Joe Biden on Monday outlined a healthcare proposal that, while less disruptive than rival plans to socialize the U.S. health insurance system, would still dramatically increase the price tag of Obamacare and likely erode employer insurance.
In his campaign for president, Biden has sought to counter calls to cancel private insurance for 180 million people by portraying himself as a protector of his old boss’s legacy who was eager to build off Obamacare.
What he proposed would, in several ways, greatly increase the cost of Obamacare — which itself increased federal spending on healthcare by about $ 2 trillion over a decade.
The biggest feature of Biden’s proposal is the introduction of a new government-run plan to be offered on the exchanges. There are some big questions I’d have about how this would interact with employer-based coverage that I would get to below, but first, I’d want to look at several ways that Biden’s plan would increase costs.
Biden aims to make Obamacare’s coverage more generous in several ways.
He wants to increase the subsidies to purchase insurance on Obamacare’s exchanges. Instead of limiting subsidies to those who earn above about $ 50,000 for individuals, Biden would set a cap that would limit the cost of premiums to 8.5% of a person’s income, so people earning above the current Obamacare cutoff could now qualify for assistance.
Additionally, under Obamacare, the subsidies are pegged to the cost of a midlevel “silver” plan. This was done in an effort to contain costs by asking people to pay more if they wanted more generous coverage. Steering individuals toward plans with relatively higher deductibles and co-payments was also a way of discouraging overuse of the system. But Biden’s plan would peg subsidies to “gold” coverage with lower deductibles. This will both increase the cost of subsidies to the government and the use of healthcare.
Biden also plans to offer the new government-run plan as an option to 4.9 million Medicaid-eligible individuals living in the 14 states that did not participate in Obamacare’s Medicaid expansion.
To be sure, Biden does offer some cost-containment suggestions, but they all come with complications and limitations.
His plan promises that, “As in Medicare, the Biden public option will reduce costs for patients by negotiating lower prices from hospitals and other health care providers.” But the greater extent to which the government uses power to drive down payment rates, the more difficult it would make it for doctors and hospitals to earn money, causing many of them to fail. Coupled with the increased demand for medical services that would result from expanding insurance and making it more generous, this threatens to create significant access problems.
Another provision would allow Medicare to directly negotiate drug prices. But the CBO has in the past said that negotiation would produce “little, if any” savings. Margot Sanger-Katz of the New York Times has helpfully explained that it’s difficult to drive down drug prices through negotiation when Medicare does not realistically have the ability to walk away.
Beyond the cost issues, the Biden plan leaves a lot of key details out of its explanation of the government option, specifically how it would interact with employer insurance. Right now, nearly half the population, or about 157 million people, receive coverage through their employers that they are generally happy with. Biden promises, “If your insurance company isn’t doing right by you, you should have another, better choice. Whether you’re covered through your employer, buying your insurance on your own, or going without coverage altogether, the Biden Plan will give you the choice to purchase a public health insurance option like Medicare.”
This language suggests that everybody would have the ability to purchase the new government option, regardless of how they get their insurance. This would be significant.
Under Obamacare, larger employers (or those with more than 50 employees) cannot purchase insurance for their employers on the exchanges. And individuals who are offered employer insurance and want to purchase insurance through the exchanges face significant limitations. First, if they decline employer coverage, then they would not receive money toward health benefits from their employer. Second, they would be very unlikely to qualify for Obamacare subsidies, even if they would otherwise qualify based on income. As healthcare.gov explains, “If you have an offer of job-based insurance, the only way you’ll qualify for savings on a Marketplace plan is if your employer’s insurance offer doesn’t meet minimum standards for affordability and coverage. Most job-based plans meet these standards.”
If Biden wants to offer everybody with an offer of employer coverage the ability to purchase insurance through the exchange, it raises a number of questions. Would those people also be able to choose among private plans, or just the government option? Would people who declined employer coverage now be entitled to government subsidies? In that case, the government would now be incurring costs that would otherwise have been born by employers, something that could be described as a massive subsidy for large corporations. If, on the other hand, Biden imposes the same restrictions on workers with an offer of coverage going on the exchanges as Obamacare does currently, then he can’t really argue that the government plan is open to everybody.
Furthermore, if the government subsidies are large enough to attract enough workers, employers could decide that it’s no longer worth offering employer coverage. That would mean many people who prefer their current employer plans would end up losing them anyway, despite Biden’s promises that they would be able to keep their coverage.
One other aspect of this that remains unclear is how setting subsidies based on the price of gold-level plans would interact with enrollment in the government-run option. People might decide that if they can now afford a gold-level private plan with the new subsidy structure, there would be no need to settle for a government-run option.
Finally, Biden suggests he would pay for the plan through increasing long-term capital gains tax on wealthier Americans and repealing the Trump tax cuts. However, these proposals would not generate as much as he seems to indicate. As the Tax Policy Center noted at the time Republicans were debating their tax bill in 2017, “taxpayers can always avoid paying capital gains tax by simply not selling their assets. For that reason, a higher long-term maximum capital gains tax rate may not generate much additional revenue. TPC estimates that raising the 20% tax rate on long-term capital gains to 25% would generate less than $ 25 billion from 2018 through 2027.”
Also, the Trump tax cuts were front-loaded, and by the time the next president takes office, the bulk of the tax relief will have been delivered. Key provisions on the individual income side are already scheduled to expire after 2025, and on the corporate side, full expensing will start to phase out in 2022. All of those phaseouts are already included in the CBO baseline, so even a full repeal of the Trump tax cuts wouldn’t generate as much additional revenue as people expect, and to the extent that Democrats decide to preserve the middle-class tax relief in the law, any partial repeal would raise even less.
So, Biden’s plan would certainly be less costly and disruptive than a $ 32 trillion proposal requiring all Americans to enroll in a single government plan that would cancel private insurance for 180 million people. But it would still be extraordinarily expensive and disruptive.