What can health care and life sciences organizations expect from a Biden administration?

By Anne Phelps, principal, US Health Care Regulatory leader, Deloitte & Touche LLP and Sarah Thomas, managing director, Deloitte Center for Health Solutions, Deloitte Services LP

On Saturday, November 7, the Associated Press and other major networks projected that Joe Biden won enough electoral votes to become the 46^th president of the United States. Senator Kamala Harris (D-Calif.) will serve as vice president, becoming the first woman ever elected to that office. What remains unclear is which party will have control of the Senate when the 117th Congress is seated. As of the time of this writing, four Senate seats have not yet been called. Two of these races—both in the state of Georgia—are heading to runoff elections on January 5 because no candidate received at least 50% of the vote in the general elections. As a result, control of the upper chamber will not be known until early next year. It is possible that the Senate could have a 50-50 split, which would effectively give Democrats control with incoming Vice President Harris serving as the tie-breaker in close votes.

We expect the new president will work closely with the Democratic-led House to highlight his policy priorities. If we wind up with a Republican-majority Senate, the White House will need to find common ground to advance any health care proposals. Enacting legislation will require bipartisan agreement in the Senate. Liberal proposals that had been discussed during the campaign—such as the creation of a government-run public insurance option and lowering the Medicare-eligibility age to 60—could be dead on arrival. Some policies could be put in place through regulation or other executive action. Regulatory changes, however, might include stakeholder engagement, which could take more time. Some of the easiest policies to put in place are those that set priorities for federal agencies. For the US Centers for Medicare and Medicaid Services (CMS), this includes starting new pilots and demonstration projects, or modifying existing ones as well as exercising waiver authority.

One of the first important activities for the Biden administration will be to select cabinet nominees and critical agency heads. For health care, this will mean a new secretary for the US Department of Health and Human Services (HHS) and new heads for public health agencies, including CMS and the US Food and Drug Administration (FDA). Many of these posts must be confirmed by the Senate. A Republican majority in the Senate could have a moderating impact on agency heads. Some agency heads have served under both Democratic and Republican administrations, such as the head of the National Institutes of Health, which could also occur under the Biden administration. 

Senate control likely won’t be known until January

If Democrats win a majority in the Senate, it could be easier for the Biden administration to advance its health care policies. His health policies focus on three areas:

• Expand and support Affordable Care Act (ACA) coverage provisions, including the expansion of existing tax credits to more individuals.
• Create a public insurance option for individuals to enroll voluntarily, with automatic enrollment for certain uninsured individuals and no premiums for Medicaid-eligible individuals in the 14 states that chose not to expand Medicaid.
• Lower the eligibility age for Medicare from 65 to 60 years.

All three of these policies would require Congress to pass legislation. Such legislation would likely require negotiation of various policy views to determine specific details and costs to the federal government.

A public insurance option would likely impose either Medicaid or Medicare payment rates (or some ratio of payment above those rates) on hospitals and other health care providers. It would also likely constrain payments for drugs, for example through negotiating prices with drug companies. The Biden proposal states that a public option would compete against commercial health insurance plans, would be transparent and accountable, and would have limited profit and administrative costs. Health care providers and drug companies would be required to accept lower payment rates than might typically be negotiated with commercial health plans. This could be a condition for receiving Medicare or Medicaid payment. The benefit design would include low cost-sharing, which might be something that private plans could offer, too.

The idea of a new government-run program appeals to proponents because it holds the promise of lower premiums—and potentially reduced cost-sharing—because it would pay less to providers and would not need to generate a profit. It also is being described as a choice, rather than a wholesale revamp of our health care system. Opponents raise concerns about how this might unfavorably affect competition among private health plans and negatively impact payments to providers and drug companies.

Lowering the Medicare eligibility age to 60 could lower premiums in state insurance exchanges because relatively older people would leave that risk pool. It also might reduce premiums in Medicare since these younger individuals would be relatively healthy compared with today’s Medicare enrollees. The lower eligibility age might also expand the number of people enrolled in Medicare Advantage (MA) plans. Such a proposal would likely require new funding to make premiums affordable.

As mentioned above, Congress would need to develop and pass all of these proposals before they can be enacted. And program designs and funding strategies are likely to be contentious.

One tool the administration can use to influence coverage and other health reforms is waiver authority. CMS can use this both in the context of state Medicaid programs and for insurance reforms. A Biden administration could change the Trump administration’s policies that have been open to states’ use of work requirements, for example. It could also renew programs that support large-scale value-based care and delivery-system reforms at the state level.

Biden to create COVID-19 taskforce

The COVID-19 pandemic is expected to be the new administration’s top priority. Incoming President Biden has announced the formation of a COVID-19 taskforce that will offer advice and recommendations. More than 237,000 Americans have died because of COVID-19, and infection rates are rising in most parts of the country. On November 8, Reuters reported that the taskforce would be led by former US Surgeon General Vivek Murthy, former FDA Commissioner David Kessler, and Dr. Marcella Nunez-Smith of Yale University.

During the lead-up to the election, health care—particularly the COVID-19 response and long-standing issues around affordability and equity—was a prominent issue for voters. Biden has called for a seven-fold increase in testing. He intends to urge the new Congress to quickly enact legislation to fight the virus. He also has called for the development of faster screening tests that can be taken at home or at school. He wants the federal government to take a larger role in producing testing supplies and personal protective equipment and has said he will urge governors and local officials to require mask-wearing. He also has mentioned global coordination.

