Potential impact of Budget Bill (HR1) on employer-sponsored health insurance
July 8, 2025
Photo from National Park Service.
The House of Representatives and the U.S. Senate passed HR 1, which was dubbed “One Big Beautiful Bill,” last week, and it was signed into law. The bill is almost 1,000 pages long and includes a host of financial and policy priorities of the second Trump Administration. Here are some of the likely implications of this bill on employer-sponsored health plans.
1. Medicaid cutbacks
The bill will cut almost $1 trillion from Medicaid over five years, beginning in 2026 after the midterm elections. These cutbacks have been estimated to decrease Medicaid enrollment by about 8.7 million. The bill will impose a national work requirement, although past research has shown no increase in workforce participation due to work requirements. The bill will also restrict coverage of some immigrants who had previously had eligibility.
The change in Medicaid enrollment could increase financial pressure on employer sponsored health plans. Some employees might have dependents on Medicaid and some employees themselves might be on Medicaid. This bill could lead to fewer waivers of employer-sponsored health insurance plans, which could lead to higher total costs for employer-sponsored plans. In addition, hospital systems will likely seek to offset the decreasing revenue from Medicaid patients, so that may put upward pressure on unit price negotiations.
2. Exchange plan subsidies were not extended
Subsidies for low and middle income members of Marketplace plans established by the Affordable Care Act were increased during the pandemic, and this budget bill does not extend these increases further. The Congressional Budget Office estimated that 4.1 million individuals will therefore lose coverage.
Cutting the exchange plan subsidies is likely to increase the cost of marketplace plans for even those who were not eligible for subsidies, including employees who have used ICHRA funding (Individual Coverage Health Reimbursement Arrangement) to purchase plans. That’s because those leaving the marketplace plans are likely to be on the average healthier, as those with severe illnesses are more likely to continue to pay the increased premiums. This will subject the marketplace plans to ‘adverse selection in 2026 and beyond. The actuarial firm Wakely estimates that over 11 million will drop their marketplace plans as a result of the higher premiums.
3. Increased bad debt will strain the health care delivery system
Substantial increases in the number of Americans without health insurance is likely to lead to substantial deficits at many health care systems. Medical debt was already a crisis in the U.S, with 6% of adults reporting over $1,000 in medical debt and 1% of adults (3 million) reporting over $10,000 in medical debt in early 2024.
The final bill has a $50 billion fund to help sustain rural health care, but many hospitals and providers in rural and poor areas are likely to struggle financially. Rural hospitals make up almost a third of all hospitals in almost every state in the country. This could exacerbate existing provider ‘deserts,’ and make it more difficult for some members of employer-sponsored health insurance plans to find care close to home.
4. Telehealth can continue to be paid prior to deductible
HR 1 allows companies to continue to pay for telemedicine services before members reach their deductible while maintaining tax-advantaged health savings accounts.
5. Direct primary care fees can be paid from HSAs
Previous Internal Revenue Service guidelines did not allow reimbursement of direct primary care fees from HSAs. Direct primary care practices chart a monthly or annual fee, and might or might not also charge insurance plans for their services. This bill overturns that guidance.
6. Many provisions in the House bill that would have impacted employer sponsored health plans were removed in the Senate
This includes provisions that would have required pharmacy benefit managers to disclose spread pricing, allowing an employee to contribute to an HSA even if a spouse has a flexible spending account, clarifications of the impact of on-site clinics on HSA availability, and codification of the ICHRA regulations from the first Trump Administration.
There are a also few miscellaneous provisions of importance to employers, including extension of tax exclusion for employer assistance with student loans, modification of tax credits for childcare, and increase in dependent flexible spending accounts.
Implications for employers:
Employers should be prepared for potential increases in demand for employer-sponsored health insurance, and for challenges to member health care access in some geographies.
These changes could make on-site and near-site clinics more attractive
Members might need travel benefits for a wider variety of conditions in the future.
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