Unpacking The Coverage Provisions In The House’s Build Back Better Act

Following months-long negotiations, Congress has begun its public work on the Build Back Better Act. This $3.5 trillion budget reconciliation package includes significant new investments in health care, child care, paid family and medical leave, higher education, workforce training, and more. It is being developed and considered pursuant to a fiscal year 2022 budget resolution adopted in late August 2021.

Several U.S. House of Representatives committees began marking up the draft legislation in September. Relevant House committees are scheduled to complete this process by September 15, with the goal of having the full reconciliation package on the House floor by the end of September. The U.S. Senate will then consider the package. Budget reconciliation legislation can be considered using a fast-track process and passed by a simple majority without being filibustered in the Senate.

This post focuses on the coverage-related provisions under consideration by the House Ways and Means Committee and the Energy and Commerce Committee and is limited to proposed changes to the marketplaces, Medicaid, and Medicare. These proposals would extend enhanced marketplace subsidies authorized under the American Rescue Plan Act (ARPA), further improve marketplace affordability, close the Medicaid coverage gap, and enhance Medicare benefits by adding coverage for vision, hearing, and dental services. According to new analysis from The Commonwealth Fund and the Urban Institute, two of these changes alone—filling the Medicaid coverage gap and making the ARPA subsidy changes permanent—would reduce the number of uninsured people by 7 million in 2022. Note that this summary reflects the draft legislation as initially released by the committees; these provisions may change before the legislation reaches the House floor.

Though not discussed here, the draft legislation includes many other important programs and initiatives. The Ways and Means Committee would, for instance, extend child care tax credits, create a tax credit for caregivers, and invest in universal paid family and medical leave. The Energy and Commerce Committee would, for instance, permanently extend CHIP; invest in reducing maternal mortality and bolstering the maternal and prenatal health workforce; require Medicaid and CHIP to provide 12 months of continuous eligibility for children; and require Medicaid and CHIP to cover full benefits for pregnant and post-partum women through one-year post-pregnancy. These efforts aim to promote positive health outcomes and advance health equity.

Overview Of The Legislation

The Ways and Means Committee began its markup on September 9 and will continue through September 14. The Committee initially released five subtitles on 1) universal paid family and medical leave; 2) retirement; 3) child care access and equity; 4) trade adjustment assistance; and 5) health. The health subtitle was divided into four separate parts on health careers, elder justice, skilled nursing facilities, and Medicare enhancements. A summary of those subtitles is available here. Late on September 10, the Committee released four additional subtitles focused on tax credits, green energy, and prescription drugs; these materials include the marketplace changes. A summary is available here.

The Energy and Commerce Committee will begin its markup on September 13. The Committee will consider 16 different subtitles on a range of issues, including air pollution, drinking water, and wireless connectivity. Six subtitles are devoted to health and focus on drug pricing, the Affordable Care Act (ACA), Medicaid, CHIP, Medicare, and public health. The Committee released a memorandum that summarizes each of the subtitles and a fact sheet.

Marketplace Changes

Extending the enhanced ARPA subsidies for marketplace coverage is generally considered a must-pass item for Democratic members of Congress. Why? Failure to extend these subsidies would mean that millions of consumers would see their premiums rise in 2023. Consumers would get the news about rising premiums during the 2023 open enrollment period, which would begin in November 2022 (just ahead of the midterm elections).

The Ways and Means Committee would make these enhanced subsidies permanent alongside several other marketplace changes, such as revising the employer firewall and clarifying the treatment of lump-sum Social Security benefits. The legislation from both committees would authorize $10 billion in annual funding for states to establish a reinsurance or other affordability program for marketplace coverage. The legislation does not do everything that has been in prior ACA enhancement legislation or the Biden campaign platform. It does not, for instance, fix the “family glitch,” tie the ACA benchmark plan to a gold plan (as opposed to the current silver plan), or adopt a public option.

Permanent ARPA Subsidies

The Ways and Means Committee would make two of the three ARPA subsidy enhancements permanent and extend the third through 2025. Collectively, these changes expanded the availability of premium tax credits (PTCs) to millions more people by eliminating the ACA’s subsidy cliff at 400 percent of the federal poverty level (FP) and bolstering existing subsidies for those who already qualified. This would allow ARPA subsidies to continue to flow to:

  • Higher-income people (whose income is above 400 percent FPL) who did not previously qualify for PTCs under the ACA;
  • Lower-income people (whose income is between 100 and 400 percent FPL) who previously qualified for PTCs; and
  • Individuals who receive unemployment benefits and would thus qualify for maximal marketplace subsidies.

