How The Big Beautiful Bill Impact Healthcare and Employee Benefits

On July 4, 2025, President Trump signed into law new legislation, the “One Big Beautiful Bill” now officially called H.R.1. This law is a significant win for the Trump Administration as it puts into motion administrative agenda items that may not be imposed through Executive Orders. Under this legislation, there are significant changes to Medicare, Medicaid, the Affordable Care Act (ACA), food nutrition programs, while also extending various tax cuts from the Tax Cuts and Jobs Act of 2017 that were set to expire at the end of 2025.    

While the Administration is touting the positive economic impact of this significant legislation, critics are pointing to the potential negative impacts that include the following assessments by the Congressional Budget Office (CBO):

• The CBO predicts that 11.8 million people will lose health care coverage by 2034. Additionally, the upcoming 2025 CMS marketplace rule will be changing eligibility requirements, and the legislation will permit ACA enhanced subsidies to expire. These two significant changes are predicted to cause an additional 5.1 million people to lose their health coverage. In total, the CBO predicts that a total of 16.0 million people may lose their health care coverage.
• The CBO predicts that the national deficit will increase by $2.8 trillion by 2034 and push the debt ceiling by $5 trillion.

Now that the legislation has been signed into law, let’s examine the provisions that have caught most of the attention:

• What is the impact on Medicare?
• What is the impact on Medicaid?
• What are the impacts on employer sponsored benefit programs?

Medicare Changes

Under the new legislation, eligibility rules for Medicare benefits have undergone a bit of an overhaul. The age enrollment requirement for Medicare A and B will not change. It will remain at the milestone birthday of age 65. However, there is a new eligibility limitation rule that will impact immigrant eligibility.

The new rule clarifies immigrant eligibility based for those granted residence under the provisions of the Immigration and Nationality Act, the U.S.-Cuba Joint Communique´ on Migration, the Compact of Free Association or for immigrants meeting the eligibility requirements for an immigrant visa but for whom such a visa is not immediately available .

Medicare funding will also undergo a projected automatic 4% cut beginning on January 1, 2026, and over the next eight years undergo a total of $500 billion in cuts if increased budget deficits trigger sequestration. These cuts would immediately impact provider reimbursement payments. This would cause some providers to no longer accept Medicare patients or impede the access to specialists and elective services.

This is effective as of January 1, 2026.

Medicaid Changes

The new legislation will cut Medicaid state funding by an estimated $1 trillion dollars over a ten-year period. The average Medicaid funding split is 69% coverage by the federal government and the states managing the remaining 31%. Work requirements will be implemented for eligibility, which in turn will undergo redetermination every six months rather than annually. No exemption was included for the approximately 2.6 million Medicaid recipients who do not qualify for federal disability benefits.

The enhanced ACA subsidies will expire but the subsidies originally offered under the ACA statute will remain. The enhanced subsidies were implemented in 2021 under the American Rescue Plan Act (ARPA) and then were extended through the end of 2025 through the Inflation Reduction Act (IRA) of 2022. In 2020, enrollees receiving the original subsidies totaled 9.6 million or 84%. With the inclusion of the enhanced subsidies, enrollees receiving subsidies increased to 19.7 million or 92% of the enrollees.

Under the new legislation, ACA enrollees whose household income is between 100% and 400% of the federal poverty level shall remain eligible for the original subsides. Once the subsidy amounts are reduced, it is projected that a portion of the lowest-earning enrollees may find themselves owing 2% of their income for an ACA plan rather than the zero out-of-pocket scenario that the enhanced subsidies provided.

Enrollees in the expanded Medicaid populations will also be subject to these additional provisions:

• Nonexempt adults must adhere to a work requirement of a minimum of 80 hours per month participating in qualifying activities. The enrollees resident state must verify the enrollees adherence to the requirement during eligibility redeterminations that shall occur at least twice per year (implementation prior to 2027).
• A maximum $35 per service cost sharing requirement for adults in the Medicaid expansion population. Exemptions will apply to some costs for prescription drugs, primary care, and services provided by rural health clinic (eff. Oct. 1, 2028).
• Retroactive coverage limitation (previously 90 days) is modified to one month prior to the date of application for the expansion population and two months prior to the date of application for the non-expansion population (eff. Jan. 1, 2027).
• Reduction of the maximum home equity limit available to enrollees who qualify for Medicaid to receive long-term care to $1 million regardless of inflation (eff. Jan. 1, 2028).
• Limitations on immigrants who qualify for Medicaid eligibility shall no longer include refugees, individuals granted asylum, certain abused spouses and children, trafficking victims, and others (eff. Oct. 1, 2026).

