Build Back Better: All Eyes on the Senate

The authors would like to thank Joel Ario, Cindy Mann, Michael Kolber, Alexander Dworkowitz, and Julian Polaris for their contributions.

The Big Picture

On November 19, the House of Representatives passed the Build Back Better Act (BBB) (H.R. 5376) by a vote of 220–213. The BBB contains a number of health and social policy priorities that are widely viewed as the cornerstone of the Democrats’ social policy agenda and that are central to President Biden’s goals.

With House passage of the bill, all eyes are on the Senate. Its Democratic leadership is engaged in behind-the-scenes negotiations to shore up support for the BBB and ensure that it fits within the complicated rules of the special budget legislation process that would allow it to pass by a simple majority vote. The narrative characterizing these discussions is an increasingly familiar one: whether Democrats—progressives and moderates—can bring their entire 50-member caucus together to advance the Biden administration’s agenda before the end of its first year in power.

Major Provisions of the BBB

While the BBB will certainly change as it makes its way through the Senate, the bill builds on the progress made with the American Rescue Plan Act of 2021 (American Rescue Plan), enacted in March, and would make significant health policy investments, including:

• Providing a path for coverage for low-income persons living in states that have not expanded Medicaid, through 2025
• Investing in Medicaid home- and community-based services (HCBS)
• Extending Medicare benefits to cover hearing care beginning in 2023
• Extending the American Rescue Plan’s Marketplace enhanced premium tax credit support through 2025
• Investing in the public health workforce
• Bolstering efforts to address maternal mortality

In addition, the bill proposes an overhaul of prescription drug reimbursement and coverage—including mandating government price regulation for some drugs under Medicare, requiring manufacturers to pay rebates to Medicare if their prices increase faster than inflation, and making the most significant changes to the Medicare Part D benefit since the program’s creation and the Affordable Care Act (ACA) provisions to close the so-called “donut hole.”

An overview of some of these broad health policy provisions is included below, as is discussion about provisions to watch as the Senate continues its consideration of the legislation.

Temporarily Filling the Medicaid Coverage Gap

In order to make coverage available to the estimated four million low-income Americans in states that have not expanded Medicaid, the bill would make fully subsidized Marketplace plans available to all individuals with income below 138% of the federal poverty level (FPL) if they are ineligible for Medicaid, Medicare or any other form of comprehensive public health coverage. Effective January 1, 2022, through December 31, 2025, individuals nationwide would be eligible for Marketplace coverage with zero premiums if (1) their income is below 138% FPL and (2) they are ineligible for a public coverage program, such as Medicaid or Medicare. The bill would enable individuals to apply for such coverage at any point in the year and, over time, would also phase in other provisions to lower cost sharing for low-income individuals and add additional benefits, such as nonemergency medical transportation. The bill also includes new outreach funding to help connect individuals to this new form of coverage.

Along with the new coverage pathway for low-income adults in non-expansion states, the BBB also includes several “carrots and sticks” to encourage states that have not done so to implement the Medicaid expansion and discourage current expansion states from reducing coverage below the ACA’s threshold of 138% FPL. These provisions take the form of a heightened federal match rate for the expansion group as well as reduced federal funding for non-expansion states’ uncompensated care pools and disproportionate share hospital (DSH) allotments.

Investing in HCBS

The BBB includes several provisions aimed at enhancing access to, and the quality of, HCBS, especially in the Medicaid program, which is the dominant payer for HCBS. HCBS provide opportunities for beneficiaries in several targeted populations, including those with developmental disabilities, physical disabilities and/or mental illnesses, to receive services in their own homes or communities rather than in institutions or other isolated settings. Currently, states vary considerably in their coverage of HCBS, including with respect to the number of optional benefits covered, the eligibility parameters (including waitlists as a result of eligibility caps) and the available care delivery models. The BBB would provide nearly $150 billion over ten years in federal funding through an enhanced Medicaid matching rate as an incentive for states to development and implement “HCBS Improvement Plans.” According to the bill, a state’s HCBS Improvement Plan would explain how the state will maintain HCBS eligibility, coverage and provider payment rates; reduce HCBS access barriers and disparities in access or utilization; and expand and strengthen the direct care workforce, among others.