ARPA subsidy enhancements have proven critical to increasing enrollment during the Biden administration’s recent COVID-19 special enrollment period, and prior posts have highlighted the significant premium and out-of-pocket savings for marketplace consumers. But each of these subsidy enhancements are time limited under ARPA. The first two are available for the 2021 and 2022 plan years while the third is available only for the 2021 plan year.

The Ways and Means Committee would make the first two subsidy enhancements permanent. The proposed subsidy structure is identical to what was included under ARPA. Individuals whose income is 100 to 150 percent of FPL are currently eligible for no-premium coverage (i.e., they contribute no income towards premiums for a silver benchmark plan). The premium contribution increases on a sliding scale as income increases but is ultimately capped at no more than 8.5 percent of income for those with higher incomes (including those with income above 400 percent FPL). Consistent with ARPA, this proposal would permanently eliminate the annual indexing of this rate, which caused it to increase over time. As such, these percentages (e.g., 0 percent to 8.5 percent) would remain flat. ARPA temporarily set aside this indexing for 2021 and 2022.

The Ways and Means Committee would also extend the third subsidy enhancement—for those who receive unemployment compensation—through 2025 and adjust the income level. Under ARPA, an individual who received (or is approved to receive) unemployment benefits during 2021 is treated as if their income is no higher than 133 percent FPL. The draft legislation would, beginning in 2022, adjust this amount to treat those who qualify as having an income of 150 percent of the FPL. Even with this change, those who receive unemployment benefits would receive maximal subsidies for ACA coverage, including no-premium coverage.

Tweaking the Employer Firewall

In a change that goes beyond ARPA, the Ways and Means Committee would modify the so-called “firewall” to be better aligned with the enhanced marketplace subsidies noted above. As discussed more here, the employer firewall prevents workers with an offer of affordable, minimum value job-based coverage from receiving PTCs for marketplace coverage. Under the ACA, an employee’s job-based coverage is considered “affordable” if the employee contributes less than 9.5 percent of their household income towards premiums. This percentage has been adjusted each year and, for 2021, is 9.83 percent.

Thus, under current law, employees can be asked to contribute nearly 10 percent of their household income towards premiums alone before qualifying for affordable marketplace coverage. The Commonwealth Fund estimated that 26 percent of low-income people with job-based coverage lived in households that spent more than 8.5 percent of their income on after-tax premium contributions.

The Ways and Means Committee proposal would not eliminate the employer firewall. But it would better align the employee contribution with the enhanced subsidies by permanently reducing the employee contribution from 9.5 percent to 8.5 percent. The legislation would explicitly eliminate the indexing requirement (so the 8.5 percent requirement would not increase over time). This change would go into effect beginning with the 2022 plan year.

Treatment of Lump-Sum Social Security Benefits

The Ways and Means Committee would amend the calculation of modified adjusted gross income for purposes of calculating PTC eligibility to exclude lump-sum Social Security benefits. Members of Congress have previously raised concerns about the Internal Revenue Service treating these lump-sum benefits as income towards a single year (as opposed to the several years for which the benefits are earned). When treated as income for a single year, a lump-sum payment can significantly reduce or eliminate an enrollee’s marketplace subsidy for that year—or require the individual to owe the government significant excess advance PTCs at tax time. The proposed provision would go into effect in in 2022 and ensure that such payments for people with disabilities, widows, retirees, and others do not count as income for purposes of PTCs.

Funding for Reinsurance and Affordability Programs

In drafts from both committees, Congress would—beginning on January 1, 2023—provide $10 billion in annual funding for states to 1) establish an individual market reinsurance program (which would not include grandfathered plans, transitional plans, student health insurance coverage, or excepted benefits); or 2) reduce premiums and out-of-pocket costs for marketplace or BHP enrollees. Federal funding for these types of efforts would allow for experimentation and state-specific approaches. The Energy and Commerce Committee expects this funding to reduce individual market premiums by 7 percent relative to current law. A similar program has been included in prior House legislation.

States would have to apply for these funds but would be automatically approved unless the Department of Health and Human Services (HHS) notifies the state otherwise. Approval would span five years total and could be revoked by HHS if a state failed to use the money as required. If a state did not apply for these funds, HHS would operate a reinsurance program in that state using an attachment point model.

One exception is for states without Medicaid expansion. Those states would not be eligible to apply for this federal funding for 2023 and 2024 (which, as discussed below, is the period when those in the Medicaid coverage gap would be eligible for marketplace coverage). Instead, HHS would operate the reinsurance program and have additional flexibility to adjust reinsurance parameters in those states as needed.

