CBO Analysis Of House’s Build Back Better Act, HHS Proposes Rescinding “Good Guidance” Rule

On October 19, 2021, the Congressional Budget Office (CBO) issued its analysis of the coverage provisions in the U.S. House of Representative’s Build Back Better Act. Those provisions, as considered by the Ways and Means Committee and the Energy and Commerce Committee, are summarized here and include an extension of enhanced marketplace subsidies authorized under the American Rescue Plan Act (ARPA) as well as policies to close the Medicaid coverage gap.

Overall, the CBO and Joint Committee on Taxation estimate federal costs of $553.2 billion over 10 years and a drop in the number of uninsured people by about 3.9 million people. While the estimate accounts for some coverage declines (discussed more below), the CBO expects 4 million more people to enroll in Medicaid coverage and 3.6 million more people to enroll in subsidized marketplace coverage. These estimates show what is at stake in the debate over the Democrats’ budget reconciliation package. However, the estimates are likely to change as Congress continues to debate the scope of the legislation. Indeed, the CBO’s estimates featured prominently in a hearing on health insurance coverage held by the Senate Finance Committee on October 20.

Separately, the Department of Health and Human Services (HHS) issued a new proposed rule that would, if finalized, repeal two Trump-era rules related to agency processes and procedures. The first rule is known as the “good guidance” rule and imposed new procedural burdens for issuing HHS guidance. The second rule focused on civil administrative enforcement and adjudication procedures. Given the burdens imposed by the rules, it is unsurprising that the Biden administration wants to rescind them. Comments are due on November 19.

CBO Score For The House’s Build Back Better Act

The CBO has not yet scored the House’s entire Build Back Better Act—and the analysis summarized here does not reflect a score for all of the provisions discussed here. Rather, the CBO’s estimates are limited to 1) making ARPA’s income-based subsidy enhancements permanent; 2) extending ARPA’s subsidy based on the receipt of unemployment compensation through 2025; 3) modifying the ACA’s employer “firewall” to align with the subsidy enhancements; and 4) closing the Medicaid coverage gap.

As noted above, the overall estimated cost of these policies would be $553.2 billion over 10 years with an estimated 3.9 million uninsured people gaining coverage. This overall coverage estimate obscures some of the changes. CBO expects 4 million more people would enroll in Medicaid coverage and 3.6 million more people would enroll in subsidized marketplace coverage. At the same time, 3.8 million fewer people would enroll in non-subsidized marketplace coverage or job-based coverage, thereby reducing the anticipated impact of the overall coverage expansion.

CBO expects that 23.6 million non-elderly people would be uninsured in 2031 compared to 27.7 million non-elderly people under current law. Of the remaining uninsured in 2031, CBO estimates that 72 percent of people would be eligible for Medicaid/CHIP, subsidized marketplace coverage, or job-based coverage. This suggests that additional coverage gains could be achieved among the already-eligible.

Marketplace Policies

The House’s version of the Build Back Better Act would make several marketplace changes that would bolster long-term affordability for consumers. All told, the CBO estimates that the marketplace policy changes discussed here would increase the federal deficit by $230.9 billion over 10 years.

Extending ARPA’s Income-Based Subsidies

The House legislation would permanently extend two ARPA income-based subsidies for 1) higher-income people (whose income is above 400 percent of the federal poverty level) who did not previously qualify for premium tax credits under the ACA; and 2) lower-income people (whose income is between 100 and 400 percent of the federal poverty level) who previously qualified for premium tax credits.

These subsidy enhancements were key to increased enrollment during the Biden administration’s recent special enrollment period and resulted in significant premium and out-of-pocket savings for marketplace consumers. More than 90 percent of consumers who newly enrolled during the special enrollment period qualified for subsidies, and 48 percent of new HealthCare.gov consumers paid premiums of $10/month or less. Over 8 million existing consumers saved a total of $537 million.

But these subsidy enhancements are time-limited under ARPA and only available for the 2021 and 2022 plan years. The 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).

According to the CBO, this part of the House’s Build Back Better Act would increase the federal deficit by $209.5 billion over 10 years and increase the number of people with marketplace coverage by 3.4 million. Of these 3.4 million new enrollees, 1.4 million would have been uninsured, 600,000 would have had individual market coverage (outside of the marketplace), and 1.6 million would have had job-based coverage. CBO expects some employers would stop offering coverage to employees in response to the increased subsidies (even though doing so could trigger a penalty under the ACA’s employer mandate).

Much of the cost is related to providing premium tax credits to new marketplace enrollees ($167.2 billion) compared to enhanced premium tax credits for current enrollees ($91.8 billion). Most of these new enrollees (about 65 percent) would have an income above 400 percent of the federal poverty level. About 10 percent of the estimated increase in premium tax credits would stem from the enrollment of those whose income exceeds 700 percent of the federal poverty level.

Extending ARPA’s Unemployment-Based Subsidy

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 of the federal poverty level. The House’s Build Back Better Act would extend this subsidy through 2025 and, beginning in 2022, adjust this amount to treat those who qualify as having an income of 150 percent of the federal poverty level. Those who receive unemployment benefits would thus receive maximal subsidies for ACA coverage, including no-premium coverage and cost-sharing reductions. HHS recently reported that nearly 209,000 consumers qualified for this ARPA subsidy since the benefit was rolled out on HealthCare.gov in July 2021.

