How Budget Bill Could Affect Employer Health, Benefit Plans

By Anne Hall and Tim Kennedy (December 15, 2021)

The Build Back Better Act, or BBBA, supported by President Joe Biden, includes a broad range of social, climate change and revenue provisions. The $1.75 trillion spending bill,[1] which passed the U.S. House of Representatives on Nov. 19, also includes myriad provisions that will affect employer-sponsored health plans and health and welfare benefits in general.

The U.S. Senate aims to approve the BBBA before the end of the year. With some of the proposed changes taking effect as early as the beginning of 2022, plan sponsors are well advised to carefully review and consider the impact of these changes to employer-sponsored health and welfare benefits for 2022 and beyond.

This article focuses on some of the BBBA’s key health and welfare changes, including:

  • A decrease in the Affordable Care Act affordability threshold;
  • A new penalty for noncompliance with the Mental Health Parity and
  • Addiction Equity Act, or MHPAEA;
  • Expansion of premium subsidies for lower-income individuals to purchase health coverage;
  • Reinstatement and expansion of the bicycle commuting fringe benefit;
  • A limitation on cost sharing requirements for certain insulin products; and

Inclusion of new reporting requirements for pharmacy benefit managers, or PBMs.

A Decrease in the ACA Affordability Threshold

The proposed BBBA lowers the affordability ceiling for applicable large employers — i.e., those with 50 or more full- and part-time employees. The affordability threshold is the maximum amount of an employee’s income that they must pay for the lowest-cost employer-sponsored health plan.

The threshold’s percentage for 2022 would decrease from 9.61% to 8.5%.

There would be no inflation adjustment from 8.5% for the years 2022 to 2025. In 2026, the affordability threshold would increase to 9.5% of household income, with no inflation adjustment in future years.

This provision would become effective for tax years beginning on and after Jan. 1, 2022. Lowering of the affordability threshold will make it even more difficult for employers to offer

ACA-compliant health coverage.

Applicable large employers, with employees for whom health coverage is unaffordable, and whose employees purchase health coverage on the exchange and receive a tax credit or subsidy, would be subject to an Internal Revenue Code Section 4980H(b) penalty equal to $4,120 per employee (for 2022, adjusted annually) per year.

Health coverage is considered unaffordable where the lowest-cost employer plan exceeds the affordability threshold of the employee’s household income.

For employers currently in compliance with the ACA that have a large population of lower- paid workers, this change could result in significant employer health coverage cost increases.

A New Penalty for Mental Health Parity Noncompliance

While the MHPAEA requirements have been a reality for more than a decade, the proposed BBBA allows for the U.S. Department of Labor to impose a civil penalty equal to $100 per day per participant for noncompliance. The penalty can be imposed upon the insurer, plan sponsor or plan administrator.

Exceptions to the full penalty amount apply for a failure that is:

  • Due to reasonable cause, and not willful neglect; and
  • Corrected during the 30-day period beginning on the first date the person otherwise liable for such penalty knew — or exercising reasonable diligence would have known — that such failure existed.

For a failure that meets the above exceptions, the penalty is limited to the lesser of 10% of the aggregate amount paid by the plan sponsor for group health plans during the prior taxable year, or $500,000.

The new penalties would become effective for group health plans, or GHPs, and insurers beginning with the plan year that begins one year after the date of enactment — i.e., Jan. 1, 2023, for calendar year GHPs, assuming the BBBA is signed into law before the end of 2021.

The Biden administration has made it clear that MHPAEA compliance and enforcement is a top priority.[2] With the passage of the new MHPAEA disclosure requirements under the 2021 Consolidated Appropriations Act, it is not surprising that Congress included this new penalty to further buttress MHPAEA compliance and enforcement.

Expansion of the Premium Tax Credit for Lower-Income Individuals

Under the ACA, individuals eligible for a premium subsidy are required to contribute a sliding-scale percentage of their income, ranging from 2.07% to 9.83%, toward a benchmark premium. Once an individual’s income surpassed 400% of the federal poverty line, premium subsidies were no longer available.

The American Rescue Plan Act, or ARPA, removed the upper income threshold and, temporarily for 2021 and 2022, increased the dollar value of premium subsidies for all

lower-income individuals. ARPA also provided zero-premium, low-deductible plans for eligible individuals who received unemployment insurance benefits during 2021.

These particular provisions of ARPA are scheduled to expire on Dec. 31, 2022, but the proposed BBBA would change that.

The BBBA extends the ARPA subsidy changes through 2027. It also would disregard, for purposes of determining eligibility for premium tax credits, any lump sum Social Security benefit payments in a year.

Employers would not be subject to a Code Section 4980 penalty when an employee receives a tax credit under the expanded subsidy provisions. This provision of the BBBA would be permanent and effective beginning with the 2022 tax year.

The expansion of the premium tax credit is projected to decrease the number of uninsured by up to 4 million by 2025. The U.S. Department of Health and Human Services reports that ARPA reduced exchange premiums by $800 per year, on average.

