U.S. Capitol Building.

Possibilities and Pitfalls of Health Reform Through Budget Reconciliation

By Nicole Huberfeld

The Biden administration entered office promising health reform. But the evenly-split Senate means ten Republican votes are necessary to move major legislation — cooperation that seems unlikely after years of Republican attempts to repeal and obstruct the Affordable Care Act (ACA).

Still, expanding health insurance coverage may be on the menu through budget reconciliation. A budget reconciliation bill progresses with a simple majority vote: special rules limit debate and make filibuster impossible.

The Biden administration has already navigated budget reconciliation to enact speedy health policy measures in response to the pandemic. Signed March 11, the American Rescue Plan Act of 2021 (ARPA) is a reconciliation bill which, among other things, offers federal money to support states’ and localities’ public health needs; facilitates economic recovery; increases tax subsidies provided through health insurance exchanges to expand affordability; and builds on the ACA and 2020 COVID relief bills by offering Medicaid non-expansion states an enhanced federal match of 5% for each enrollee to encourage expansion and counterbalance costs. The ARPA also addresses determinants of health and health equity, for example by extending the option of maternal Medicaid coverage for a year after the 60-day post-partum period and creating a new child tax credit. Most provisions last no more than two years.

The ARPA was hailed as a “significant enhancement” of the ACA, but its short-term solutions caution against excessive optimism and reflect reconciliation’s constraints. A reconciliation bill’s focus must be money (spending, taxes, debt limits). The “Byrd rule” prevents “extraneous” provisions, meaning revenue cannot be “merely incidental” to the non-budgetary purpose of a given provision. Bill provisions that potentially violate this rule may be removed upon review by the Senate Parliamentarian. New spending must be offset if it leads to increases in the federal deficit within ten years.

Nevertheless, budget reconciliation may provide a launchpad for further reform developments. The Byrd rule does not prohibit broad policy changes, and a surprisingly wide variety of health reforms have occurred through reconciliation.

For example, COBRA enabled retaining insurance coverage after leaving a job; Medicaid eligibility was expanded for pregnant women and children; and Medicare reimbursement and delivery reforms such as EMTALA’s ban on patient dumping all occurred through reconciliation. The Children’s Health Insurance Program (CHIP), which builds on Medicaid coverage of children but is a separate federal block grant to states, was a reconciliation provision the Parliamentarian allowed, reasoning that the new grants were not “merely incidental” to revenue because they created funding for states first and coverage rules second. The ACA was not a reconciliation bill, contrary to a persistent myth: a short budget reconciliation bill called the HCERA amended it a week after signing, but the ACA was standard legislation. However, the ACA’s penalty for not carrying insurance was zeroed out in 2017 through reconciliation.

Expanding insurance coverage is a valuable and achievable priority for the reconciliation process, which can occur more than once in a calendar year. Though longer-term, transformational health reform will require budgetary offsets, insurance coverage is a doorway to accessing care and improved health outcomes, and so also advances health equity. Allowing vulnerable people to be uninsured because they live in states that refuse Medicaid expansion is unethical and spurns the evidence: expansion improves beneficiaries’ health, supports providers’ economic stability (especially rural hospitals), and is a financial boon for states.

The remaining Medicaid non-expansion states may be swayed by extending or increasing the ARPA’s enhanced funding. North Carolina, Wyoming, and others are considering expansion, but Texas, Florida, and Georgia account for most of the uninsured, and whether they will be moved is unpredictable. Expansion in these 12 states would close the coverage gap by covering 2.2 million uninsured and shifting those earning 100-138% of the federal poverty level (FPL) from commercial exchange coverage to Medicaid, reducing their financial exposure and making enrollment more likely.

Additionally, the exchanges are worth improving, despite serving a small population, because these subscribers cannot obtain coverage elsewhere. The ARPA’s expanded tax credits could become permanent and be adjusted so people earning below 250% of FPL have a $0 premium, up from 150%. This would operationalize evidence that a majority of people purchasing qualified health plans (QHPs) on the exchanges earn less than 250% of FPL. QHPs then would look more like Medicaid, which serves low-income populations in part through strictly limiting out-of-pocket costs, and could smooth churn between public and commercial insurance. But, this is a more expensive approach. Additionally, the evidence is unclear as to whether the individual mandate penalty should be reinstated to improve coverage uptake, but it may thwart frivolous litigation.

Another way to expand coverage would involve extending premium tax subsidies to 0% of FPL. The ACA did not extend tax credits to those earning less than 100% of FPL because Medicaid expansion was designed to cover this population. Closing the coverage gap in this way might deprioritize a federal public option, which would cover those left out because they earn below 100% or above 400% of FPL in Medicaid non-expansion states, as well as those priced out of commercial markets in all states.

The public option is an uncertain subject for reconciliation in part because the Byrd rule is open to interpretation, but also because many configurations are possible for a new federally administered health plan. Existing bills commonly create a new plan available on the exchanges, but other details vary, with some building around the ACA and others working toward single-payer insurance. Design questions include financing, administration, risk-bearing, eligibility, preemption of state laws, geography, and other matters. At one extreme, a public option could be structured as a new social insurance program that operates like Medicare, with risk borne by the federal government and administration by private insurers. Or, a public option could be more like QHPs, with the federal government delegating risk to commercial insurers that must abide by federal guidelines on features such as pricing, eligibility, and benefits. The devil is in the details.

Senators Bennett and Kaine revised their “Medicare-X Choice” bill to withstand reconciliation. The “Medicare Exchange health plan” would begin as an alternative to QHPs in areas with one plan on the exchange, provider shortages, or lack of competition contributing to high costs, and would expand to every market by 2025. This bill builds on the ACA, using existing standards for defining qualified individuals, benefits, and actuarial value, while also exercising Medicare’s authority to contract with private insurers for administration. The bill requires premiums to be set at a level that covers the full cost of Medicare-X plans. Medicare-X appears to piggyback on preexisting regulatory structures to meet the Byrd rule and avoid the dreaded “extraneous” provision determination. Ultimately, whether this is like CHIP, or the recently rejected minimum wage increase, the Parliamentarian will decide. Other coverage-expanding bills like “Medicare for All” look primarily regulatory and do not appear to be contenders for reconciliation (or political capital) at this time.

As for budgetary offsets, high pharmaceutical costs are one conspicuous path. President Biden appears unlikely to prioritize this despite mentioning negotiation of Medicare drug prices in his first address to a joint session of Congress. H.R. 3 would authorize HHS to negotiate Medicare drug prices, yet this bill cannot get past the Senate and was unachievable despite being a presidential and bipartisan priority for the last few years. Another prospect is closing tax loopholes, lately discussed in terms of improving enforcement of corporate taxes, raising taxes on ultra-wealthy individuals, and modifying capital gains taxes. Tax increases are usually a political third-rail but may seem more compelling after more than a year of the pandemic highlighting economic disparities.

Strategic investment in individual and public health is necessary, and durable coverage reforms are possible if budgetary balance is achieved. However, some long-standing problems that ought to have been addressed after the ACA’s enactment, such as high costs, floundering long term care, and uncoordinated and inefficient delivery, are less feasible targets for reconciliation. Budget reconciliation offers short-term, incremental measures that build on existing laws, kicking the reform can down the road. Further, fragmentation remains a serious concern with any of these provisions. Yet, in this moment, the promise seems greater than the peril.

Nicole Huberfeld is a professor of health law, ethics & human rights at the Boston University School of Public Health and professor of law at the Boston University School of Law.

The Petrie-Flom Center Staff

The Petrie-Flom Center staff often posts updates, announcements, and guests posts on behalf of others.

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