What’s Ahead for Health Policy in 2021

Manatt on Health

The Big Picture

The Biden Administration is just two weeks old, and President Biden has already issued more than two dozen Executive Orders on racial justice, health equity, strengthening Medicaid and the Affordable Care Act (ACA), the COVID-19 pandemic, immigration, and other topics. Importantly, in nearly all cases agencies must issue guidance, undertake new rulemaking, or take other actions to bring these Executive Orders to life. For example, following President Biden’s Executive Order on Strengthening Medicaid and the Affordable Care Act, the Department of Health and Human Services (HHS) announced that it will open an ACA Marketplace special enrollment period from February 15 through May 15. The last two weeks underscore that with tight margins in Congress, administrative actions will continue to be essential to advance the Biden-Harris Administration’s policy agenda over the next two years.

The new Congress is also beginning its work, with new committee leadership assuming the reins at the Senate Finance Committee, Health, Education, Labor and Pensions (HELP) Committee, and Budget Committee. And as the COVID-19 pandemic continues to have nationwide economic and public health consequences, mitigating the pandemic is the short-term priority of Congress and the Administration. President Biden outlined a $1.9 trillion legislative package, the American Rescue Plan, and congressional leadership is beginning the process to pass COVID-19 legislation ahead of the March 14 expiration of unemployment insurance. While a group of Republican Senators has indicated support for a smaller relief package, President Biden and congressional leaders appear committed to the $1.9 trillion mark. Because passing major COVID-19 legislation with bipartisan support appears difficult to do by the March 14 deadline, Congress is extremely likely to use the budget reconciliation process to advance the relief package and could consider using reconciliation instructions, which makes it possible for bills to be enacted by a simple majority vote, to ease passage of other healthcare legislation later this year. However, reconciliation legislation can be a blunt tool, as provisions must be primarily budgetary in nature, among other requirements that apply to the reconciliation process.

This memo provides a look ahead at potential federal (both administrative and legislative) and state activity related to COVID-19, the Marketplace and individual market coverage, Medicaid, prescription drug prices, and Medicare.

Federal Healthcare Priorities

COVID-19. President Biden’s $1.9 trillion American Rescue Plan—a starting point for congressional negotiations—proposes funding for vaccine distribution, for expanded testing, and to address equipment and supply shortages, along with a wide array of provisions to help workers, states and localities, and shore up the economy. The White House and Congress are actively negotiating what is expected to be the first of multiple COVID-19 packages, and it is unclear whether President Biden’s spending target will hold or whether Congress will advance a smaller package in the short term. Looking ahead, Congress also will need to consider which federal flexibilities established during the pandemic should be maintained beyond the end of the public health emergency (PHE)—in particular, many stakeholders will continue to lobby for long-term relaxation of telehealth restrictions that has led to massive increases in telehealth utilization over the past year. During the first week of the Administration, HHS reduced the urgency of this issue, however, by signaling its expectation that the PHE will last through at least the remainder of this year.

In addition to initiatives that require legislative authorization, executive action responding to COVID-19 will be paramount, and nearly a dozen Executive Orders issued by President Biden reinforce that focus. On January 21, the Biden Administration released the National Strategy for the COVID-19 Response and Pandemic Preparedness. The plan builds on the previously announced vaccine distribution plan and the American Rescue Plan, and is organized across seven goals: restore trust with the American people; mount a safe, effective, and comprehensive vaccination campaign; mitigate spread through expanding masking, testing, treatments, data, healthcare workforce, and clear public health standards; immediately expand emergency relief and exercise the Defense Production Act; safely reopen schools, businesses, and travel while protecting workers; protect those most at risk and advance equity, including across racial, ethnic, and rural/urban lines; and restore U.S. leadership globally and build better preparedness for future threats.