The legislation would also amend existing BHP rules to account for this reinsurance funding. This is a need in light of challenges in Minnesota, which is the only state with both a BHP and a Section 1332 waiver for a state-based reinsurance program. (New York is the only other state with the BHP.)

Minnesota had a pre-ACA coverage program for low-income people that it later conformed to the BHP. After that, the state applied for and was approved in part for a reinsurance waiver. State officials asked the Trump administration to continue to calculate BHP payments in a way that disregarded the effects of the reinsurance waiver, but federal officials declined to do so. This led Minnesota to receive lower federal funding for the BHP without compensatory federal pass-through funding under Section 1332. Minnesota officials have long complained about this underpayment and recently asked that this methodology be reconsidered. HHS is reviewing the request and suggested that future BHP rulemaking will reflect “potential approaches” to address the intersection of these two programs.

The draft legislation would help prevent a similar problem in the future. The bill would require states with a BHP, beginning with the 2023 plan year, to submit the “adjusted premium amount” for each qualified health plan that receives a reinsurance payment under this new program. This adjusted premium amount is the premium that would have been paid in the absence of the new reinsurance program created under this legislation. HHS would then calculate what states are owed for PTCs under the BHP using the adjusted premium amount, such that state BHPs are not penalized.

Closing the Medicaid Coverage Gap

The legislation would permanently close the Medicaid coverage gap. This “gap” refers to individuals whose income is too high to qualify for Medicaid under state pre-ACA Medicaid rules but too low (i.e., below the poverty line) to qualify for marketplace subsidies. Congress intended for low-income adults whose income is up to 138 percent of the poverty level to be eligible for Medicaid coverage in all states. However, in National Federation of Independent Business v. Sebelius, the Supreme Court held that states could not be required to expand their Medicaid program as a condition of continued federal funding for the existing Medicaid program. As a result, Medicaid expansion became optional for each state.

To date, 38 states and DC have expanded their Medicaid programs while 12 states have not. These 12 states have opted not to do so even in the face of significant financial incentives. Under ARPA, non-expansion states that choose to expand will receive a temporary increase of 5 percentage points in the federal matching rate for non-expansion populations (in addition to the 90 percent federal match rate for the expansion population). If all 12 states were to expand their programs, they would receive (collectively) a total of $16.4 billion in federal funds over two years for the cost of about $6.8 billion in expansion.

These incentives notwithstanding, states continue to balk at expansion. As a result, more than 2.2 million low-income uninsured adults who would have otherwise qualified for Medicaid coverage are left without affordable coverage. Most of these uninsured people live in just four states: Florida (19 percent), Georgia (12 percent), North Carolina (10 percent), and Texas (35 percent). The remaining 8 states account for about 24 percent of this uninsured population. In 2019, an estimated 60 percent of people in the Medicaid coverage gap were people of color. And income fluctuations and volatility among low-income people can result in frequent churn and coverage losses, suggesting that many more people are affected by the coverage gap during the course of the year.

(We typically think of the coverage gap as those whose income is below the poverty line. But an additional 1.8 million people have an income between 100 and 138 percent of the federal poverty level. These individuals currently qualify for heavily subsidized marketplace coverage but would, if their state had Medicaid expansion, qualify for Medicaid.)

To close the coverage gap, the Energy and Commerce Committee’s legislation would create a permanent new program for those who do not have access to expanded Medicaid. The program would have two phases. In the first phase, individuals whose income is under the poverty line would newly qualify for subsidized marketplace coverage beginning on July 1, 2022. This eligibility would extend through December 31, 2024, meaning individuals in the coverage gap would qualify for marketplace coverage for half of 2022, all of 2023, and all of 2024.

The second phase would begin in 2025. HHS would be required to establish a new federal Medicaid program that would operate in states without expansion. For this phase of the program, HHS would contract with third-party entities—managed care companies, third-party administrators, or both—to operate the federal Medicaid program. (The Ways and Means Committee proposal provides additional flexibility for the timing of these two phases by setting the end date of the first phase at the later of January 1, 2025 or the date when the Secretary of HHS has fully implemented the federal Medicaid program under the second phase.)

Phase One Details: Marketplace Plans

For the first phase of the program, the legislation would amend existing ACA rules on PTCs and cost-sharing reductions (CSRs). Currently, PTCs and CSRs are only available to those whose income is above the federal poverty level and who meet program requirements (such as not being eligible for other types of minimum essential coverage, including Medicaid). To ensure that individuals who fall in the Medicaid coverage gap can access marketplace subsidies, the legislation would amend current law to create temporary rules for the 2022, 2023, and 2024 plan years.

