Ken Perez: Healthcare plays a pivotal role in the fate of the Democrats’ social spending bill

Characterized by some as the centerpiece of President Joe Biden’s agenda, the Democrats’ $3.5 trillion budget plan is still very much a work in progress.

The Build Back Better Act has been described by Sen. Bernie Sanders (I-Vt.) as “a huge bill .… a complicated bill … a transformative bill.^a

The clearest, most official public disclosure to date of its major proposed provisions was issued in a nine-page Aug. 9 memorandum to Democratic senators entitled “FY2022 Budget Resolution Agreement Framework.”^b

As the memorandum makes clear, “[The $3.5 trillion] represents the level of new investments [federal government spending] but does not represent the net budgetary impact of the expected reconciliation bill because the reconciliation bill will also include substantial offsets.” Notably, those offsets include tax increases.

Because every Senate Republican opposes the spending plan, the Democrats plan to use the process of budget reconciliation, which would prevent the Republicans from filibustering and require just 50 votes for passage of the bill, with Vice President Kamala Harris casting the tie-breaking vote as president of the Senate.

Concerns of moderate democrats

That scenario assumes that all 50 Democratic senators will support the plan. However, moderate Democratic Sens. Joe Manchin (W.Va.) and Kyrsten Sinema (Ariz.) have expressed serious concerns about the level of spending, inflationary effects, potential impact on the national debt (approaching $29 trillion) and requisite tax increases, questioning the wisdom of progressive Democrats’ desire to “go big” now.

Manchin wrote in a Sept. 2 op-ed for The Wall Street Journal, “I, for one, won’t support a $3.5 trillion bill, or anywhere near that level of additional spending, without greater clarity about why Congress chooses to ignore the serious effects inflation and debt have on existing government programs.” 

What level of spending would be acceptable to Manchin and Sinema? As reported by POLITICO on Sept. 30, Manchin proposed a deal to Senate Majority Leader Chuck Schumer (D-N.Y.) on July 28 to limit the cost of the Democrats’ social spending bill to $1.5 trillion, while to date, Sinema has not publicly disclosed a topline.

In an attempt to gain political leverage, progressive Democrats in the House threatened to block the $1.2 trillion physical infrastructure bill — even though it was passed by the Senate on Aug. 10 through a bipartisan 69-to-30 vote with the support of all 50 Democratic senators — if the social spending bill is not advanced.

Faced with a serious rift between moderates and progressives within the Democratic Party and the prospect of both bills failing, Biden told progressive House Democrats during a virtual meeting on Oct. 4 that the price tag for the social spending bill would need to come down to a range between $1.9 and $2.2 trillion.^c

Healthcare provisions

Given that reduced price tag, several of the bill’s costly healthcare-related initiatives will likely be scrutinized, including:

• Lowering the eligibility age for Medicare (presumably to 60)
• Expanding Medicare to include dental, vision and hearing benefits
• Extending the increases to Affordable Care Act (ACA) subsidies included in the American Rescue Plan
• Providing Medicaid to uninsured poor adults in states that have not expanded Medicaid)
• Investing in Medicaid home- and community- based services

Of all these initiatives, lowering the eligibility age for Medicare could pose the greatest challenge to hospital finances. Although about
1.6 million, or 8% of people age 60-64, are uninsured and would gain Medicare coverage as a result, it is estimated that 11.7 million people with employee coverage and 2.4 million with non-group coverage would shift into Medicare.^d

Such a payer-mix shift would negatively impact hospitals, because hospitals incur losses on their Medicare population, and they offset those losses in their commercially insured populations.

Lowering the eligibility age of Medicare also would increase Medicare spending by almost $1 trillion over the next 10 years and — absent alternative financing actions — accelerate the insolvency date for Medicare’s Health Insurance Trust Fund to 2024, two years sooner than CBO’s current baseline projection of 2026. Preserving the Medicare trust fund would require either tapping general fund revenue — a fundamental change in how Medicare has been funded — or increasing the health insurance payroll tax.

On the other hand, hospitals could benefit from one of the spending plan’s offsets or pay-fors described in the Senate Budget Committee’s Aug. 9 memorandum (i.e., the “hundreds of billions in additional savings by lowering the price of prescription drugs”). This offset would be presumably achieved via measures advocated by Biden, which include allowing Medicare to negotiate drug prices, penalizing drug companies for raising prices faster than inflation and prescription drugs to be imported from Canada.^e

The art of the possible

U.S. presidents often try to make their mark early in their first term, taking advantage of any perceived electoral mandate. For example, President Barack Obama was able to get the monumental ACA passed in 2010, the second year of his first term. Similarly, for the Biden administration, it’s the Democrats’ spending plan, which could be the biggest in U.S. history.

Although the nation is not witnessing traditional bipartisanship in action, it is seeing the art of the possible being practiced within the fractious Democratic Party, driven by the pragmatic convictions of moderates Manchin and Sinema, with healthcare once again taking center stage. 

Footnotes

a. Caitlin, E., et al., “Climate, immigration, Medicare lead progressive highlights in Dems’ $3.5T budget plan,” POLITICO, July 14, 2021.

b. United States Senate Budget Committee, “FY2022 Budget Resolution Agreement Framework,” Memorandum, Aug. 9, 2021.

c. Cordes, N., et al., “Biden sets $1.9 – $2.2 trillion price range for social safety net bill in call with House progressives,” CBS News, Oct. 5, 2021.

d. Garfield, R., Rae, M., and Rudowitz, R., “Coverage implications of policies to lower the age of Medicare eligibility,” Kaiser Family Foundation, May 21, 2021.

e. White House, “FACT SHEET: President Biden calls on Congress to lower prescription drug prices,” Aug. 12, 2021.