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Election/Health Care Policy Update

Election/Health Care Policy Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

The More Things Change, The More They Stay the Same (we are back to where our heads were in October of last year)

  • What I mean by the above headline is this: Prior to the Nov. 3rd elections, many – including me – thought that then-Candidate Biden would win the White House and the Democrats would take control of the majority in the Senate by knocking off Republican incumbents in States like Iowa, and North Carolina, and Montana, and even South Carolina. I dedicated the majority of my update from October of last year to this potential eventuality, discussing what health care policies I expected the Democrats to pursue if and when they controlled all of Washington, DC after the Nov. 3rd election.
    • Analysis: BUT THEN, we had a bit of a surprise on Nov. 3rd with respect to the Senate races. In short, Senate Republicans out-performed. HOWEVER, they still did NOT seal the deal. The 2 races in Georgia were required to go to run-offs on Jan. 5th, with the winners determining whether the Democrats or Republicans would be in charge of the Senate. In the run-up to the Jan. 5th run-offs, the conventional wisdom was that Republicans would at least win 1 of the 2 Georgia seats, resulting in Republicans holding onto the majority in the Senate. It was further believed that if there was “split” government in Washington, DC (i.e., Republicans holding the Senate while Democrats holding the White House and the House of Representatives), the Biden Administration would be unable to pursue the health care policy agenda that was laid out during the Presidential election campaign. In my update I sent out shortly after the Nov. 3rd election, I dedicated a majority of that update to this potential eventuality, talking about the health care policies I expected the Biden Administration would pursue through regulations (considering that NO substantive legislation was likely). BUT NOW, everything has changed AGAIN. Or stated differently, we have now reverted back to where our heads were in October of last year. As a result, I am re-sending my update from October (below) because it once again relevant. The long-and-short is this: The Biden Health Care Plan is back on the table. AND, as I explained back in October, I fully expect that this coming year, the Biden Administration and Congressional Democrats will seek to enact as many health care policy items as they can through the “reconciliation” process (because once you get into 2022, you get that much closer to all-important mid-term elections, and election politics makes it difficult to enact any significant policy changes). Note, I say “seek to enact as many health care policy items as they can” because as I have explained previously, the “reconciliation” process is a limited process, and we have seen how health care policies can be turned into swiss cheese (pssssttt, remember the 2017 ACA “repeal and replace” exercise). So buckle-up!  2021 is going to be a CRAZY year from a health care policy perspective. Again, a change from where we were shortly after the Nov. 3rd elections when many – including me – did NOT believe that there would be many substantive health care policy changes at all this year (only some changes through regulation).

 

