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Little-Noticed Provisions in Build Back Better Would Improve Health Coverage Affordability

The House-passed Build Back Better (BBB) legislation would significantly improve access to coverage in the health insurance marketplaces by extending the American Rescue Plan’s premium tax credit enhancements through 2025, reducing the premiums people pay for a plan. At the same time, lesser-known BBB provisions would also significantly improve the affordability of marketplace coverage and reduce surprise demands that people repay premium tax credits. The bill would:

  • Improve the affordability of coverage for workers. Currently, people are ineligible for a premium tax credit if they have an offer of employer-sponsored coverage that is considered affordable (costing less than 9.61 percent of income for employee-only coverage in 2022). BBB would lower that percentage so that employer coverage would be considered affordable only if it cost no more than 8.5 percent of income. That would bring the affordability percentage in line with the maximum that someone eligible for a premium tax credit would pay in the marketplace through 2025. If an employer plan premium exceeds the 8.5 percent threshold, the employee instead might qualify for a premium tax credit for marketplace coverage. (For example, insurance would be considered unaffordable for a single full-time worker earning $25,000 if it cost more than $177 per month — compared to $200 under current law — potentially making them eligible for a $37 premium in the marketplace, a substantial savings.) An employer offer wouldn’t bar people with incomes below 138 percent of the poverty line (about $18,000 for a single person) from premium tax credit eligibility.

    Only 1.6 million of nearly 160 million people in employer coverage would stop getting employer coverage as a result of this provision, largely due to fewer people taking up their coverage offers, according to the Congressional Budget Office. This means that the provision provides needed relief to workers with the highest premiums, particularly those with lower incomes, without undermining employer-based coverage. Lowering the affordability percentage to allow more employees to be eligible for a premium tax credit would have the added benefit of resolving the so-called family glitch for some of the families it affects. Under current regulations, family members are barred from premium tax credit eligibility when the employee’s coverage offer is affordable, even if premiums for family coverage are prohibitively high. Making more employees eligible for financial help would also make their families eligible, though a broader fix for the family glitch is still needed. In addition, the bill would suspend indexing of the affordability percentage — an adjustment that can increase the percentage modestly year to year — through 2026.

  • Make insulin more affordable. About 7 million people rely on insulin to survive, but the cost of the most common types of insulin has tripled in the last decade. While insurance insulates some people from high costs, many still have difficulty affording the treatment, including more than 1 in 4 low-income, privately insured people with high-deductible plans. Beginning in 2023, the bill would lower insulin costs for people with commercial insurance through the individual market (including the marketplaces) or their employer by limiting cost sharing to the lesser of $35 or 25 percent of the insurer’s negotiated rate for a 30-day supply. It would also require plans to cover certain insulin products prior to meeting the deductible and would count any out-of-pocket costs toward the enrollee’s deductible and out-of-pocket maximum. This could disproportionately help Black and Hispanic people, who are over 50 percent more likely to have diabetes than white, non-Hispanic people. (People with Medicare prescription drug coverage would also pay cost sharing for insulin of no more than $35 per month.)
  • Reduce the likelihood that people who receive lump-sum Social Security Disability Insurance payments will have to unexpectedly repay large premium tax credit amounts. Some disabled marketplace enrollees receive lump-sum Social Security payments that cover multiple years of benefits and are awarded retroactively, and this temporary income boost can lead to them owing thousands of dollars in premium tax credit repayments. If someone receives a premium tax credit in advance to defray monthly premiums, they must reconcile it on their tax return by comparing the advance amount based on an income projection to the allowable credit based on actual year-end income. If the credit paid in advance exceeds the allowable credit, the enrollee must repay some or all of it. A lump-sum Social Security payment can make year-end income significantly higher than the earlier projection.

    Whether and when someone will win their Social Security claim is hard to predict, making the marketplace income projection uncertain. The average time for processing an appeal of a Social Security application decision was 506 days in 2019, and that time has likely grown due to pandemic-related processing delays. The bill would permanently disregard lump-sum Social Security income attributable to prior years for the purpose of calculating the premium tax credit, remedying a problem that the IRS’ Taxpayer Advocate Service has called “draconian.”

  • Help people who are unemployed get affordable coverage. Many people who lose a job also lose their health coverage. The bill would provide a zero-premium marketplace plan and the highest level of cost-sharing assistance to unemployed people in 2022. This same provision in the American Rescue Plan extended coverage to more than 200,000 unemployed people during the special enrollment period in 2021, including more than 34,000 people in the Medicaid coverage gap who otherwise had incomes too low to qualify for premium assistance. (The bill would close the coverage gap through 2025 in states that have not expanded Medicaid, providing crucial access to coverage for people with very low incomes.)
  • Disregard a portion of dependent income that is often hard to estimate. Currently, if a child or other dependent is unexpectedly required to file an income tax return because they earned more than anticipated, such as from a college work-study position or odd jobs, their full income must be included in the family’s income. That’s used to determine the premium tax credit the family is eligible for, and may push down their allowable credit. But this income is especially difficult to project at the start of the year and, in rare cases, can lead families to have to repay large amounts of their advance premium tax credits. For dependents under age 24 who fall into that category, the bill would exclude the first $3,500 of dependent income from the calculation of household income.
  • Create options for states to reduce out-of-pocket costs and fuel innovation. The bill creates two state funding opportunities to lower consumers’ costs. Beginning in 2023, states could access the “Improve Health Insurance Affordability Fund” for costs related to reinsurance ― which lowers premiums by providing federal payments to insurers to help offset the cost of large medical claims ― or to provide additional premium or cost-sharing assistance to consumers in the marketplaces or a Basic Health Program. The grants, totaling $10 billion per year, would be approved through 2025. (States that did not expand Medicaid cannot apply; the federal government, however, will use some of the funds in the program to establish reinsurance programs in non-expansion states.) The bill would also authorize funding in 2022 to help states develop State Innovation (“Section 1332”) waivers, which let states pursue alternatives to certain Affordable Care Act policies as long as they meet certain standards.

Director of Health Insurance and Marketplace Policy