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The federal government has largely been "shut down" since continuing appropriations expired at midnight on September 30. The shutdown is already the second longest in history, and Congress has made very little progress toward a bipartisan compromise to reopen the government. Health care issues are playing a central role in the discussions to reopen the government, and there is no question the shutdown is having a significant impact on the Administration's regulatory agenda.
Congress
Health policy is central to the negotiations to reopen the federal government. Although Republicans control both chambers of Congress, they need support from at least seven Democrats to advance legislation in the Senate due to the filibuster. For their votes, Democrats have demanded health policy concessions, including an extension of the enhanced Advance Premium Tax Credit ("APTC").
The Affordable Care Act ("ACA") created the APTC to subsidize individual insurance policies purchased on an exchange. In 2021, Congress enhanced the APTC by temporarily making more people eligible for premium subsidies. Congress extended the enhancements in 2022, but they are set to expire on December 31, 2025. Democrats argue that an extension is necessary to protect many individuals with individual health insurance policies from experiencing significant premium increases. Republican leadership, on the other hand, is taking the position that discussions about the enhanced APTC should occur separately from the negotiations over government funding, and some have called for eliminating or reforming the enhanced APTC.
So far, there has been little public progress in reaching an agreement to end the shutdown, but some Congressional Republicans have privately begun discussing a package of healthcare policy changes that could be acted upon later in the year pursuant to a bipartisan agreement paving the way to reopen the government. The package could include an extension of the enhanced APTC with reforms, including excluding some higher-income earners. It could also include pharmacy benefit manager transparency requirements and expanding the uses for Health Savings Accounts. The hope is that the discussions within the Republican caucus will result in a proposal leadership can offer as a counter to Democrat's demand to fully extend the enhanced APTC. Democratic leadership signaled an openness to discussing alternatives, but they claim Republicans have not yet engaged.
Treasury and the IRS
On October 8, the IRS began furloughing staff and closing most IRS operations due to the lapse in appropriations, according to a message on the website and a letter to employees from the acting IRS Human Capital Officer. Previously, the Treasury/IRS shutdown plan had said that normal IRS operations would continue for five business days, until at least October 7, using Inflation Reduction Act of 2022 funding, and that all 74,299 IRS employees would be retained during that period.
The IRS-wide furlough applies to everyone except for those employees who had already been identified as excepted and exempt employees. According to the agency's updated Lapsed Appropriations Contingency Plan, a little over half of IRS employees (39,870 or 53.6% of its employees) have been identified as exempt and thus not subject to the furlough. Other employees have now been furloughed and placed in a non-pay and non-duty status until further notice. During the furlough period, these employees are not allowed to work and can only log on to any IRS-issued equipment for certain limited purposes.
On October 10, a reported 1,446 Treasury employees were laid off as part of reductions in force directed by the Office of Management and Budget. The layoffs reportedly primarily impacted IRS employees in human resources and information technology positions. On October 15, a U.S. District Court Judge in the Northern District of California ruled in favor of two federal employee unions and granted a temporary restraining order ("TRO") to halt some of the layoffs, but the Trump administration is challenging whether the TRO applies to laid off employees who are not members of those two unions challenging the reductions in force.
Treasury Assistant Secretary for Tax Policy and Acting IRS Chief Counsel Ken Kies said last week that despite the furloughs, plans remain on track to issue regulatory guidance under the One Big Beautiful Bill and continue preparations for the upcoming tax filing season. He stated that the IRS and Treasury "are very keenly focused on getting the guidance out" and that the IRS recently brought back 45 chief counsel attorneys responsible for drafting guidance. He also indicated that priorities for regulation drafting include Trump accounts and the deductions for overtime and tips, and that some pieces of guidance could be released as early as November.
Department of Labor ("DOL")
DOL's shutdown operations plan calls for furloughing approximately 90% of DOL staff, including approximately 75% (504 of the 668) of those working for the Employee Benefit Security Administration. Consequently, DOL has paused work on much of its enforcement and regulatory activities. Some staff continues to work on time sensitive regulatory guidance (i.e., tri-agency fertility FAQs) and cases and investigations, and other portions of DOL are fully operational as they are funded through separate appropriations (e.g., No Surprises Act enforcement).
Health and Human Services ("HHS")
The HHS shutdown plan calls for retaining approximately 47,000 employees while furloughing 32,000 employees. HHS activities during the shutdown vary widely by sub-agency. For example, rulemaking and policy development activities and contract oversight are largely suspended at the Centers for Medicare and Medicaid Services ("CMS") while Medicare, Medicaid, and CHIP continue to operate. CMS recently announced it is temporarily calling back furloughed staff starting October 27 to address urgent staffing needs related to Medicare and ACA exchange open enrollment.
Approximately 1,000 HHS employees who had been designated non-essential by their respective divisions were included in the October 10 layoffs announced by the administration. As was the case with the IRS layoffs, the Trump administration is challenging whether the U.S. District Court Judge's TRO applies to the laid off HHS employees as they are not represented by the two unions challenging the layoffs.
Securities and Exchange Commission ("SEC")
The SEC's shutdown plan calls for furloughing nearly all employees (approximately 4,000) and keeping only those needed for law enforcement activities. The agency's electronic filing system is still online, but SEC staff will generally not be reviewing filings or approving applications. There will almost certainly be a large backlog of filings when employees finally return to work. During the shutdown, the SEC will not engage in rulemaking or issue any guidance. Much of the agency's routine oversight activities will also be paused.
Pension Benefit Guaranty Corporation ("PBGC")
PBGC is technically "under" DOL and subject to the annual Congressional appropriations process. However, PBGC's operations are largely financed through the agency's trust funds, which continue to be available without the need for additional funding legislation. Consequently, PBGC is able to operate during the shutdown and will still process filings (e.g., premium filings, reportable events, and terminations), conduct investigations, and participate in litigation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
