Election/Health Care Policy Update

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

The Biden Health Care Plan: Increased Premium Subsidy Amounts and Increased Eligibility for a Premium Subsidy

Back in August, I opined on what I thought Democrats would do on health care policy if they took back control of Washington, DC.
- Analysis: In my commentary, I explained how Former Vice President Biden and House Democrats would increase the premium subsidies for people purchasing an “individual” market ACA Exchange plan. This would be accomplished in 2 ways (as the Kaiser report also explains):

- - First, the amount of the premium subsidy would be based on the cost of the second-lowest cost “gold” plan, instead of the 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).

- - Second, reducing the amount of money a person is required to pay for an “individual” market Exchange plan from 9.78% of their income down to 8.5% of their income (this change would also likely track what House Democrats have proposed, which is lowering the percentage of income people must pay at ALL income levels (which essentially increases the government’s share of the premiums, and lowers out-of-pocket spending for these individuals)).

One important aspect of the Biden Health Care Plan that more people NEED to know about is this:

- - The 400% of Federal Poverty Level (FPL) income limit would be ELIMINATED. Which means that ANY person at ANY income level would be able to purchase an “individual” market Exchange plan and qualify for a premium subsidy. The recent Kaiser report illustrated this by giving us an example of a person making $300,000 who would STILL be eligible for a premium subsidy. Note, however, the cap on how much a person has to pay for an “individual” market Exchange plan is 8.5% of their income. Soooo, this example assumes that the cost of a health plan for this person earning $300,000 exceeds 8.5% of their income (which is a pretty expensive plan). That’s an exaggerated example, but the point here is that an individual at say 800% of FPL (which is around $100,000 for this individual) could receive a subsidy because they would NOW be eligible to receive one.

Here is another EVEN more important aspect of the Biden Health Care Plan that NO ONE is talking about:

- - The “firewall” between an offer of an “affordable/minimum value” employer plan and eligibility for the premium subsidy would be ELIMINATED. This would mean that an employee would ALWAYS be eligible for a premium subsidy if they “opted out” of their employer plan and purchased an “individual” market Exchange plan.

The Biden Health Care Plan: Access to a “Public Option” Plan

During the recent Presidential debate, Former Vice President Biden stated that his “public option” plan would be limited to individuals in the “individual” market (i.e., the presumption being that these are individuals who are NOT offered an “affordable/minimum value” employer plan). This recent statement is consistent with what Candidate Biden said during the Democratic Presidential Primaries, and it is consistent with what the Obama Administration (of which Candidate Biden was a part of) was talking about back in 2009/2010.
- Analysis: HOWEVER, if you look at Former Vice President Biden’s campaign website, you see an explanation of a proposal that would allow employees to “buy into” the “public option” (the Kaiser report confirms this as well). Now, I am NOT yet passing judgement on whether employees should – or should not – be permitted to “buy into” a “public option” (see more on that below). BUT, I am confused. Will the “public option” be limited to individuals in the “individual” market (people who are NOT offered an “affordable/minimum value” employer plan)?? OR Will a “public option” be available, not only to individuals with NO employer plan, BUT ALSO to employees who are offered an “affordable/minimum value” employer plan?? As I have said before, this is VERY IMPORTANT distinction because – at least in my opinion – making a “public option” available ONLY to individuals who are NOT offered an “affordable/minimum value” employer plan will have a more limited impact on the employer-sponsored system, while allowing ANY employee to “buy into” a “public option” – with a premium subsidy no doubt – will have a MUCH GREATER impact on people who currently like their employer plan.