Marketplace and Individual Market Coverage. Congress could add ACA provisions, such as enhanced federal tax credits, to a new COVID-19 stimulus package or to subsequent healthcare legislation; President Biden’s American Response Plan includes such an increase on at least a temporary basis as part of a broader strategy to preserve and expand health coverage. However, the challenges with increasing ACA tax credits are both fiscal and substantive: is the priority to soften the subsidy cliff for people with incomes above 400% of the federal poverty level (FPL), reduce cost sharing for those with incomes above 150% or 200% FPL, eliminate the “family glitch,”1 or something else? The Biden campaign focused on coverage expansion options and increasing the value of Marketplace subsidies by using higher-value Gold plans as the benchmark for determining tax credits, and in July the House passed the ACA Enhancement Act (H.R. 1425), including a range of reforms to increase subsidies and enrollment initiatives.

In addition to whether any coverage provisions pass as part of COVID-19 relief legislation, a key question will be whether Congress will pursue a federal public option through budget reconciliation later this year. The Biden campaign did not outline a specific description of the plan, other than to specify that it would be based on the Medicare program and offered on the Marketplaces. There are multiple ways to structure a federal public option, many of which would be challenging but not impossible to do under reconciliation. The design and passage of a federal public option would take time and political will; it remains to be seen whether Democratic leaders prioritize this policy.

Even if they do not, the Biden Administration has many options for shoring up the ACA and expanding enrollment, and they have already taken one important step: announcing a mid-February special enrollment period through Healthcare.gov, along with dedicated outreach funding to help connect uninsured people to coverage. The Administration also could take steps to reverse final 2022 Notice of Benefit and Payment Parameters provisions that would undermine public Marketplaces through reductions in user fees, and encourage privatization of ACA enrollment.

Consistent with President Biden’s January 28 Executive Order on Strengthening Medicaid and the Affordable Care Act, HHS could undertake new rulemaking to restore Obama-era limits on short-term plans and association health plans, restore standardized plans, revise essential health benefit (EHB) rules to limit erosion of benefits (and potentially to promote enhanced generosity), and relax burdensome verification and repayment policies. This is an ambitious and time-consuming regulatory agenda, and the Administration will need to begin work quickly to propose and finalize multiple rules. In addition, the Administration is likely to emphasize health equity in restoring funding for Navigators and others who focus on outreach to communities with high uninsured rates, as well as in pursuing a more seamless coverage continuum between Medicaid and the Marketplaces. It is less clear how the Administration will respond to the recent increase in states moving from Healthcare.gov to their own technology platforms as State-based Marketplaces (SBMs) or react to Georgia’s recently approved Section 1332 waiver allowing the state to replace Healthcare.gov with privatized enrollment.

Medicaid. In the past, Congressional Democrats have teed up a handful of near-term priorities, including increasing funding to state Medicaid programs and promoting coverage expansions that, taken together, would help states respond to short-term COVID-19 needs. However, the Biden Administration’s American Rescue Plan does not include an increase in the Medicaid matching rate; the provision could be included in legislation later this year. Similarly, with majority control and using budget reconciliation legislation as a tool, Democrats could seek coverage expansions, such as extending the duration of Medicaid coverage for postpartum women eligible for Medicaid on the basis of their pregnancy (from 60 days to 12 months)2 or giving states that have not yet expanded Medicaid the option to do so with the temporary, 100% enhanced matching rate that applied to earlier adopters of Medicaid expansion.

Stemming from last week’s Executive Order, the Biden Administration is likely to move to quickly unwind Trump Administration guidance that advanced coverage-constraining policies, such as work requirements. However, because the Trump Administration advanced many of its Medicaid priorities via waivers, some of which are already implemented by states, the Biden Administration will have to decide what, if any, actions it is willing to take to undo state-led reforms that undermine coverage and how to position itself with respect to ongoing litigation, including a pending Supreme Court case challenging Arkansas’ and New Hampshire’s work requirements waivers.

The Biden Administration also will want to shape its own policies to strengthen Medicaid and build on the ACA’s coverage expansions. Particularly where Congress does not enact federal reforms, the Biden Administration could work with states to implement waivers that establish Medicaid “buy-in” programs,3 expand coverage for targeted populations such as postpartum women, respond to growing concerns about health equity, promote coverage strategies to address social determinants of health (SDOH), facilitate Medicaid enrollment and retention, and build capacity for home and community-based services.

