Implications of the President’s 2023 budget for health care

The Biden administration unveiled its updated budget plan this week, and it includes both new policies affecting health care and a re-commitment to previously-advanced initiatives. The release, which the president is required by law to send to Congress annually, covers the fiscal year 2023 (which starts on October 1 of this year) and the ensuing nine years (through fiscal year 2032). Congress will consider the administration’s recommendations as it develops budget-related legislation over the coming months.

 

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The following is a summary of the budget’s most significant recommendations touching on health care.

 

  • Continued Support for Build Back Better (BBB). Throughout 2021, the Biden administration worked with Democrats in Congress to pass legislation authorizing large increases in spending for expanded health coverage and services, and related matters. After securing passage of a version of its plan in the House, momentum stalled in the Senate. Its ultimate fate remains uncertain.

Instead of restating its support for all of BBB’s varied provisions, the administration chose in its budget to voice broad support for whatever can get through Congress. The budget does not assign specific spending or tax numbers to a hypothetical BBB plan, stating only that the administration would like Congress to approve legislation that reduces future budget deficits.

The ambiguity reflects the delicacy of the moment. Joe Manchin, the critical vote in the Senate, has outlined a version of BBB he might be willing to support, and it differs substantially from what passed the House. He would devote several hundred billion dollars of new revenue and savings toward deficit reduction, not health care or other initiatives. He favors stricter pricing rules for prescription drugs covered by Medicare and raising taxes on the rich, with the proceeds split between energy programs, climate-related initiatives, and less borrowing. The administration wants to signal general support for what Manchin wants without alienating other Democrats who might prefer more social spending (and perhaps less deficit reduction).

A Manchin-like version of BBB would put major coverage expansion during the Biden presidency in jeopardy. In a previously-approved bill, Congress increased the premium credits payable to individuals signing up for plans through the Affordable Care Act (ACA) exchanges. Many Democrats want to maintain this ramped up financial assistance and also create a new insurance option for individuals left out of the ACA’s Medicaid expansion. By themselves, these provisions would consume much of the revenue Manchin says he can support, and thus leave very little for climate-related spending or deficit reduction. The absence of a specific push for coverage expansion in the Biden 2023 budget makes it more likely that a version of BBB will get approved that excludes it.

  • Pandemic Preparedness. The Biden budget calls for a major $82 billion, five-year mandatory funding investment in improved pandemic and biological threat preparedness (this spending would not require annual appropriations from Congress). The Senate has begun work on its own version of a bipartisan plan for a more resilient detection and response system, and the administration’s proposal is likely to merge with that effort. The budget proposes $40 billion for accelerated development and stockpiling of medical countermeasures, $28 billion for the Centers for Disease Control and Prevention (CDC) to invest in better surveillance globally and a better public health infrastructure in the U.S., $12 billion for further National Institutes of Health (NIH) research into critical areas of preparedness, and $1.6 billion for the Food and Drug Administration (FDA). In addition to these items, the budget calls for another $9.9 billion in discretionary appropriations for the CDC to develop better data systems.
  • Mental Health Services. The budget includes a $100 billion, ten-year investment in expanded access to mental health care, with the funding coming through changes in the level of tax subsidies for private coverage and mandatory spending that does not require annual approval through the appropriations process. The aim is to expand the mental health care workforce, increase capacity at publicly-subsidized clinics, require and enforce more parity in coverage through private insurance, and expand the services paid for by both Medicaid and Medicare.
  • Indian Health Service (IHS). The administration would like to convert the IHS from a discretionary to a mandatory account that gets automatic funding increases each year. The budget calls for a total of nearly $250 billion in spending authority for the IHS over ten years, with $142 billion of that amount expected to be above the level that would occur through discretionary appropriations.
  • Advanced Research Projects Agency for Health (ARPA-H). President Biden championed the creation of this new agency for accelerating research findings into treatments for patients, which Congress approved earlier this year. The budget proposes a $5 billion appropriation as it begins operations. The focus initially will be on developing better cancer, diabetes, and dementia treatments.
  • Medicare Physician Fees. The annual update for physician fees provided under current law is scheduled to be remarkably low starting in 2026 — just 0.25 percent for clinicians who do not participate in approved alternative payment models, and 0.75 percent annually for those who do. Further, there is no automatic update in fees planned for 2025 (for 2019 through 2024, the law provides for a series of special adjustments). The budget would begin the annual indexing of physician fees (using the 0.25 percent and 0.75 percent factors) in 2025 instead of 2026. The acceleration would increase Medicare’s costs by $3.5 billion through 2032.

 

Beyond these initiatives, the budget includes very little by way of reforms to Medicare and Medicaid, which continue to grow rapidly. Without further changes, their combined spending in 2032 is expected to reach 6.8 percent of GDP, up from 5.4 percent in 2022.

The rising costs of medical care, along with an aging population, is also a major reason the overall budget deficit is expected to rise under the administration’s plan, from 4.5 percent of GDP in 2023 to 4.8 percent in 2032. Federal debt will also increase, reaching 106.7 percent of GDP in 2032. In 2008, before the back-to-back crises of the global financial crash and the COVID-19 pandemic, federal debt was below 40 percent of GDP.

James C. Capretta is a columnist for State of Reform and a senior fellow at the American Enterprise Institute.