Connecting the Dots

Sooooo (1) the Biden Health Plan would allow employees to “buy into” a “public option,” (2) the Biden Health Plan would also allow ANY person at ANY income level to access a premium subsidy, AND (3) under the Biden Health Plan, EVEN IF an employee is offered an “affordable/minimum value” plan, this employee is STILL eligible for a premium subsidy.
- Analysis: This would mean (as noted above) that an employee could – AT ANY TIME – (1) “opt out” of their employer plan and (2) “buy into” the “public option” plan WITH a premium subsidy. Younger, healthier employees would surely be attracted to the “public option” because the “public option” plan would likely offer lower premiums than their employer plan, primarily because the reimbursement rates for the benefits and services covered under the “public option” would be reimbursed at rates like 150%, 180%, or 200% of Medicare (which a RAND study just told us are MUCH LOWER reimbursement rates than what employer plans currently pay to providers in most States). AND, depending on how generous the premium subsidy amount will be for a younger/healthier employee (who is typically lower income because they are just starting out in the workforce), purchasing the “public option” plan could very well be $0. You must remember, the premium subsidy amount would be higher than the premium subsidy amounts today because the subsidy would be pegged to a “gold” plan instead of a “silver” plan, and it is highly likely that the premiums for a “public option” plan would be much lower than a “gold” plan. Heck, the “public option” premiums would likely be lower than a “bronze” plan. Make NO mistake, from an “affordability” perspective, this is FANTASTIC. I – like you – want people to be able to purchase lower costing health coverage. AND, I – like you – think employer plans are paying WAY TOO much for health care (as the RAND study confirms). BUT, if employees can get a “better deal” through the Federal government, as opposed to through their employer, won’t employees “opt out” of their employer plan (and forego their employer subsidy) and purchase a “public option” plan (with a government subsidy) that would probably cost them $0?? I don’t think I need to answer my own question here. Importantly – which is another BIG DEAL in my opinion – if an employee does NOT want to purchase the “public option” for one reason or another, the Biden Health Plan would allow an employee to purchase ANY other ACA Exchange plan and STILL get a premium subsidy for that plan. Sooooo, this employee could purchase a “gold” plan if they thought that it made more sense for them, and this employee would simply pay whatever percentage of the premium out of their own pocket that the new subsidy schedule requires, which as stated above, cannot exceed 8.5% of income, and the percentage of income would be LOWER than current law depending on the employee’s standing on the FPL scale.

When We Were Drafting the ACA, We Thought the “Firewall” Was CRITICAL

This may be an over-statement on my part, but when I hear the Biden campaign say that a President Biden will “build on the ACA,” I do NOT believe that is an accurate statement. Why?? Because – in my opinion – ELIMINATING the “firewall” is NOT “building on the ACA.” Rather, it is FUNDAMENTALLY CHANGING the ACA.
- Analysis: I don’t think I am being an alarmist here, because we went over this during the ACA debate back in 2009. We concluded that if ANY and ALL employees are eligible for a government subsidy AT ANY TIME, then younger/healthier employees will “opt out” of their employer plans, leaving older and/or sicker employees in the employer plan, which would result in adverse selection, which would result in costs sky-rocketing for employers, which would result in employers discontinuing their plan. We said to ourselves, if employers are forced to discontinue their employer plan on account of adverse selection, more and more employees would be accessing a government subsidy, and this would cause government spending to SKY-ROCKET. In addition – we thought – employers would see that their employees could NOW get a subsidy from the government, and these employers would choose to voluntarily discontinue their plan and “dump” all of their employees onto the Federal government. Again, government spending would SKY-ROCKET in this case. SOOOOOOOO, we decided that we needed to build some sort of “firewall” between (1) employees participating in an employer plan and (2) the subsidized coverage that is now being made available in the “individual” market. We also knew we needed some sort of “stick” to prevent employers from “dumping,” which would be tied to this “firewall.” Failing to do both – we believed – we would end up KILLING the employer-sponsored system, and as stated, we knew that we would increase government spending EXPONENTIALLY. Now, I am NOT saying that the “firewall” that we built is perfect. BUT, it generally worked, but for certain quirks, namely the “family glitch.” BUT, I will note this: The “family glitch” was an outgrowth of how the Obama Administration’s Treasury Department chose to interpret the statute that we wrote. As we all know, the statute was inartfully drafted. BUT, we have seen the Obama Administration interpret the ACA in a way that was most favorable to the policy they were trying to achieve, regardless of what the statute said. Like us though, the Obama Treasury knew of the cost implications of more and more individuals accessing a premium subsidy, so the “family glitch” was created, and the rest is history. Sorry for the digression. The point that I am trying to make is this: For right or wrong, we structured the ACA in such a way where we wanted (1) to preserve the employer-sponsored system AND (2) protect “the taxpayer” by preventing an explosion in government spending. Again, I personally think we accomplished that by building the “firewall,” and also creating the “employer mandate” penalty tax (to prevent employers “dumping”). HOWEVER, if a President Biden ELIMINATES the “firewall,” then I believe what we accomplished through the ACA will be FUNDAMENTALLY changed. Does President Biden really want to do that?? Are employers okay with this?? We haven’t even started talking about costs, which we will do next. Last comment: Look, I get it, there are a number of Democratic health care policy experts and policymakers who think the employer-sponsored system is flawed. As I have always said, the employer-sponsored system is certainly NOT perfect. BUT, are we as a country ready to move our health care system away from a private-based, employer-sponsored system that is currently coupled with a private “individual” insurance market, and move to a more government-subsidized, price controlled health care system?? Regardless of your answer to that question, know this: If the Biden Health Care Plan becomes the law of land, I believe we WILL DEFINITLEY be moving in this direction whether we want to or not.