In general, these temporary rules waive existing PTC requirements—such as the employer firewall and the need to repay excess advance PTCs at tax time—for those whose income is less than 138 percent of the poverty level and who do not qualify for government-sponsored minimum essential coverage. There are also special rules related to the employer mandate, enrollment periods, benefits, CSRs, and education and outreach. In addition to not being required to repay excess advance PTCs, eligible individuals need not file a tax return if they otherwise would not have had to do so.

From 2022 through 2024, individuals whose household income is less than 138 percent of the poverty level could enroll in marketplace coverage on a continuous basis (as opposed to being limited to the open enrollment period or special enrollment periods). This is consistent with the Medicaid program, which offers year-round enrollment. The legislation would also require HHS to conduct outreach to inform the Medicaid coverage gap population about the availability of marketplace coverage during this transitional period. Congress would authorize $15 million for 2022 and $30 million each for 2023 and 2024 for outreach and education efforts. HHS would also be required to obligate $10 million from ACA user fees for 2022 and $20 million each for 2023 and 2024 towards these activities. In conducting outreach and education, HHS could not promote non-ACA plans (such as short-term plans) and would have to conduct outreach to diverse and other underserved communities.

Insurers would be required to cover additional benefits, without cost sharing, for this population during the 2024 plan year. These benefits are generally unique to Medicaid. Under the Energy and Commerce Committee proposal, these benefits include non-emergency medical transportation services and family planning services and supplies. Some bill versions considered adding early and periodic screening, diagnostic, and treatment services for those under age 21, but those benefits were not included at markup. HHS would be required to reimburse insurers for the costs of these extra benefits, with funds appropriated for that purpose.

With respect to CSRs, qualifying individuals would be treated as if their income were 100 percent of the poverty level for 2022. As such, they would qualify for maximal CSRs that could boost their plan’s actuarial value to 94 percent. For the 2023 and 2024 plan years, insurers would be required to offer plans with an actuarial value of 99 percent. This option would be available only for this population, meaning this is not a new permanent CSR tier.

The bill would add an exception to the ACA’s employer mandate for those whose household income is less than 138 percent of the poverty level. The employer mandate would thus not be triggered if an employee at this income level received PTCs from 2022 through 2024.

Finally, the legislation would reduce the amount of money that the federal government could claw back if a low-income consumer misestimated their income and received too much advance PTC. Those whose household income is 200 percent of the poverty level or lower would owe no more than $300 in this scenario, down from $600 (unindexed) under current law from 2022 through 2024.

Phase Two Details: Federal Medicaid Program

Beginning in 2025, HHS would be required to create a federal Medicaid program in states without Medicaid expansion. The program would extend from the beginning of each year in which the Secretary of HHS determines that the state has not spent funds for Medicaid expansion through the last day of the first quarter when the state started spending for Medicaid expansion. If a state opts into Medicaid expansion after 2025, HHS would create a process to transition individuals from the federal Medicaid program to the state Medicaid program.

HHS would be required to solicit bids from Medicaid managed care organizations, third-party administrators, or both to offer this federal Medicaid “look-alike” program. These entities must meet various requirements (e.g., timely payment of claims, minimum medical loss ratios, etc.), and HHS must contract with at least two eligible entities across all coverage gap geographic areas. The definition of “coverage gap geographic area” is broad: the definition is up to the Secretary and could be one state, more than one state, or even an area within a state. The legislation also lays out requirements for the bid and selection process, such as requiring HHS to consider network adequacy, the scope of benefits, and the amount of the bid. HHS could withhold payment or impose penalties of up to $10,000 on entities that failed to comply with program standards or contractual obligations.

In establishing the federal Medicaid program, HHS could rely on the federal marketplace for eligibility determinations and enrollment and could set certain eligibility rules. Federal officials would also be required to meet minimum standards for benefits, beneficiary protections, and access to care. These would include the coverage of benefits consistent with benchmark coverage and no cost-sharing; procedural rights such as an appeals process and a fair hearing; and program integrity measures like fraud and abuse standards. There are also data matching requirements to ensure that HHS periodically verifies beneficiary income. HHS would coordinate with the ACA marketplaces on information sharing, eligibility, and enrollment.