The Path to 51 Votes

  • It is important to emphasize that despite the fact the Democrats control all of Washington, DC – at least for the next 2 years – the Democrats have a very small majority in the House (possibly a 9 or 11 seat majority, depending on the outcome of 2 outstanding races). And, the House Democratic majority is more left-leaning than this past Congress, likely making Speaker Pelosi’s life that much more difficult than in the past. In the Senate, the margin is even slimmer, where the Democrats only have 50 seats, with Vice President-elect Harris serving as the 51st vote. And, moderate Senate Democrats are already signaling their discomfort with some of the more sweeping Democratic policy priorities that progressives and even the Biden Administration wants to pursue, which will certainly make it difficult for Majority Leader Schumer to keep his 50 Democratic Senators together as a voting-bloc.
    • Analysis: Why is all of this important? Because it means that Democrats have an extremely narrow path to enacting policy changes, and Speaker Pelosi and Leader Schumer will need to govern carefully and will not be able to enact the Democrats’ entire policy agenda. BUT – at least in my opinion – that is NOT going to stop Speaker Pelosi and Leader Schumer from trying. AND, that is why I said back in October that there is NO doubt in my mind that the Democrats will seek to enact their policy agenda – including health care policy changes – through the “reconciliation” process. Why? Because that is the ONLY way Leader Schumer can avoid the Senate’s 60-vote threshold to getting to final passage of a particular bill (as you know, “reconciliation” only requires a simple majority – the “magic” 51 votes). Back in October, you heard me talk about the prospect of eliminating this 60-vote threshold (referred to as the “filibuster”). And now that the Democrats control all of Washington, DC, there is still some talk about eliminating the filibuster. BUT, with only a 50 seat majority, the odds of eliminating the filibuster are like .0000001%. I am not going all the way to 0% because you can never-say-never in this world, and especially in politics. Here’s the deal: Sen. Manchin (D-WV) has been adamant that he will NOT agree to eliminating the filibuster. Other moderate Senate Democrats like Sens. Sinema and Kelly (both from AZ), and others like Sen. King (an Independent from ME that votes with Senate Democrats), have signaled discomfort over eliminating the filibuster, but they have kept the door open by saying things like, “Let’s give Republicans a chance to work with us. If they try to block us, then maybe we will consider it.” In my opinion though, this is just rhetoric because with Sen. Manchin a full-on NO, it gives these Senators “cover” to signal to progressives their willingness to play ball (so these Senators can avoid getting primaried by left-leaning Democratic candidates). In other words, if the “other” moderate Democratic Senators know the filibuster will NEVER get 50 votes (because Manchin is a NO), why not signal that you would consider being the 49th vote and stave-off any criticism from the left-flank of the party. So again, the ONLY path to 51 votes is through the “reconciliation” process. And again, the “reconciliation” process is a painful process, and a process that will NOT allow Speaker Pelosi and Leader Schumer to enact all of the Democrats’ policy priorities. That is why I believe we will have our hands full from a health care policy perspective this year. Specifically, we are going to be BUSY analyzing what health care policy changes can – and cannot – make their way into a “reconciliation” bill.

 

What Can Be Done Through “Reconciliation” – A Quick High-Level Analysis

  • In the past, I have summarized the “reconciliation” process this way: The only proposals that may be included in the underlying legislation are proposals that impact revenue (e.g., taxes) and spending (e.g., government spending increases or decreases).  However, even if a proposal impacts revenue or spending, the proposal may NOT be included in the underlying legislation if the policy associated with the proposed change is so significant that it outweighs the budgetary impact. In addition, if a proposal only has an “indirect” impact on revenue or spending, the proposal will NOT be included in the bill. There is another very important factor, which is: A particular provision CANNOT increase the deficit outside of the 10-year budget window.
    • Analysis: Many of the Democrats’ big-ticket policy items – for example, immigration, climate change, and addressing racial inequality – are NOT going to happen through the “reconciliation” process, namely because these policy changes do NOT directly impact revenue and spending. Yes, an argument can be made that some portion of the climate change agenda could be accomplished through “reconciliation” by, for example, increasing government spending on renewable energy projects, providing tax incentives to encourage the use of non-carbon-based energy like solar and wind, and imposing excise taxes on the use of fossil fuels (e.g., a carbon-tax). BUT, other climate change proposals like placing limits on CO2 emissions and mandating the use of electric cars and retrofitting buildings to be environmentally-friendly will NOT make the cut. Same goes for immigration reform. Even if you required undocumented individuals to pay taxes as a condition to citizenship, most if not all of immigration reform is NOT germane for a “reconciliation” bill. And while some proposals aimed at addressing racial inequality could have a direct impact on revenue and spending, items like police reform and other measures would NOT be ripe for “reconciliation” legislation. Health care, on the other hand, primarily impacts revenue and spending. That is why BOTH Democrats and Republicans have used the “reconciliation” process to enact health care policy changes in the past (e.g., enacting the ACA in 2010 and attempting to “repeal and replace” the ACA in 2017). As stated, I fully expect the Biden Administration and Congressional Democrats to use the “reconciliation” process ONCE AGAIN to enact health care policy changes, namely The Biden Health Care Plan. As I told you back in October, the pillars of The Biden Heath Care Plan include:
      • Increasing the ACA’s Premium Subsidies and Expanding Subsidy Eligibility
      • A “Public Option” Health Plan
      • A Medicare “Buy-In” Program for 60 to 64 Year Olds