This subsidy extension would increase the federal deficit by $10.6 billion over 10 years, and 2 million people receiving unemployment compensation would be eligible for the subsidy. This would include 500,000 new enrollees annually (most of whom would have been uninsured) and 500,000 enrollees who would already enroll in marketplace coverage annually.

Tweaking the Employer Firewall

The House legislation would modify the ACA’s “firewall” to be aligned with the enhanced subsidies noted above. As discussed more here, the employer firewall prevents workers with an offer of affordable, minimum value job-based coverage from receiving premium tax credits 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 before qualifying for marketplace subsidies.

The Build Back Better Act would not eliminate the employer firewall. But it would 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 also eliminate the indexing requirement (so the 8.5 percent requirement would not increase over time). This change would begin with the 2022 plan year.

This subsidy extension would increase the federal deficit by $10.8 billion over 10 years, and 300,000 more people would enroll in individual market coverage as a result of this policy. Of these enrollees, some (less than 100,000) would be uninsured while most would have had job-based coverage offered at more than 8.5 percent of their household income.

Medicaid Coverage Gap Policy

As discussed in detail here, the House legislation would create a permanent two-phase program for low-income adults who do not have access to expanded Medicaid. In the first phase, individuals whose income is under the poverty line would newly qualify for subsidized marketplace coverage (both premium tax credits and cost-sharing reductions) from January 1, 2022 through December 31, 2024. The second phase would begin in 2025 (or the date when the Secretary of HHS certifies that the federal Medicaid program is fully implemented) when HHS would establish a new federal Medicaid program for states without expansion. (The CBO score accounts for all aspects of this program, such as changes to tax requirements and outreach and education.)

Overall, the CBO estimates that the Medicaid coverage gap policy would increase the federal deficit by $323.1 billion over 10 years. About 3.8 million more adults would enroll in Medicaid coverage. Of these, 2.3 million people would have been uninsured, 900,000 people would have had job-based coverage, and 700,000 people would have enrolled in individual market coverage.

The coverage estimates vary based on the phase of the program. During the first phase, marketplace enrollment would increase by 2.3 million people annually from 2022 through 2024. Of these enrollees, 1.7 million people would have been uninsured, 300,000 people would have had job-based coverage, and 200,000 people would have been enrolled in Medicaid. Once the second phase has begun and HHS has established a federal Medicaid program, CBO believes Medicaid enrollment would increase by 5.6 million people from 2025 through 2031. Of these enrollees, 2.5 million people would have been uninsured, 1.9 million people would have had individual market coverage, and 1.1 million people would have had job-based coverage.

The Medicaid coverage gap policy would be available in any state that does not extend eligibility to those who would have qualified under the ACA. But the House legislation includes a requirement that would incentivize states that already expanded their Medicaid program not to make changes to their Medicaid eligibility standards. The CBO believes this requirement would be effective and expects few states that have already expanded their Medicaid programs would de-expand (thereby choosing to enroll beneficiaries in the federal Medicaid program). Overall, CBO appears to expect that 800,000 people in current Medicaid expansion states would be enrolled in the federal Medicaid program and that states that terminated their expansion programs would pay the federal government $3.6 billion.

Proposed Rule To Repeal The “Good Guidance” Rule

On October 19, HHS released a new proposed rule that would, if finalized, repeal the so-called “good guidance” rule and a separate civil enforcement rule. Both of those rules were issued pursuant to executive orders issued by President Trump in 2019 and finalized in the waning days of the Trump administration—in December 2020 and January 2021, respectively. Although HHS does not believe it is required to solicit comment on its repeal of these rules (which were issued pursuant to the agency’s “housekeeping” authority), it has opted to do so. Comments are due in 30 days.

The “good guidance” rule adopted heightened procedural requirements for HHS guidance. For instance, HHS is required to provide a public notice-and-comment period of at least 30 days in advance of issuing significant guidance (subject to certain exceptions) and must respond to comments in in the same way as in notice-and-comment rulemaking. The rule also established a process where an interested party can petition HHS to withdraw or modify a guidance document and required a searchable guidance repository to host all current guidance documents.

The new proposed rule would repeal these requirements in total, and HHS would revert to previous long-standing requirements for issuing guidance and civil enforcement actions. HHS cites several reasons for doing so, including that President Biden revoked both Trump-era executive orders that served as the basis for the two rules. HHS is newly of the view that the two rules are not necessary and create hurdles that hinder its ability to issue guidance and bring appropriate enforcement action. Both rules “inappropriately constrict the Department’s ability to efficiently interpret and enforce regulations” and make prior processes “more cumbersome and burdensome.”

Per the preamble, the good guidance rule delays or prevents needed guidance from being issued, imposes inflexible requirements, requires the use of a single repository that could cause confusion, diverts limited agency resources, and conflicts with guidance rules long in place for the Food and Drug Administration. The civil enforcement rule similarly creates unnecessary hurdles to agency action, conflicts with current processes, and diverts limited agency resources.

In light of these concerns and challenges, HHS is now of the view that these burdens are no longer justified. Repealing these rules would enable HHS to use its full arsenal of tools and flexibility to address challenges from the pandemic to racial justice to climate change. Federal officials will continue to comply with federal legal requirements—and intend to maintain the guidance repository—but do not believe that a single uniform set of HHS-wide procedures for guidance documents and civil enforcement is appropriate, efficient, or effective.