The legislation includes stringent standards, but also grants HHS with flexibility to establish and oversee the program. For instance, HHS is allowed to contract with more than one eligible entity in the same coverage gap geographic area. The Secretary also has explicit authority to act as necessary to administer the federal Medicaid program. This includes setting payment rates, adopting network adequacy standards, requiring data reports, and establishing other contract or program requirements. To prevent states from trying to hinder the federal Medicaid program, the legislation would expressly preempt any state licensure requirements (for Medicaid managed care organizations or third-party plan administrators) that would prohibit an entity from participating in the federal program.

Finally, the legislation includes a maintenance of effort provision that would incentivize states not to make changes to Medicaid eligibility standards. This provision applies to any state that has expanded its Medicaid program as of January 1, 2022. If such a state wants to stop spending funds on Medicaid expansion, it can do so but may have to remit a small payment to the federal government. That payment would be based on 10 percent of the average costs for expansion beneficiaries in that state multiplied by the number of individuals that enroll in the federal Medicaid program. This provision appears to be based on a similar program adopted in 2003 for the Medicare Part D program.

Medicare Changes: Vision, Hearing and Dental Coverage

Both the Ways and Means Committee and the Energy and Commerce Committee proposals would phase in vision, hearing, and dental benefits in 2022, 2023, and 2028, respectively. Similar proposals were included in prior House legislation known as H.R. 3 where the Congressional Budget Office estimated that vision benefits would cost $30 billion over 10 years, hearing benefits would cost $89 billion over 10 years, and dental benefits would cost $238 billion over 10 years.

The legislation would also make broader changes to prescription drug coverage under Medicare, although those changes are not discussed here. In addition to allowing the federal government to negotiate drug prices, the legislation would create new prescription drug rebate programs and cap out-of-pocket prescription drug costs for seniors under the Medicare Part D program.

Vision Benefits

Vision services would be a newly covered benefit beginning on October 1, 2022. Medicare would cover a routine eye exam and certain contact lens fitting services every two years. The government would pay 80 percent of the costs, leaving 20 percent of costs to beneficiaries. Medicare would also pay up to $85 towards one pair of glasses or a two-year supply of contact lenses every two years. Ophthalmologists and optometrists would qualify for Medicare reimbursement.

Hearing Benefits

The Medicare program would cover hearing services—specifically hearing aids and aural rehabilitation and treatment services by qualified audiologists—beginning on October 1, 2023. Hearing aids would be covered as a prosthetic device with Medicare paying 80 percent of the costs. Beneficiaries diagnosed with profound or severe hearing loss in one or both ears could qualify for non-over-the-counter hearing aids every five years. Audiologists would qualify for Medicare reimbursement.

Dental Benefits

Dental and oral health services would be covered by Medicare beginning on January 1, 2028. Additional background on the current availability (and lack thereof) of dental coverage to Medicare beneficiaries is available here. This implementation timeline is longer than the other benefits presumably because the addition of dental services is among the most costly health provisions, and it may be complex for federal officials to implement this new benefit.

Dental and oral health services include new preventive and screening services (oral exams, dental cleanings, dental x-rays, and fluoride treatments) furnished by a dentist or oral health professional. Each year, beneficiaries would receive up to two preventive and screening oral exams and up to two dental cleanings. Coverage would also be available for basic and major dental treatments. Those treatments would be defined by the Secretary of HHS. Basic treatments may include basic tooth restorations, basic periodontal services, tooth extractions, and oral disease management services. Major treatments may include major tooth restorations, major periodontal services, bridges, crowns, and root canals. The legislation would also create coverage rules for dentures.

Medicare would pay for dental and oral health services using the lesser of the actual charges or an existing fee schedule that may include fees under existing programs (such as TRICARE, Medicaid, and Medicare Advantage). Medicare would cover 80 percent of the cost for preventive and screening services and basic services, leaving 20 percent of costs to beneficiaries. Beginning in 2028, Medicare would pay 10 percent for major treatments; this percentage would increase by 10 percentage points each year through 2032 and level off at 50 percent. Oral health professionals would qualify for Medicare reimbursement.

Health Coverage Tax Credit

The Ways and Means Committee would make the health coverage tax credit permanent. The health coverage tax credit (not to be confused with PTCs) is a separate federal refundable tax credit for a portion of premiums for qualifying individuals. This tax credit is available only to individuals eligible for Trade Adjustment Assistance allowances because of qualifying job losses or individuals whose defined-benefit pension plans were taken over by the Pension Benefit Guaranty Corporation.

The health coverage tax credit is set at 72.5 percent and was scheduled to sunset on January 1, 2022. The Ways and Means Committee proposal would increase the credit to 80 percent beginning in 2022 and make this tax credit permanent.