Creating a New Medicare Hearing Benefit

Beginning on January 1, 2023, the BBB would extend coverage for audiology services under Medicare. The extended Medicare coverage would cover prescription hearing aids as prosthetic devices under Medicare Part B (once per ear every five years), allow qualified audiologists to deliver aural rehabilitation and treatment services, and allow qualified hearing aid professionals to deliver hearing assessments.

Extending the American Rescue Plan’s Marketplace Premium Tax Credit (PTC) Support

The BBB would add an additional three years to the American Rescue Plan’s expansions of Marketplace PTC support through 2025, including by:

• Increasing subsidy amounts for individuals eligible for assistance with household incomes below 400% FPL
• Extending premium assistance eligibility to those with household incomes above 400% FPL, so that no family shall be required to spend more than 8.5% of their household income toward the cost of a benchmark or less expensive plan

The bill also would extend the American Rescue Plan’s eligibility for Marketplace financial assistance for individuals who receive unemployment insurance through 2022.

The bill proposes several other Marketplace-specific policy changes, including a $10 billion annual fund available to states from 2023 to 2025 to establish a state reinsurance program or use the funds to provide financial assistance to reduce out-of-pocket costs, a reduction of the employer-sponsored coverage affordability test from the current 9.5% to 8.5% of income through 2025, and an investment of $100 million for the ACA’s Consumer Assistance Program (CAP) grants for calendar years 2022 through 2025 ($25 million each year).

Addressing Maternal Mortality

Consistent with the Biden administration’s goal of redressing racial and ethnic disparities in maternal morbidity and mortality, the bill includes several provisions aimed at enhancing coverage and care coordination for pregnant and postpartum people enrolled in Medicaid and the Children’s Health Insurance Program (CHIP). First, the bill would require all states to provide 12 months of Medicaid or CHIP coverage postpartum. The BBB would also authorize states to implement—and claim federal Medicaid matching funding for—“maternal health homes” to coordinate care for pregnant and postpartum Medicaid enrollees. Finally, the bill would provide nearly $1 billion in grant funding and investments in public health efforts to improve maternal health outcomes and enhance training for the perinatal and postpartum workforce.

Regulating Prices for Certain Prescription Drugs Under Medicare

The BBB includes an overhaul of prescription drug reimbursement and coverage. The centerpiece of the prescription drug provisions—described in the bill as Medicare price negotiation—is an attempt to fulfill a long-held Democratic goal of allowing the federal government to play a more active role in determining drug prices. The provisions do not go as far as those in H.R. 3, which passed the House in 2019 and would have given the U.S. Department of Health & Human Services (HHS) the authority to regulate the prices of many more drugs.

The BBB would permit HHS to set the price of certain drugs under Medicare for the first time under what is called a “Drug Price Negotiation Program.” The government would be required to establish a “maximum fair price” for selected drugs. Generally speaking, a drug is eligible for negotiation if the drug has not been recently approved by the Food and Drug Administration (FDA), does not have generic or biosimilar competition, is not an orphan drug, and has a high level of spending under Medicare. The bill envisions a process that would begin approximately two years before the maximum fair price takes effect. The following is the timeline that would apply to drugs subject to a maximum fair price in the first year of the program:

 While the bill permits negotiation between the government and a manufacturer and ultimately allows HHS to insist on a maximum fair price, the bill sets an upper limit on that price that is no more than the following amounts:

