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Fiscal 2025 budget outlines health, retirement and compensation changes

By Ann Marie Breheny | March 25, 2024

Several of the fiscal 2025 budget proposals are priority items for the Biden administration and could become campaign issues as the November elections approach.
Health and Benefits|Retirement

The Biden administration’s budget submission for fiscal year 2025 includes a range of healthcare, retirement, compensation and other benefit-related proposals, including many that were included in prior budget and other policy proposals from President Biden. Few, if any, of the proposals are likely to become law this year but could be issues to track on the presidential campaign trail.

Healthcare proposals focus on mental healthcare and affordability

The budget proposal includes several proposals related to mental health and substance use benefits. It would require that all health plans cover mental health and substance use disorder benefits and require plans to have an adequate network of mental healthcare providers. It also proposes to expand enforcement of the Mental Health Parity and Addiction Equity Act (MHPAEA). The Department of Labor (DOL) could assess civil monetary penalties for MHPAEA violations and bring enforcement action against entities that provide administrative services to plan sponsors. In addition, the DOL would receive funding to perform additional audits to enforce requirements governing non-quantitative treatment limitations.

The American Rescue Plan Act expanded eligibility for Affordable Care Act premium tax credits, and the Inflation Reduction Act extended the sunset date for the expanded credits. Under current law, households with income over 400% of the federal poverty level qualify for the tax credits, and the household income credit many credit recipients pay toward their premiums is reduced, with a cap of 8.5% for those with household income 400% of the federal poverty level or higher. The expanded premium tax credits expire on December 31, 2025. The budget would make the expansion permanent. The budget also proposes providing Medicaid-like coverage in states that have not expanded Medicaid and providing financial incentives to encourage expansion states to maintain their existing benefits.

The Inflation Reduction Act capped the amount Medicare beneficiaries pay for insulin. The budget proposes expanding that cap to private health plans so that all patients would pay a maximum copay of $35.

The No Surprises Act limits balance billing by out-of-network doctors, hospitals and other providers, including air ambulance providers. For ground ambulances, the law directed the Secretaries of Health and Human Services, Labor and Treasury to convene an advisory committee that would review options and submit a report to address surprise billing and related issues. The budget proposes to extend the No Surprises Act to ground ambulance services.

The budget also proposes that health plans cover three primary care visits and three behavioral health visits without cost sharing. It would expand the Medicare prescription drug price negotiation program, expand the Medicare prescription drug inflation rebates to the commercial market and limit Medicare Part D cost sharing for certain generic drugs to $2 per month.

Retirement proposals include cap on accumulations in DC plans and IRAs

The budget proposes a $10 million aggregate cap on accumulations in defined contribution (DC) plans and individual retirement accounts (IRAs). The cap would apply to single taxpayers with income of $400,000 or more ($425,000 for heads of household and $450,000 for joint filers). In general, taxpayers with total accumulations exceeding the cap would be required to distribute 50% of the excess amount. The provision was also included in President Biden’s budget for fiscal year 2024.

The budget would also prohibit Roth rollovers and conversions by high-income taxpayers. High conversions of after-tax contributions to Roth amounts would also be prohibited by high-income taxpayers.

Retiree health and retiree life benefits would have to be funded for the working lives of the covered employees on a level basis or for 10 years, whichever is longer — unless the employer commits to maintaining those benefits for at least 10 years.

Compensation: Expanded application of 162(m)

The budget proposes a significant expansion of the $1 million compensation deduction limit under Internal Revenue Code (IRC) section 162(m). The limit would apply to all C corporations, both public and privately held. It would also apply to all compensation paid to all employees, rather than to only “covered employees.” An aggregation rule would treat all members of a controlled group as a single employer for purposes of determining the $1 million limit.

The budget would require 20% withholding on nonqualified deferred compensation for violations of IRC section 409A.

The Equal Employment Opportunity Commission would be authorized to collect and analyze employer pay data.

Paid leave

The budget proposes a national paid family and medical leave program that would be administered by the Social Security Administration. Workers could take up to 12 weeks of leave to care for a new child, care for their own or a family member’s serious illness, address circumstances related to a family member’s military deployment, or address domestic violence or similar circumstances. The budget also proposes three days of bereavement leave for the death of a family member. In addition, the budget asks Congress to enact legislation that would give workers seven days of paid sick leave per year.

Tax provisions

The budget proposes a number of tax changes, including increasing the top tax rate for individual taxpayers to 39.6%, increasing the corporate tax rate to 35% and increasing the minimum corporate tax.

In addition, the budget would increase the net investment income tax from 3.8% to 5% and impose the tax on pass-through business income.

The excise tax on stock repurchases would increase from 1% to 4%.

For taxpayers with income over $1 million, capital gains would be taxed at ordinary income rates. Carried interest would also be taxed like ordinary income.

Next steps

Budget proposals are a policy wish list from the administration and would require implementing action before they would become law. Few, if any, of the fiscal 2025 budget proposals are expected to move forward this year.

Several proposals represent priority items for the administration and could become campaign issues as the November elections approach. Mental health parity, paid leave and prescription drug costs are among those that were in President Biden’s campaign proposals in 2020 and could see additional campaign discussion this year.


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