Drug Pricing. Democratic control over the House and Senate significantly increases the chances of action on major changes in prescription drug pricing. However, the slim Senate majority, differences in policy approaches, and the relatively higher priority of COVID-19 make the prospects for final action and the shape of that action uncertain. The House and Senate may start work from their past legislation: H.R. 3 (the far-reaching drug price control and Medicare Part D reform bill that passed the House) and the Senate Finance Committee–approved Prescription Drug Pricing Reduction Act (PDPRA) that contains large but less sweeping reforms. Drug pricing legislation will likely not advance on its own but could be contained within a larger package of health changes, including possibly within a budget reconciliation bill. Congress may also weigh in on some issues inherited from the Trump Administration’s regulatory activities, including its Most Favored Nation (MFN) Medicare Part B drug model and its regulation to eliminate the use of rebates in Medicare Part D (see below).

The Trump Administration’s aggressive attempts to use existing regulatory authority, including through the Center for Medicare and Medicaid Innovation (CMMI), to advance drug pricing reforms is something that the Biden Administration may pick up and run with. The Biden Administration faces the immediate question of how to deal with the Trump Administration’s Medicare Part B MFN model that, at the end of 2020, the courts had delayed because of regulatory law violations. While the Biden platform supports reducing drug prices, the Biden Administration may not favor the specific mechanism of the MFN model or agree with using a CMMI model for such an expansive policy change. The Biden Administration also inherited the change to Medicare Part D’s rebate structure, another Trump Administration initiative under legal challenge. This regulatory action to require the end of rebates and the use of point-of-sale price concessions has been widely panned by drug price reform advocates and health plans because it would raise Part D premiums and reduce manufacturer coverage gap discount payments. Because of litigation against the rule, the Biden Administration has agreed to a one-year delay in the implementation of its major provisions. The Biden Administration may look to Congress to further delay or kill the plan so it could use the savings to enact other priorities, possibly including improvements to the Part D benefit. The Biden Administration is also inheriting the current controversy over the use of contracted pharmacies in the 340B drug discount program.

Medicare. Congressional attention on Medicare will increase this year, given the economy and its corresponding effect on Medicare insolvency. At the same time, there is congressional interest in improving the Medicare benefit and expanding it to more people. The last Congress considered changes to Medicare benefits such as vision, dental, and hearing, and to limiting enrollee costs for current benefits by revising the Part D benefit structure (with an out-of-pocket cost cap) and improving access to low-income cost sharing and premium subsidies in both medical and drug benefits. These improvements may continue to have traction in 2021.

There is also significant interest in expanding Medicare eligibility, though proposals vary across the political spectrum: Biden’s campaign proposed to lower the Medicare age to 60, as part of an overall strengthening of the individual market. But more progressive members continue to push for Medicare for All as a program of universal coverage. All these initiatives exist against the backdrop of the Part A trust fund’s looming insolvency, projected to occur in 2024 (according to the Congressional Budget Office) or 2026 (according to the Medicare Trustees). Democrats will likely try to shore up Medicare funding mindful of protecting benefits and the entitlement nature of the program.

CMMI remains a powerful tool for the Biden Administration to experiment with policy improvement, and with a significant portion of CMMI’s latest $10 billion appropriation still uncommitted, the incoming Administration has a wide berth to act. Given the alignment with both houses of Congress, the Administration may look to the legislative process to implement more lasting changes in Medicare and to reserve CMMI for true experimentation—perhaps in areas such as bundled payment, benefits addressing SDOH, and regional or global contracting.

