A little-noticed provision of the House-passed Build Back Better Act that would lower the share of health-care premiums employees must pay could jeopardize company-sponsored plans, pushing millions of workers into Medicaid or Obamacare coverage, according to employer groups and the Congressional Budget Office.
The roughly $2 trillion bill (H.R. 5376), which passed the House 220-213 and faces an uncertain fate in the Senate, includes a provision that would lower the share of premiums employees have to pay for coverage deemed affordable and adequate under the Affordable Care Act to 8.5% of household income for 2022-25.
Right now, the affordability threshold for 2022, as set by the Internal Revenue Service, is 9.61% of income—down from 9.83% in 2021—for a policy that covers only the employee.
But the provision would likely be costly for companies employing many low-wage workers, who typically pay a larger share of their income for health-care premiums than higher earners.
“The employer is going to have to pay a greater part of the premium for employees,” James Gelfand, executive vice president of public affairs for the ERISA Industry Committee (ERIC), said in an interview. ERIC represents large companies that provide benefits such as health coverage.
“This isn’t going to be a big deal to every company,” Gelfand said. But for companies with many low-wage employees, “this can matter quite a bit.”
The provision would cost one ERIC member—a retailer with high turnover and low-wage workers—more than $3 million per year, Gelfand said. He declined to name the company.
The provision also would pause indexing ACA affordability for employees to inflation until 2027. The indexing provision has resulted in fluctuations—both up and down—in the employee share over the years.
The IRS considers a plan “affordable” under the ACA if employees don’t have to pay more than 9.5%, indexed for inflation, of their household income for a “self-only” plan provided by their employer. That’s true even if the employee enrolls in a plan that also covers dependents.
The CBO estimates the bill’s changes would result in a decrease of 2.8 million in employer-based coverage enrollment from 2022-31.
The CBO blamed the estimated drop on companies reducing their health-coverage offerings “as a response to the increased subsidies for coverage through the marketplaces,” in a letter to Rep. Jason Smith (R-Mo.), the ranking Republican on the House Budget Committee. The Build Back Better Act would also extend the enhanced premium subsidies for coverage purchased throught the Affordable Care Act marketplaces, which were enacted in the American Rescue Plan Act, from 2023-25.
Over the 10-year period, the bill would result in a net decline of about 3.9 million people without health insurance, the CBO said. The provision modifying the employer-sponsored coverage affordability test would increase the federal deficit by $10.8 billion, the budget office said.
Employer groups say the bill would hurt their ability to offer health-care to their employees by breaching the “firewall” between employer coverage and Obamacare. The “firewall” prevents employees that have an offer of qualified, affordable coverage for themselves from receiving subsidies in the ACA marketplaces.
“The proposed change to the firewall here may disrupt the stability and predictability of employer plan risk pools in ways that are particular to each employer on a case-by-case basis, and in the aggregate may degrade the foundation of our employer-sponsored plan system,” a Nov. 4 letter from the Partnership for Employer-Sponsored Coverage to congressional leaders said.
The bill would allow people in the 12 states that haven’t expanded Medicaid under the ACA to get free ACA marketplace coverage from 2022-25—regardless of whether they have an offer of employer coverage.
According to the Kaiser Family Foundation, about 4 million uninsured, non-elderly adults would be eligible for Medicaid if all 12 states expanded their programs.
“If your wages are so low that you’ll fall under the poverty line, then with this policy for the first time in those non-expansion states you’ll have a coverage option,” JoAnn Volk, a research professor in Georgetown University’s Center on Health Insurance Reforms, said.
Employers think that could be a problem. “The bill specifically says, for those people, even if they have an offer of affordable coverage from their employer, they can still get that ACA subsidy,” Gelfand said, referring to lower-income people.
“We don’t have a problem with getting coverage for people who have no coverage,” Gelfand said. “What we have a problem with is, we’re eroding the firewall and giving taxpayer-subsidized coverage to people who have an affordable offer of coverage from an employer.”
Employer plan risk pools could be eroded if many younger, healthier plan members leave a company’s health plan to take advantage of extended ACA subsidies or the less expensive Medicaid, resulting in higher costs for the plan’s remaining older workers who generally have higher health-care costs.
Moreover, the Partnership for Employer-Sponsored Coverage letter says, most plans have already determined their plan design for 2022 and have already held open enrollment based on existing ACA affordability requirements. Changing the affordability percentage would be disruptive, it said.
Warnings Called Exaggerated
A Democratic congressional aide, speaking on condition of anonymity, said employers’ claims that the provision could disrupt employer coverage are exaggerated.
“The goal of the Build Back Better Act is to extend access to high-quality affordable health coverage and lower premiums for millions of Americans,” he said. The subsidies enacted in the American Rescue Plan, and that would be extended under the Build Back Better Act, have already resulted in almost 3 million people newly enrolling in the ACA marketplaces, the aide said.
Between 150 million and 160 million Americans receive coverage through employer health plans, and that hasn’t been disrupted by the ACA, contrary to early projections, the aide said.
The CBO estimate of 2.8 million people losing coverage amounts to less than 2% of the market for employer health care. “This is a drop in the bucket,” another Democratic aide, also speaking on condition of anonymity, said.
“These are primarily people who are lower-income people who are leaving because their current offer of employer coverage is an enormous portion of their income,” that aide said. For lower-wage earners, paying more for health coverage is a much more burdensome expense, she said, “because you have so much less disposable income available for your basic needs.”
Aligning Premium Share
The provision restores some fairness by aligning the employee share of premiums paid with the 8.5% of household income other purchasers of coverage on the ACA exchanges must pay under the American Rescue Plan Act, Volk said.
Now, she said, there’s a “misalignment” between what employees and those in the ACA marketplaces pay for health coverage.
“It’s a matter of fairness to say that employees shouldn’t be stuck with coverage that requires them to pay more out of pocket as a share of their household income than they would if they were in the marketplace,” Volk said.
“That seems to be fully within employers’ control, to offer or not offer,” she said.