Nothing about the Biden spending plan is certain, including its health provisions

The Biden administration is encountering turbulence as it pushes a major domestic program and climate change bill in Congress, which is not surprising given the size of what is being contemplated. The president and leading Democrats originally had targeted $3.5 trillion in new spending over ten years as their goal, offset with tax hikes, spending cuts, and possibly some growth assumptions. Opposition within the party is forcing them to downsize their ambitions, along with the overall cost of the plan, which may take some time.

 

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At the center of the wrangling is health care. While the Senate has yet to move forward with specific plans, the House Budget Committee has approved a composite bill with text approved by the lower chamber’s relevant committees. The contents of this bill, summarized below, provide an early look at the major health-related matters under active review, which are likely to be among the most expensive in the entire bill.

  • Permanent Extension of Higher ACA Subsidies. The pandemic-relief measure signed into law in March included a major, two-year expansion of premium subsidies for enrollment into coverage offered in the Affordable Care Act (ACA) exchanges. Among other things, the law removed the income limit on subsidy eligibility — set at 400 percent of the federal poverty line (FPL) in the ACA — and made coverage free for households with incomes below 150 percent of the FPL. The House bill would make the more generous subsidies, now scheduled to expire at the end of 2022, permanent.

 

  • Closing the Medicaid Gap. Twelve states have yet to adopt the Medicaid expansion authorized by the ACA, which has left millions of Americans with very low incomes without realistic options for obtaining coverage. The House bill would fill in this “coverage gap” by making these individuals eligible for premium assistance in the ACA exchanges on a temporary basis, from 2022 to 2024. Beginning in 2025, the federal government would run a Medicaid coverage plan in the non-expansion states by contracting directly with Medicaid managed care plans and using the ACA exchange system as the starting point for determining enrollment eligibility.

While this section of the bill is a top priority for many Democrats, it carries some controversy because it provides 100 percent federal funding of coverage for this population, while states that expanded Medicaid per the ACA must cover 10 percent of the added cost. Some state officials will see the enactment of this new federal Medicaid coverage as unfairly rewarding state officials who refused to implement the ACA expansion.

 

  • National ACA Reinsurance Program. The House bill establishes a $10 billion annual reinsurance fund for coverage made available by the ACA. All 50 states would be eligible for the funding, which would be used to limit the financial risk for insurers participating in the coverage. Reinsurance is now used in several states and has been effective at reducing overall premiums by picking up some of the costs from high-expense cases.

 

  • Medicaid Home and Community-Based Services (HCBS). President Biden proposed a $400 billion, ten-year expansion of Medicaid HCBS as part of his budget request to Congress. The House bill provides the details of how such a program might work (although it is not yet clear if these provisions will match the budgeted amount from the administration).

HCBS has been offered in Medicaid mainly through states that have obtained waivers from the federal government. HCBS is seen as a more cost-effective alternative (on a per person basis) than nursing home care, although its attractiveness also increases demand, which drives up aggregate costs.

The House bill would incent states to offer HCBS in conformance with national standards by increasing the share of the cost covered by the federal government by 7 percentage points (compared to the regular share for most Medicaid-covered services, which varies by state).

 

  • Prescription Drug Pricing. The House bill’s major source of offsetting savings would come from giving the Secretary of Health and Human Services the authority to establish drug price ceilings for Medicare and the private sector. The Secretary would be authorized to negotiate agreed-upon prices with the manufacturers of the 125 highest expenditure therapies in the U.S., but the negotiated amounts could not exceed 120 percent of the average prices in the other G-7 countries (with Australia replacing Italy in the calculation). Private insurers could reference these prices in their coverage offerings but would not be required to do so.

 

  • Medicare Dental, Vision, and Hearing Coverage. The House bill would add three new categories of benefits to Medicare: vision screening and products starting in 2022, hearing screening and aids in 2023, and dental services in 2028. The benefits would be covered by part B of Medicare but the added cost would be covered entirely by the general fund of the Treasury; beneficiaries would pay no additional premium. The costs would be limited by placing caps on some of the annual expenses, and by reimbursing providers of services at less than 100 percent of their allowable fees.

 

  • Other Expansions. The House bill includes scores of other health-related provisions with lower item-by-item costs but a large cumulative price tag: $7 billion annually for core state and local public health activities; a one-time $10 billion appropriation for hospital expansions in poorly-served areas; $10 billion for community health center capital projects; $8 billion for better public health emergency preparedness activities; and much else.

 

Administration officials and congressional leaders would like to unite behind a consensus bill, and pass it as soon as possible, but the legislative process is likely to take longer than they would like it to. Among other things, there are no official cost estimates from the Congressional Budget Office (CBO) for most of the provisions under consideration. When those become available, other controversies are likely to emerge. Further, key provisions, such as the drug pricing changes, may not have sufficient support to pass in one or both chambers of Congress. Finally, some provisions in the House bill may not survive in the Senate because of the Byrd Rule, which limits what can be included in reconciliation bills to budget-related matters.

Some administration and Democratic health care priorities are not in the House bill at this stage, which makes it unlikely they will be considered by Congress at all through 2022. Most notably, the bill does not lower the age of eligibility of Medicare to 60 from 65, as many Democrats favor, nor does it create a new publicly-sponsored insurance option, which was a top priority for the president while he campaigned for the office in 2020.

The ultimate fate of this bill remains highly uncertain and could be decided in the coming weeks. It is also possible that discussions around its contents and ultimate fate will continue through the end of the year, and perhaps even into 2022.

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