manufacturing supply chain.
  • Provides permanent liability protection for manufacturers of personal respiratory protective equipment, such as masks and ventilators, in the event of a public health emergency, to incentivize production and distribution.
  • Requires drug manufacturers to submit more information when there is an interruption in supply, including information about active pharmaceutical ingredients, when active pharmaceutical ingredients are the cause of the interruption.
  • Requires manufacturers to maintain contingency plans to ensure back up supply of products.
  • Clarifies that drug manufacturers can communicate truthful and non-misleading information regarding products with an emergency authorization from the FDA.
  • Clarifies that all testing for COVID-19 is to be covered by private insurance plans without cost sharing, including those tests without an Emergency Use Authorization (EUA) by the FDA.
  • For COVID-19 testing covered with no cost to patients, requires an insurer to pay either the rate specified in a contract between the provider and the insurer, or, if there is no contract, a cash price posted by the provider.
  • Provides free coverage without cost-sharing of a vaccine within 15 days for COVID- 19 that has in effect a rating of A or B in the current recommendations of the United States Preventive Services Task Force or a recommendation from the Advisory Committee on Immunization Practices (ACIP).
  • Provides $1.32 billion in supplemental funding to community health centers on the front lines of testing and treating patients for COVID-19.
  • Allows for additional care coordination by aligning the 42 CFR Part 2 regulations, which govern the confidentiality and sharing of substance use disorder treatment records, with Health Insurance Portability and Accountability Act (HIPAA), with initial patient consent.
  • Allows the Biomedical Advanced Research and Development Authority (BARDA) to more easily partner with private sector on research and development by removing the cap on other transaction authority (OTA).
  • Makes the FDA priority review voucher incentive permanent to incentivize companies to develop countermeasures more quickly.
  • Provides Breakthrough Therapy designations for animal drugs that can prevent human diseases – i.e. speed up the development of drugs to treat animals to help prevent animal-to-human transmission, which is suspected to have occurred with outbreak of novel coronavirus, leading to the SARS-CoV-2 pandemic.
  • Creates a limitation stating an employer shall not be required to pay more than $200 per day and $10,000 in the aggregate for each employee under this section.
  • Creates a limitation stating an employer shall not be required to pay more than $511 per day and $5,110 in the aggregate for sick leave or more than $200 per day and $2,000 in the aggregate to care for a quarantined individual or child for each employee under this section.

What's Next on the CARES Act?

The bill will continue to be negotiated and although it is expected that round 3 will become law, it could be with some modifications.


DISCLAIMER: Please note that the situation surrounding COVID-19 is evolving and that the subject matter discussed in these publications may change on a daily basis. Please contact the author or your responsible Holland & Knight lawyer for timely advice.

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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