In the coming weeks and months, we will ultimately see all of the detail associated with these proposals. At that time, I will dig into each of these proposals and suggest whether or not all or a portion the provisions included in these proposals can make it into a “reconciliation” bill (or whether the Senate Parliamentarian will bounce the provision(s)). In the meantime, however, let me give you my quick high-level take on whether the above stated pillars of The Biden Health Care Plan will make it in to a “reconciliation” bill:

      • Expanding Subsidy Eligibility By Eliminating the 400% of FPL Limit: The Biden Health Care Plan proposes to eliminate the ACA’s 400% of Federal Poverty Level (FPL) income limit that governs when an individual is eligible for a premium subsidy. For example, an individual at 800% of FPL (which is around $100,000 for this individual) would be eligible to receive a subsidy if they purchase an “individual” market ACA Exchange plan.
        • This proposal directly impacts government spending (i.e., government spending is needed to pay for the increase in available subsidies to millions of Americans). I would also argue that this provision impacts taxes (because the premium subsidy is structured as an advance-refundable tax credit, which at the end-of-the-day is spending through the Tax Code).
      • Expanding Subsidy Eligibility By Eliminating the “Firewall”: The Biden Health Care Plan would also eliminate what everyone calls the “firewall” between (1) access to a premium subsidy and (2) an employee who is offered an “affordable/minimum value plan.” Currently, under the ACA, if an employee is offered an affordable/minimum value plan, the employee is NOT eligible for a premium subsidy. Again, this “firewall” would go away under The Biden Health Care Plan.
        • This proposal also directly impacts government spending (i.e., government spending is needed to pay for the increase in available subsidies to millions of employees who will opt out of their current employer health plan and purchase and ACA Exchange plan), and also taxes as noted above.
      • Increasing the Premium Subsidy Amounts: The premium subsidies would be increased by basing the overall amount of the subsidy on the cost of the second-lowest cost “gold” plan, instead of the existing second-lowest cost “silver” plan (“gold” plan premiums are higher than “silver” plan premiums, so the subsidy amount would correspondingly increase based on this higher benchmark). In addition, the premium subsidy amounts would effectively be increased by reducing the amount of money a person is required to pay for an individual market ACA Exchange plan from the current 9.83% of their income down to 8.5% of their income. This proposed change would also be coupled with lowering the percentage of income an individual/employee must pay at lower income levels (which essentially increases the government’s share of the premiums, and lowers out-of-pocket spending for low- and middle-income individuals/employees)).
        • Again, you have increased government spending (i.e., spending through the Tax Code), so definitely a direct impact that opens the door for inclusion in a “reconciliation” bill.
      • Medicare “Buy-In” Program for 60 to 64 Year Olds: President-elect Biden and Vice President-elect Harris have also spoken about a program that would allow individuals age 60 to 64 to “buy into” Medicare (i.e., a Medicare “Buy In” Program).
        • While we do not have any details on how this Program will be structured, we know that any changes to Medicare directly impact spending, and such changes could also impact taxes (such as payroll or income taxes). However, there may be certain aspects of a Medicare “Buy-In” Program that will require further analysis.
      • A “Public Option” Health Plan: A “public option” health plan – a long-sought after Democratic policy goal – could make its way into “reconciliation” bill, but maybe not all of it. For example, the “public option” would require lower reimbursement rates to providers, which arguably will have a direct impact on government spending (because the premiums for a “public option” plan will be lower than current commercial health plans, which in turn, should lower how much the government is spending on the premium subsidies).
        • Here, even though the premium subsidy amounts would be higher (because they would be pegged to the second-lowest cost “gold” plan instead of a “silver” plan), the premiums for a “public option” may be low enough where the newly increased subsidy amount would cover the entire sticker-price and then some (i.e., there may be instances where there premium subsidy exceeds the “public option” plan’s cost). Currently, the ACA does NOT allow a consumer to take the “excess” subsidy amount, instead, the government recoups that excess.  And viola, you now have lower government spending. In addition, maybe the existence of the “public option” has such a competitive influence where it forces insurance carriers to lower the premiums of their “gold” plans.  That would, of course, lower the amount the government spends on the premium subsidies. However, the Congressional Budget Office (CBO) may find this latter assumption to be a stretch. BUT, if CBO thinks that this policy change results in just a $1 reduction in spending, this would be enough for the Senate Parliamentarian to allow the proposal to be included in a “reconciliation” bill. Other aspects of the “public option” – such as its plan design – could get bounced by the Senate Parliamentarian. Specifically, I believe a “public option” plan would be required to cover a prescribed set of benefits, likely a mix of the ACA’s “essential health benefits” and benefits covered under Medicare. In addition, the plan would have prescribed deductibles and co-pays for certain covered benefits (e.g., dollar caps on things like prescription drugs and physician visits and other outpatient services).
  • Do these aspects of the “public option” have a direct impact on government spending or taxes? In my opinion, NO. Maybe there is an indirect impact, but an indirect impact is NOT enough for the Senate Parliamentarian to give the green-light. Sorry to torture you like that, but as you can see, analyzing things through the “reconciliation” lens is NOT easy. Which is why enacting all of your policy goals through “reconciliation” is NOT easy. For example, even if a “public option” can get into a “reconciliation” bill, it may end up like swiss cheese (although I believe the Biden Administration can fill these holes by requiring “standardized” plans to be sold through the ACA Exchanges through regulations). Again, there will be A LOT more of this type of analysis in the coming weeks and months ahead, so stay tuned…