Under the new legislation, “provisional eligibility”, the practice of granting temporary coverage while the paperwork is being processed, will no longer be granted. This leaves any potential Medicaid recipient without coverage until they obtain their social security card. There is no exemption for newborns waiting on social security cards.

The cuts to Medicaid will place a significant financial burden on the individual states as they will be placed in the position of trying to find funds to fill the gap in federal funding.

This is effective as of January 1, 2026.

Affordable Care Act Funding Reductions

Currently, individuals enrolling in a marketplace plan utilize the ACA navigator program to assist them through the enrollment process. Under the new legislation, the navigator program’s funding will drop by approximately 90%.

This is effective as of January 1, 2026.

No deductible telehealth services will not disqualify eligibility for HSAs.

The prior HSA eligibility rules would disqualify a participant’s eligibility for HSAs if the participant’s medical plan was not a traditional High-Deductible Health Plan (HDHP). HDHPs require that coverage for medical service begin once the participant satisfies the plan’s deductible. The CARES Act of 2020 exemption for HDHP participants utilizing telehealth services without a deductible requirement was designed as a strategic response to the COVID pandemic. For proper utilization, Congress ensured that HDHP participants would be encouraged to use this non-deductible treatment option rather than be penalized. Subsequent extensions were issued through the Consolidated Appropriations Act (CAA) of 2022 and through the CAA of 2023. These exemptions expired as of December 31, 2024.

The BBB of 2025 made the exemption permanent as of the July 4, 2025, signing while also providing retroactive protection for plans that began on or after January 1, 2025.

HSA eligibility is expanded to participants in Bronze and Catastrophic health plans obtained through the marketplace.

Prior to the BBB of 2025, Bronze medical plans and Catastrophic medical plans would not always meet the standards of a HDHP. Participants who purchased either of these plans through the marketplace had to ensure that HDHP standards were met to be eligible for an HSA.

The BBB of 2025 provided a blanket certification that all Bronze and Catastrophic medical plans purchased through the marketplace meet the HDHP standards. This certification provides the option for additional individuals to participate in an HSA account.

This is effective for plans beginning after December 31, 2025.

Direct Primary Care arrangement plans to be recognized as HSA compatible.

Prior to the BBB of 2025, Direct Primary Care (DPC) arrangements were categorized as not meeting the HDHP plan design requirement for HSA plan eligibility. DPCs involve the payment of a monthly fee directly to a primary care provider who in turn will treat the participant without insurance plan involvement. As a result, this format is characterized as providing first-dollar coverage which is contrary to the deductible driven HDHP payment model. By failing to meet the HDHP standards, participants in DPC arrangements were not eligible for HSA plans.

The BBB of 2025 specifically excludes DPC arrangements from being categorized as a disqualifying coverage for HSA eligibility. To qualify as HSA compatible, the DPC fees for an individual cannot exceed $150 a month (indexed for inflation) while family coverage fees cannot exceed $300 a month (indexed for inflation). Additionally, the BBB of 2025 authorizes DPC fees to qualify as a medical expense that may be paid tax-free from the HSA.

This is effective as of January 1, 2026.

The FSA Dependent Care limit increases to $7,500.

In 1986, Congress set the Dependent Care limit to $5,000 without indexing it to inflation and they retained sole authority to adjust or amend the limit. As a result, only an act of Congress can amend the limit. An amendment has only occurred once through the passage of the American Rescue Plan of 2021. This temporary increase was adjusted to $10,500. A study was conducted using the Bureau of Labor Statistics’ standard Consumer Price Index which determined that $5,000 limit in 1986 had a 2020 equivalent amount of $11,750. At the time, this was still slightly below the national average cost for daycare.

The BBB of 2025 has adjusted the Dependent Care limit to $7,500. For married individuals who file their taxes separately, their limit is $3,750. Applying the Consumer Price Index calculator, the value of $5,000 in January 1986 has a January 2025 value of $14,492.29.