• 75% of the nonfederal average manufacturer price for “short-monopoly drugs,” drugs approved by the FDA fewer than 12 years prior to the price applicability year and vaccines regardless of their approval date
• 65% of the nonfederal average manufacturer price for “post-exclusivity drugs” and drugs that were approved by the FDA between 12 and 16 years prior to the price applicability year, excluding vaccines
• 40% of the nonfederal average manufacturer price for “long-monopoly drugs” and drugs approved by the FDA at least 16 years prior to the price applicability year, excluding vaccines

The BBB also mandates that pharmaceutical manufacturers pay rebates under both Medicare Part B and Part D if they increase the price of their drugs faster than the rate of inflation. If a manufacturer’s cumulative price increases for a drug remain at or below the rate of inflation in all years, or the manufacturer does not increase a drug’s price at all, no rebates would be owed. Manufacturers would owe rebates starting in 2023 (beginning January 1 for Part D and July 1 for Part B). Rebates would be owed based on the amount of all sales of a drug, not just its Medicare sales.

Modifying the Medicare Part D Benefit

The BBB proposes the most significant modification of the Medicare Part D benefit since the program’s inception in 2003, including creating an out-of-pocket spending limit. The bill would both alter and greatly simplify the standard benefit design for both plans and beneficiaries. The bill proposes modifying the current benefit design to three phases. Following a deductible, a beneficiary would pay 23% of drug costs, down from the current 25%. Beneficiary liability continues up to the newly created out-of-pocket cap of $2,000 on beneficiary Part D spending, after which the beneficiary would be free of liability for further Part D costs. This out-of-pocket maximum would increase each year by the change in overall Part D spending. The BBB would also alter the financial responsibility among beneficiaries, plan sponsors, the government and pharmaceutical companies, all beginning in 2024. For example, the BBB would revise the catastrophic phase cost structure to shift more financial responsibility for catastrophic costs from the government to the plan.

Potential Changes in the Senate to the BBB

The anticipated changes to several health policy provisions hinge on both the ongoing intraparty negotiations and the Senate Parliamentarian’s rulings on whether the bill meets reconciliation legislation requirements under the Senate’s Byrd Rule, which requires provisions in reconciliation legislation to have a budgetary impact. Even with the anticipated removal of paid family leave policies included in the House-passed BBB, which several moderate Democrats in the Senate have previously voiced opposition to, there are several other potential candidates for modification:

• Medicare benefit expansion. Sen. Joe Manchin (D-W.Va.) previously indicated concern with the solvency of the Medicare trust fund in expanding covered benefits under Medicare to include vision, dental and hearing. While the House-passed bill pared back the BBB’s proposed expansion to a limited health benefit, it is possible that Manchin would still oppose the hearing benefits proposed in the BBB, which the Congressional Budget Office estimated would cost approximately $37 billion over ten years. 
• Medicaid DSH. Hospitals have voiced concerns to members about the BBB-proposed reductions in Medicaid DSH allotments and uncompensated care pool adjustments in states that have not expanded Medicaid. The industry opposition could lead to changes in the proposed provisions, particularly if savings from these provisions are not needed to pay for other changes in the bill. 
• Prescription drug policies. The Senate Parliamentarian’s ruling on several prescription drug provisions that have implications on the commercial market may influence additional changes to the drug policies in the bill. For example, the BBB’s proposed calculation for inflationary rebates paid by pharmaceutical manufacturers for raising the cost of drugs faster than inflation is based on all sales, not just Medicare sales.

With these potential modifications and ongoing closed-door conversations, the Senate still faces several hurdles in getting this legislation across the finish line in the dwindling weeks of 2021 or early days of 2022.

Looking Ahead

While Senate Democrats, House Democratic leaders and Biden are projecting confidence that the Senate will consider the BBB before Christmas, there remain a number of issues within and outside the health policies in the BBB that still need resolution. The reconciliation process enables the party in power to expedite consideration of legislation with a simple majority vote; however, the complicated dynamics have delayed Democrats’ ability to reach the unanimity that is needed to advance these policy priorities. With a midterm election year on the horizon, the outlook for enactment of the BBB remains unclear.