 

A Super Important Part of the “Reconciliation” Analysis:  Adding “Offsets”

  • I stated above that a provision in a “reconciliation” bill CANNOT increase the deficit outside of the 10-year budget window. This means that if a particular provision in a “reconciliation” bill is NOT properly “offset” with revenue increases or spending reductions so that come 15 years now, the provision increases the Federal deficit, this particular provision CANNOT be included in the underlying “reconciliation” bill.
    • Analysis: To put this into perspective for you, during the ACA “repeal and replace” exercise, Republicans wanted to fully repeal the dreaded “Cadillac Tax.” BUT, CBO estimated that the government would lose so much revenue in the “out years” (i.e., in years 11, 15, 20, etc.), that full repeal of the Cadillac Tax would increase the deficit outside of the 10-year budget window. A no-no under the “reconciliation” rules. As a result, Republicans were forced to call for a temporary repeal of the Cadillac Tax, where the Cadillac Tax snapped back into place in year 11. Now, let’s apply this aspect of the “reconciliation” process to enacting The Biden Health Plan through a “reconciliation” bill. Well, (1) increasing the premium subsidy amounts, (2) eliminating the “firewall,” and (3) and allowing ANY individual or employee at ANY income level to qualify for a premium subsidy is going to cost some SERIOUS money. As a result, the Democrats are going to have to find ways to “offset” this significant increase in government spending. How will the Democrats do it? My answer: Prescription drug reforms, including giving the authority to the Federal government to negotiate drug prices for Medicare, and also, tying the amount of money Medicare pays for prescription drugs to a percentage of the amounts Australia, Canada, France, Germany, Japan, and the UK pay for the same prescription drugs (similar to the Trump Administration’s “Most Favored Nation” (MFN) Model). We already know that the House Democrats prescription drug bill from last year (H.R. 3, which included these provisions) saved the government around $350 billion over 10 years. It is fair to assume that H.R. 3 would save even more in the “out years” (i.e., years 11, 15, 20, etc.). This is the type of “offset” that the Biden Administration and Congressional Democrats will need to add to any “reconciliation” bill to help pay for a portion of The Biden Health Care Plan. Extending the MFN prescription drug pricing model to private insurance plans (or at a minimum, subsidized “individual” market plans sold through the ACA Exchanges) is another possibility. So is PBM reform and rebates. Also, tax increases on the wealthy and/or increasing the corporate tax rate are possible “offsets,” provided these “offsets” are NOT already used up (as I will discuss more fully below).