State Health Policy

Governors and state legislators will continue to look to the federal government for financial relief from the revenues lost to the recession and for potential federal-level health reform, but many states will continue to be laboratories of experimentation—advancing policies without federal intervention, where possible, and seeking federal approval where needed. Democratic trifecta states (15) will be ready to lead on health reform proposals that the Biden Administration likely will be interested in approving. These state-led reform models could be harbingers of future federal reforms. Republican trifecta states (23) will seek to make their mark with a different set of reform priorities to resist Medicaid expansion and other ACA reforms, and it remains to be seen where President Biden may be willing to seek a compromise with “red” states to make coverage gains. Specific policy areas to track include COVID-19, the Marketplace and individual market coverage, Medicaid, and prescription drug prices.

Marketplace and Individual Market Coverage. States may continue to consider state health reforms, such as state subsidies targeted at various populations (e.g., in New Jersey and Colorado), public options through public–private partnerships or Medicaid buy-ins (e.g., in Washington, Colorado, Nevada, and Oregon), reinsurance (if supported by federal funding), easy enrollment programs or other ways to streamline access (e.g., in Maryland), standardized plans (in virtually all SBMs), and potentially more EHB expansions modeled on modest expansions in five states recently (Illinois, South Dakota, New Mexico, Oregon, and Michigan). Healthcare.gov states will be watching the Georgia waiver, which will take two years to implement, to see whether a “skinny” Marketplace with enrollment and other functions privatized will be a viable option under the Biden Administration. Finally, a half-dozen states (Delaware, Rhode Island, Oregon, Washington, Pennsylvania, and Connecticut) are building cost-growth benchmarking programs designed to constrain state spending, modeled on an eight-year-old Massachusetts program.

Medicaid. States are reeling from the effects of COVID-19, which has placed considerable strain on their budgets, for which Medicaid is a significant line item. In all states, finding solutions to lower Medicaid spending, including drug pricing reforms (see below), will be a high priority. States also will test the Biden Administration’s willingness to expand the use of Section 1115 waivers during the PHE. The Biden transition team’s COVID-19 plan specifically references providing matching dollars for states that expedite Medicaid enrollment, and early on in the pandemic, several states submitted wide-ranging Section 1115 waivers that, for example, would have established provider relief payment pools and temporary eligibility groups. The Trump Administration did not approve these requests, citing Coronavirus Aid, Relief, and Economic Security Act (CARES) Act and other funding available to support providers. Progressive states will continue to be the incubators of health reform proposals that seek to increase coverage and lower cost sharing—some progressive states will be eyeing options to use Section 1115 waivers to cover the remaining uninsured.

Across the spectrum, states will test the Biden Administration’s interest in waivers that allow states to use Medicaid funding to reform their delivery systems and advance value-based payment goals (e.g., New York’s March-expiring Delivery System Reform Incentive Payment (DSRIP) waiver) or to tackle health equity concerns. A range of states also have proposed or are considering waivers to extend coverage to targeted populations such as postpartum women (e.g., Georgia, Illinois, New Jersey, Virginia) and incarcerated individuals prior to release (e.g., Kentucky, which recently requested federal Medicaid matching funds for services provided to incarcerated adults with substance use disorder).

Drug Pricing. State interest in reducing drug prices shows no signs of abating in 2021. States are likely to continue to experiment with means of reducing drug expenditures through state affordability boards, drug price transparency requirements, and consolidated purchasing power. California may emerge as a leader in many of these efforts, as it may seek to implement an international reference pricing model that was approved by the state legislature in 2020 while consolidating state purchases of drugs under one agency. CMS’s recent approval of a closed formulary for the Tennessee Medicaid program is likely to garner the interest of other state Medicaid programs, which may seek federal approval of similar limitations in their states. Even if litigation or the Biden Administration prevents other states from adopting such a model, state Medicaid programs may pursue lower drug costs through more aggressive negotiation of supplemental rebate agreements, following the efforts of states such as Massachusetts and New York.

1 Under the family glitch, family members (such as children and more often spouses) are ineligible for premium tax credits because of the employee’s access to employer-sponsored coverage that is deemed “affordable” based solely on the cost of individual coverage rather than the cost of a family plan.

2 H.R. 4996.

3 See State Medicaid Buy-Ins: Key Questions to Consider for more information.

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