Health care reform seems set to return to the top of the political agenda if Biden wins the presidency. The issue dominated the Democratic presidential primary, and even though Biden explicitly ran against sweeping single-payer reforms, New York Times columnist Paul Krugman recently argued that “Bidencare Would Be a Big Deal.”
Biden has endorsed a public option and proposed to lower the age of Medicare eligibility from 65 to 60. His campaign also promises federally financed coverage of low-income individuals in states that opted against expanding Medicaid and major increases in Obamacare subsidies for middle-income Americans. But how realistic are these various proposals – both fiscally and politically? What are their chances of them being enacted by a Democratic-controlled 117th Congress?
The proposal for a public option is seen by many on the left of the Democratic Party as sowing the seeds of transformative reform, but simply branding an insurance plan a “public option” does very little by itself. It will not eliminate administrative costs, so long as medical providers must still process claims from multiple other insurers with inconsistent billing arrangements. Nor have states with public options been able to generate savings by getting providers to treat enrollees for less than they treat patients covered by private insurers. The politics of a public option are further complicated by the fact that any move from commercial provider payment rates to Medicare provider payment rates would imply a big redistribution of funds from blue states to red.
A public option would prove appealing to the extent that it benefits from an additional public subsidy. But this is also true of other insurance options, and Biden’s health care reform plan therefore devotes most attention to proposals to expand subsidies for plans on the individual market created by the Affordable Care Act. Indeed, Biden’s campaign rhetoric suggests that he sees expanded subsidies for plans in the ACA market as the main thrust of his desired reform, with a public option being little more than a branded plan within it.
At present, ACA subsidies expand automatically as necessary to make standard “benchmark” plans on the individual market available to middle-income Americans at a limited portion of their income. The Biden proposal would increase the generosity of federal subsidies for ACA plans in two ways: first by reducing the cap on post-subsidy premiums from 9.86 percent of income to 8.5 percent, and second, by increasing the proportion of medical expenses covered by benchmark plans from 70 percent to 80 percent. The Biden plan would also expand the eligibility for subsidies in two ways: first by eliminating current rules prohibiting households with income greater than 400 percent of the Federal Poverty Level ($51,040 for individuals; $104,800 for a family of four) from receiving subsidies, and second, by eliminating the prohibition on individuals who are offered health insurance coverage by their employers from claiming ACA subsidies to purchase a plan from the individual market.
These details seem wonky and innocuous, but the cost of increasing the generosity of the subsidies and increasing eligibility for them differs enormously. The expanded generosity of subsidies alone might double the existing $53 billion annual cost of ACA subsidies. But because only 2.7 percent of Americans are currently enrolled in subsidized ACA plans, this is only a small share of the federal budget, and would be within the realm of political feasibility.
By contrast, expanding eligibility for subsidies to the 61 percent of Americans that are currently ineligible for any form of federal health insurance funding would be far more expensive and politically unrealistic. Furthermore, the interaction of the proposed expansion in eligibility for subsidies and the proposed increase in generosity of subsidies would be particularly costly.
For instance, the proposal implies that federal taxpayers would assume 95 percent of the cost of health care coverage for 60-year-old working adults with incomes at 401 percent of the FPL – a cohort which currently receives no federal assistance for health insurance, other than a tax exemption associated with employer-sponsored insurance. At current insurance prices, individuals with incomes up to $96,000 (more than 85 percent of the working age population) could receive federal subsidies, which would encourage employers to stop offering coverage. Most of the associated expense would likely serve to shift existing employer-funded health care compensation onto the federal balance sheet without expanding coverage at all. This makes it hard to believe that the details of the proposal and its associated cost implications have been seriously thought through.
Biden’s proposal to lower the age of Medicare eligibility from 65 to 60 would similarly yield meager coverage gains at enormous cost to taxpayers. Medicare is designed to pick up 85 percent of the health care costs for elderly and disabled Americans who are no longer able to work, not as a handout to the 60 to 64 age group – which is the most affluent, most expensive to cover, and has the lowest proportion (8 percent) of uninsured of any age group. By forcing taxpayers to assume the $250 billion annual cost of providing health care to this age group that is currently borne by employers and individuals who purchase private insurance, lowering the Medicare eligibility age would be a very costly, inefficient, and inequitable way of filling unmet needs.
The hospital industry would fiercely resist a Medicare expansion or public option with low statutory reimbursement rates that displaced revenues from individuals who currently have private insurance. But it would likely enthusiastically support Biden’s proposal to establish a fully federally funded public option in states that opted against the ACA’s Medicaid expansion, as this would provide fresh revenues to pay for the treatment of a group of low-income Americans who are currently mostly uninsured. This would reassemble the political coalition of ideological liberals, low-income voters, and health care industry interests that repelled the GOP’s attempt to repeal the ACA’s Medicaid expansion – and should be legislatively achievable through the reconciliation process if Democrats win the Senate.
Expansion of Medicaid to non-expansion states could reduce the number of Americans uninsured by up to 3.2 million and can be expected to cost around $30 billion per year. Additional expense would likely be incurred if blue state Democratic governors, whose states were required to put up matching funds to expand Medicaid, demand the same full federal funding of ACA expansion enrollees.
Given political pressure from the party’s electoral base and the health care industry to focus on expanding coverage, subject to realistic budget constraints, a Democratic takeover of Congress can be expected to prioritize the establishment of federally financed coverage to make up for gaps in the Medicaid expansion and a modest expansion in ACA subsidies for middle-income Americans. But their most ambitious plans are unlikely to happen. Proposals that entitle individuals currently receiving employer-sponsored coverage to ACA subsidies are likely to prove unaffordable, and a transformative public option will surely be vetoed by the hospital industry. The extent to which Congress decides to expand federal spending on health care will likely depend on how many Senate seats Democrats pick up in November.
Chris Pope is a senior fellow at the Manhattan Institute. Follow him on Twitter here.
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