While the reduction in average premiums is welcome news, there is a concern that removal of the ACA firewall will destabilize employer risk pools as younger, healthier and lower- income employees transition from employer-sponsored health coverage to subsidized exchange coverage.

Employers sponsoring group health plans will want to pay attention to how this develops.

Reinstatement and Expansion of the Qualified Bicycle Commuting Reimbursement Exclusion

Prior to 2018, qualified bicycle commuting expense reimbursements could be excluded from employees’ income and could be deducted by the employer. The exclusion applied only to reasonable expenses incurred related to a bicycle (i.e., purchase, storage, repair) regularly used for travel between home and work.

Bicycle commuters were allowed to deduct — from income tax, Federal Insurance Contributions Act and Federal Unemployment Tax Act withholdings — up to $240 per year in qualified reimbursement.

However, with the passage of the Tax Cuts and Jobs Act, or TCJA, in 2017, Congress suspended the exclusion for qualified bicycle commuting reimbursements for taxable years beginning after 2017 and before 2026. As a result, under the TCJA, employees who received bicycle benefits prior to 2026 were required to include those benefits in their taxable income.

The proposed BBBA would repeal this TCJA suspension, such that qualified bicycle commuting benefits would once again be excludable from an employee’s taxable income. BBBA bicycle commuting benefits eligible for reimbursement would include any employer reimbursement during the 15-month period beginning with the first day of such calendar year.

Reimbursements (eligible for exclusion from income tax) would cover reasonable expenses incurred by the employee during such calendar year for the purchase, lease, rental, improvement, repair or storage of qualified commuting property. Reasonable expenses would also include purchase financing charges.

The new rules would also expand the exclusion to cover an employer’s provision of a bike to an employee — i.e., a bikeshare — provided the bicycle is used for travel between the employee’s residence, place of employment or a mass transit facility that connects the employee to his or her residence or place of employment.

The monthly excludable benefit would be equal to 30% of the maximum allowable qualified transportation fringe benefit ($280 for 2022), or $84 per month. The BBBA also introduces a new credit for certain electric bicycles.

Reinstatement of the qualified bicycle commuting reimbursement exclusion would become effective for taxable years beginning on and after Jan. 1, 2022, and is consistent with the Biden administration’s goal of affecting climate change using employee and employer incentives.

A Limitation on Cost-Sharing Requirements for Certain Insulin Products

The proposed BBBA would require insurers, including Medicare Part D plans and GHPs, to charge no more than $35 for insulin products. GHPs would not have to cover all insulin products, just one of each dosage form (vial and pen) and insulin type (rapid-acting, short- acting, intermediate-acting and long-acting) for no more than $35 for a 30-day supply.

This new rule would become effective for plan years beginning on or after Jan. 1, 2023.

Should the insulin cost-sharing limitations become law, employers will need to work with insurers and providers to conform insulin cost-sharing plan design to these new limitations. Employers will also need to work with service providers to understand and accommodate GHP cost implications in 2023 and beyond.

Inclusion of New Reporting Requirements for PBMs

The proposed BBBA requires PBMs and GHPs (including insurers) to provide reports to plan sponsors that include:

  • Information regarding the administration of prescription drug benefits by PBMs; and
  • Detailed information regarding rebates, fees and other compensation.

These reports would be required to be issued every six months in a machine-readable format.

The proposed provision also prohibits GHPs from entering into a contract with a drug manufacturer, distributor, subcontractor or any associated third party that limits the disclosure of such required information to plan sponsors.

Insurers and PBMs who fail to timely provide these reports to employers will be subject to a civil monetary penalty equal to $10,000 per day during which the violation occurs.

This new reporting requirement would become effective for plan years beginning on and after Jan. 1, 2023.

The new PBM reporting and disclosure requirements would facilitate greater prescription

drug cost transparency. It would also provide plan sponsors important data about drug costs that could be used as a benchmark to determine whether the plan may be overpaying for prescription drugs.

Plan Sponsors Should Immediately Consider the Impact of BBBA Compliance

While the BBBA is currently proposed legislation that has only passed the House, it has the support of the Biden administration and Senate Democrats. It is therefore likely that Congress will pass the BBBA before the end of the year, even if the Senate were to slightly modify some of the health and welfare benefits provisions.

As a result, it’s imperative that employers review these provisions carefully and evaluate how these new compliance requirements might have an immediate impact on the organization’s current health and welfare benefits.

For instance, employers should proactively consider whether their existing GHP premiums are affordable under the proposed affordability threshold.

If premium subsidies are expanded, lower-income, younger workers may transition out of the employer-sponsored health coverage. Such a shift could materially alter the GHP employer risk pool, thereby significantly affecting GHP costs.

Each of the BBBA’s provisions will have its own separate direct and indirect consequences that must be carefully considered. Because it appears very likely that the BBBA will be enacted soon, it would be prudent for employers to start this consideration process as soon as possible.

Anne Tyler Hall is founding attorney and principal, and Tim Kennedy is a partner, at Hall Benefits Law.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] (220-213).

[2] wake-up-call.


The following two tabs change content below.

Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

Latest posts by Hall Benefits Law, LLC (see all)