This new limit will be effective on January 1, 2026.

Employers and Plan Sponsors action plans:

• Amend their Section 125 and FSA plan documents to reflect the new limit.
• Employers and plan sponsors should be expecting contact from their FSA plan vendors to address proper communications for this modification.
• Employers and Plan Sponsors should coordinate with their inhouse payroll or their payroll vendor to ensure that the payroll system incorporates the new maximum deduction.

Childcare provided by the Employer.

Prior to the BBB of 2025, employers were eligible to receive a credit on 25% of qualified childcare that the employer provided its employees. This employer credit was up to $150,000.

Under the BBB of 2025, the employers are now eligible for a credit of 40% of qualified childcare expenses and the maximum dollar amount is now $500,000. There is a new provision for small businesses which permits a credit of 50% and a maximum dollar amount of $600,000. There are additional provisions for small businesses to pool childcare resources. Additionally, businesses are authorized to seek third-party services while seeking eligibility for the tax credit.

This is effective as of January 1, 2026.

Repayment Assistance for Student Loans is made a permanent option.

In 1978, Congress passed the Section 127 program which provided employers with the option to offer their employees up to $5,250 in tax-free dollars to pay for qualified educational costs. This included tuition and course materials. The CARES Act of 2020 introduced the option for employers to expand the Section 127 plan to include the reimbursement or payment of an employee’s student loan payments with tax-free dollars up to a maximum of $5,250. This was initially approved from March 27, 2020, and an expiration date of December 31, 2020. This program was extended through the CAA to expire on December 31, 2025.

Under the BBB of 2025, this program has received a permanent status and shall also be indexed for inflation.

This is effective as of January 1, 2026.

A Permanent Repeal of the Tax-Free Bicycle Commuting Reimbursement Program.

In 2009, Congress authorized employers to offer a $200 per month tax-free reimbursement program for certain bicycle commuting benefits. The Tax Cuts and Jobs Act of 2017 paused this program from 2018 to 2025.

The BBB of 2025 has permanently repealed this program, often called a “transportation fringe”, before the 2026 scheduled program resurgence.

This prevents the return of the program that was scheduled for January 1, 2026.

Trump Account Custodial Account permits Employer tax-free contributions.

The “Invest in America” program is a new custodial account designed for minors. To be eligible, the beneficiary must be below the age of 18 by the end of the calendar year in which the account is created and have a social security number. These accounts will be tax deferred until the funds are withdrawn. The account funds must be invested in mutual funds or Exchange Traded Funds (ETF) that track the returns of a qualified index. Aside from qualified rollover contributions, the annual contribution limit is $5,000. Contributions shall only be made in calendar years before the beneficiary turns 18 years of age. Acceptance of contributions will commence after 12 months after the legislation was passed. Beginning with taxable year 2028, the limit will be adjusted for inflation. The BBB of 2025 additionally creates a specified qualified class of beneficiaries who are eligible for “general funding contributions”. These contributions may be made by U.S. federal, state, local, and tribal governments as well as charitable organizations.

Employers are permitted to contribute up to $2,500 of tax deferred dollars, with an adjustment for inflation beginning in 2028, to the Trump account of an employee or the employee’s dependent.

Distributions are not permitted to begin before the first day of the calendar year in which the beneficiary turns 18 years of age. This excludes distributions of any qualified rollover contributions. The distribution rules will follow the processes of IRA distributions.

The Treasury Department will commence a pilot program of the Trump accounts. They will issue a one-time contribution of $1,000 to the Trump account of every qualifying child born between Jan. 1, 2025, through Dec. 31, 2028. The child must be a U.S. citizen and have a Social Security number.

To implement this program, employers / plan sponsors must approve a plan document and adhere to nondiscrimination rules that are akin to FSA Dependent Care rules. Further nondiscrimination rule guidance should be forthcoming.

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DISCLAIMER

The information provided by The Fedeli Group’s Compliance Alert is not intended to be, nor should it be, interpreted as conferring legal advice to the reader of the Compliance Alert. The Fedeli Group Compliance Alerts are designed specifically and solely for informational purposes. Should the reader have any legal questions or concerns after reading this Compliance Alert, it is recommended that the reader seek counsel for a formal opinion.