 

The Forthcoming $1.9 Trillion COVID-Stimulus Package

  • As I briefly mentioned above, I expect that the Biden Administration and Congressional Democrats will try to enact a health care “reconciliation” bill in the latter part of 2021. Why? Because I believe the Democrats will use the Supreme Court ruling in Texas v. Azar as a jumping off point to kick-start their efforts to enact their health care policy priorities. AND, the Supreme Court ruling will NOT arrive until June (maybe we see a ruling in the Spring, but most of us are betting June). ALSO, during the first half of 2021, the oxygen in the room is going to be taken up by the debate over the forthcoming $1.9 trillion COVID-Stimulus Package, so there will be NO air for consideration of a health care “reconciliation” bill. BUT, that is NOT stopping President-elect Biden’s Team from trying to enact portions of The Biden Health Care Plan in ADVANCE of any consideration of a health care “reconciliation” bill.
    • Analysis: More specifically, President-elect Biden’s Team recently indicated that the forthcoming $1.9 trillion COVID-Stimulus Package would seek to increase the premium subsidies by lowering the percentage of income a consumer is required to pay to 8.5% of their income, with a corresponding reduction in the percentage of income consumers at lower incomes must pay (e.g., where consumers between 133% and 150% of FPL must currently pay at least 3% to 4% of their income for a subsidized plan, this forthcoming proposal would reduce the required payment to 0%). It also appears that the ACA’s existing 400% of FPL income limit on premium subsidy eligibility would be eliminated. NEWS ALERT: These proposals come straight from The Biden Health Care Plan. Note, we will have to wait for the legislative language to confirm whether both – or even 1 – of these proposals makes it into the $1.9 trillion COVID-Stimulus Package. With Inauguration being tomorrow, maybe we will see more detailed summaries by the end of January, and legislative text some time in February (if not sooner)? Last comments on this COVID-Stimulus Package, which goes back to the “reconciliation” process: Most are expecting that this $1.9 trillion package will include many of the proposals that were included in the House Democrats’ $3 trillion Stimulus Package they advanced last year. If this is indeed the case, there is a good chance that Leader Schumer will NOT be able to get 60 votes for the Package. If Leader Schumer CANNOT get 60 votes, the Democrats will have to compromise with Senate Republicans and cut items from the underlying bill.  Alternatively, Leader Schumer could dump the Stimulus Package into a “reconciliation” bill and (1) try to get all 50 of his Democratic colleagues to vote YES (with Vice President-elect Harris casting the 51st vote) or (2) recruit some moderate Republicans to get to 50 if some of the moderate Democrats are a NO (with Vice President-elect Harris casting the 51st vote). If, however, Schumer and the Biden Administration attempt to move the COVID-Stimulus Package through “reconciliation” in the early part of 2021, there are some implications for using “reconciliation” in the latter part of 2021. More specifically, one thing I did NOT mention when talking about the “reconciliation” process is this: The Biden Administration and Congressional Democrats are ONLY able to use the “reconciliation” process 2 times throughout 2021. If they burn their first reconciliation “chit” on a COVID-Stimulus Package, the Democrats only have 1 more bite at the apple. There is no doubt in my mind that the 2nd bite will be a health care “reconciliation” bill, and if this is indeed the case, it means that the Democrats will have to try to stuff as many of their non-health care policy priorities as they can into the COVID-Stimulus “reconciliation” bill. This could include unraveling the Republican’s Tax Reform and increasing taxes on the wealthy, which is something President-elect Biden said on the campaign trail is a priority for him. This could also include “infrastructure” spending. The argument being that infrastructure is an economic stimulus engine for jobs, etc., which is MUCH needed for our pandemic-ravaged economy. Note, the tax increases would likely be needed to pay for the infrastructure spending, as well as for ALL of the COVID-related spending ranging from additional funding for vaccine distribution to providing billions to State and local governments, so maybe this “offset” is GONE when Democrats get around to a health care “reconciliation” bill. The point here is this:  It could very well be a “go BIG, or go HOME” moment for the Biden Administration and Congressional Democrats as the debate over a COVID-Stimulus Package begins in earnest. Also, votes are going to be SO, SO, SO important that those few moderate Senators on both sides of the aisle are going to wield ENOURMOUS power. Let the games begin!!