After almost two years of near constant twists and turns through the COVID-era, the fiscal roller coaster ride isn’t over yet. As the House gears up to jockey over final details of the $1T spending bill passed by the Senate in early August, eyes are already turning towards the $3.5T package that is expected to cover the vast majority of the Biden Administration’s ambitious “cradle to grave” social spending overhaul.
While the final details of the plan (as well as its prospects for becoming law via the budget reconciliation process) remain opaque, Democrat led House committees have recently begun drafting and releasing specifics based on the blueprint that was greenlit a few weeks ago. From what we know, it’s clear that the healthcare industry will be heavily impacted should the bill make it to President Biden’s desk.
Specifically, we know that a few key areas are likely to be covered: Medicare expansion, Affordable Care Act (ACA) Subsidies and the so called “Medicaid coverage gap”, and a push to reduce pharmaceutical prices and enhance competition.
Medicare
Anticipated changes to Medicare primarily fall into two buckets: the expansion of coverage and the expansion of eligibility.
Relative to coverage, the new package is expected to expand coverage to include dental, vision, and hearing benefits for beneficiaries – aimed specifically at the approximately 60% of those who are not currently enrolled in Part C Advantage Plans. According to details released by the House Ways and Means Committee in early September, the current draft policy language would enable coverage under Medicare for dental care beginning in 2028. To bridge the gap, more progressive Democrats would likely seek vouchers to help offset dental costs in the meantime.
While other details remain to be determined, bills advanced previously in the House (which may provide insight into current thinking) included coverage for dentures, preventive and emergency dental care, routine eye exams, eyeglasses and contact lenses, and hearing aids and exams. A bill that cleared the House in 2019, but was not taken up by the Senate, called for beneficiaries to pay a standard 20% for some dental coverage with certain procedures costing more.
In addition to coverage expansion, Democrats are also seemingly eager to deliver on a marquee campaign promise – lowering the Medicare age of eligibility from 65 to 60. According to some estimates, this would cover nearly 25 million more Americans under Medicare. While this would have a profound impact on coverage rates, it could also put pressure on providers and health systems who rely on relative premiums paid by private insurers.
Affordable Care Act Subsidies & The Medicaid “Coverage Gap”
Another focus area for legislators is to extend the recently expanded ACA premium subsidies beyond the 2022 coverage year. As a reminder, the expanded subsidies were extended through 2022 as part of the American Rescue Plan which was signed into law by President Biden in March 2021. Through 2022, those seeking coverage via the ACA marketplace will not pay more than 8.5% of their household income for the benchmark plan (with no cap on income eligibility) with families making under 150% of the poverty level paying as little as $0.
Furthermore, legislators are intent on closing the Medicaid “coverage gap”. Specifically, they hope to cover those who do not qualify for the income-based subsidies due to their Medicaid eligibility, but who are also not covered by Medicaid due to lack of action to expand coverage by several states following a Supreme Court decision that made that element of the ACA effectively non-binding.
Both of these moves could materially increase the number of covered lives in the United States, which would have a cascading impact across the healthcare industry.
Drug Prices & Competition
Another element of the package anticipated by many is a comprehensive strategy with mechanisms to reduce pharmaceutical prices.
First, legislators are expected to empower the government to negotiate the price of certain prescription drugs including insulin, potentially by indexing prices to their lower costs in other countries and prohibiting markup above a certain threshold relative to those prices.
In early September, the Department of Health and Human Services released a plan that went further, calling for negotiated rates to apply beyond Medicare and for reimbursed rates to be based on the clinical value they provide to patients. The plan also calls for increased federal funding for research into new treatments, in part by potentially creating a new agency within the National Institutes of Health to drive innovation in medicine.
Notably, PhRMA, the trade group for drug manufacturers, commented that the plan could hamper the sector’s ability to develop new treatments, largely due to a shift in the risk/reward paradigm. According to an analysis by the non-partisan Congressional Budget Office of a 2019 bill with similar components, such policies could lead to eight to fifteen fewer drugs coming to market over the following decade should the government negotiate prices.
Other elements of the plan, likely to be used as a blueprint for Democrats drafting policy language, called for a prohibition of pharmaceutical companies from paying generic competitors to keep them from marketing their versions of brand-name drugs, the reduction of barriers that impede the approval of generics and biosimilars, and the capping of out-of-pocket costs for beneficiaries of Medicare’s prescription-drug benefit program at $2,000 a year.
Finally, Democrats seem intent on a full repeal of a Trump-era rule that would remove safe harbor protection for Medicare Part D drugs which could in turn raise prices. A delay in the enactment of that rule was included in the $1T bipartisan infrastructure bill passed in the Senate last month.
Conclusion
Taken wholly, there is little doubt that change is on the way. While the fate of the $3.5T package remains uncertain, many elements of the Democrats strategy are backed across the aisle and are popular with voters – particularly efforts to reduce drug prices and policies that expand coverage. While timing may be unclear, it is hard to imagine that at least some elements of the plan won’t be enacted soon, $3.5T deal or not.
Brian Johnston, Vice President
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