No One Is Talking About How to Pay for the Biden Health Care Plan

The “individual” market is the BIG winner under the Biden Health Care Plan. I think this is good because I want the current “individual” market to be a functional market, and the more people who are in the market, the better it will become. BUT, encouraging more people to enter the “individual” market – under the Biden Health Plan – costs A LOT of money. According to the Biden campaign, it would cost around $750 billion over 10 years.
- Analysis: Now, Democratic health care policy experts and policymakers will argue that this $750 billion would be MUCH higher if the Biden Plan’s “public option” was NOT a part of this new “individual” market. What I mean is, the “public option” plan would offer lower premiums than what commercial plans currently charge – AND – Democrats will argue, this will help bring down premiums across-the-board because private insurance carriers will be forced to compete with the “public option.” Maybe…BUT, what if the government cannot get providers to agree to 150%, or 180%, or 200% of Medicare for the medical services they provide? In this case, premiums for the “public option” will remain on the higher side, and premiums across-the-board will NOT go down that much either. This would mean that the premium subsidy amounts – which would be pegged to higher costing “gold” plans – would remain relatively high, pushing up this $750 billion price tag to something a lot higher. Interestingly, Kaiser estimated that 12.3 million employees would be “better off” under a Biden Health Plan because these employees could find a “more affordable” health care option through the “public option” or another ACA Exchange plan. BUT, Kaiser does NOT account for how many employers will discontinue their employer plan due to adverse selection or simply due to “dumping.” While 12.3 million out of the current 160 million of Americans who have employer coverage is a relatively small number (only 8% of the market), this percentage would likely increase over time – as more employers discontinue their coverage – which means that more employees would be accessing a premium subsidy, which would mean that the government spending under the Biden Plan would increase (to a number that is certainly higher than $750 billion). Now, some may say that the Biden campaign factored in the erosion of the employer-sponsored system over their 10 year projection. And maybe they tried. BUT, I would argue that their $750 billion estimate under-estimated how many employers would likely discontinue their health plan. Why do I think this? Because back during the ACA days, the Congressional Budget Office (CBO) told us it would be SUBSTANTIAL, which again, is why we built the “firewall.” Last comment: To pay for the $750 billion worth of spending, you have to raise taxes and/or shift things around under the current system. These are things that the Biden campaign is NOT talking about. Kaiser did NOT discuss it either, so I will here:

- - As employees move off of their employer plan, the government will save money from the tax exclusion for employer-sponsored plans. That savings can be used to pay for the increased premium subsidies (and eligibility) under the Biden Plan. BUT, will that be enough?? Will the tax exclusion need to be further capped to raise more revenue to cover the Biden Plan’s spending? Will the “employer mandate” penalty tax have to be increased to not only prevent “dumping,” but to raise additional revenue? Simply raising taxes on people earning more than $400,000 and increasing the corporate tax rates is NOT going to do it because this revenue is already earmarked for infrastructure, eliminating student debt, and climate change proposals, at least according to the Biden campaign. Look, some people may disagree with my analysis here, but I am just trying to call balls and strikes as I see them. Maybe I am jaded by my past experience. Maybe in the end I will be wrong. But what if I am right…