Another significant issue is when Congress will enact further COVID-19 economic measures and what would be included. Such legislation is something that many economists—including Deloitte’s Chief Global Economist, Ira Kalish—have said is critical for a strong economic recovery. Some of the policies that Biden supports might be part of legislation enacted during the lame-duck session or might wait until the new president and Congress are in place. These policies might include increasing pay and requiring paid leave for health care workers. Legislation might also include policies that have been included in prior Republican and Democratic proposals, such as funding an emergency package for schools and developing a financial package for small businesses.

Health coverage

During the primaries, several Democratic presidential candidates offered policy ideas to address health coverage and affordability. It will take some time before we see how many people went without health coverage in 2020, or how many switched from commercial insurance to Medicaid or other coverage. As of May 2020, Medicaid covered about 20% of Americans.¹ One recent study found that states expect Medicaid enrollment to grow more than 8% in 2021. This increase in Medicaid coverage could be a challenge for state budgets, many of which are already strained from public health investments to address COVID-19. Another study found a large increase in uninsured between February and May 2020,² but we will not know whether some of those individuals were able to secure coverage later in the year. Last year, about 11 million people were uninsured, according to our analysis of Medicare for All and other health policy issues discussed during the presidential campaign.

One tool the administration can use to influence coverage and other health reforms is waiver authority. CMS can use this both in the context of state Medicaid programs and for insurance reforms. A Biden administration could change the Trump administration’s policies that have been open to states’ use of work requirements, for example. It could also renew programs that support large-scale value-based care and delivery-system reforms at the state level.

Speaking of coverage, what about the Supreme Court?

On November 10, the ACA will make its third appearance before the Supreme Court. The latest lawsuit again challenges the constitutionality of the individual mandate. 

In 2017, the Republican Congress set the individual mandate’s tax penalty to zero in the Tax Cuts and Jobs Act. More than 25 states brought suit, arguing that by zeroing out the penalty, Congress effectively “repealed” the individual mandate and it was no longer constitutional. The lower court agreed and further stated the individual mandate is not “severable” from the law and therefore the entire ACA is unconstitutional.

The Supreme Court under Justice John Roberts previously held that the individual mandate is a “tax” and is therefore constitutional under Congress’s taxing authority. The Court did not rule on the question of whether the individual mandate could be separated from the rest of the law.

On one hand, the Court further ruled that the Medicaid-expansion provision was unconstitutional because it was coercive to the states (and thus the States had to proactively legislate to enact the expansion provisions). But in doing so, the Court found the Medicaid expansion was severable from the rest of the law, so whether a state acted or not, the rest of the law could remain intact.

On the other hand, the Medicaid expansion might not be a useful precedent because it might not be considered to be as core to the law as the individual mandate, which is a policy that was designed to attract a good cross-section of people (from a health risk perspective) to the insurance pool.

A key question is how the Supreme Court might rule on the latest challenge. Here are a few scenarios:

1. The individual mandate remains constitutional.
2. The individual mandate is unconstitutional, but it is severable from the entire law, and/or certain portions of the law remain.
3. The individual mandate is unconstitutional, and it is not severable from the entire law or certain portions of the law must fall. 

A decision is not expected before spring or early summer 2021. There is a legal basis for the law to be upheld, but it is hard to predict the outcome. A new Congress will be in place to deal with any fallout.

Presidential Executive Order(s) do not hold the weight of law. Congress could take action to prevent the ACA from the threat of Supreme Court ruling on this matter by legislatively reinstating the penalty for not having health insurance coverage. Even a very small penalty (say a dollar) would make the severability argument moot.

While it is impossible to predict how the Supreme Court might rule, legal rationale and previous rulings suggest that the Court could uphold the ACA once again. Conservative justices tend to be conservative in their legal readings rather than ruling based on politics. Case-in-point is Justice Roberts and his strict reading of the law and decisions to uphold the ACA despite being appointed by Republican President George W. Bush.

Drug prices and delivery system reform

Over the last four years, Congress and the Trump administration have been working on policies to address drug prices, increase health care price transparency, and make improvements to care delivery by encouraging the use of new coordinated care payment models and interoperability of health care data. While the Biden administration might make changes through the regulatory process, we expect the focus on these issues—as well as the many programs driving better value in health care—to continue.  

Last year, the House passed legislation on drug pricing that would have set payment rates to an index of payments from other countries (that legislation was not taken up in the Senate—the Senate Finance Committee developed its own legislation, which has not come to the Senate floor for a vote). The Trump administration has outlined, but has not yet advanced, a demonstration that would tie prices for Part B drugs to an international price index (IPI). Recently, Biden has talked about the appeal of the German system for setting drug prices, which ties prices in part to a measurement of their value.³ Such a policy would require legislation to implement.

Biden has said he aims to reduce complexity in the health care system, including addressing surprise billing. He’s also said he would take on consolidation, which has the potential to dampen merger and acquisition activity. His platform further includes policies to improve veterans’ health, rural health, and address disparities and equity in health care, caregiving, and retirement.

What will this mean for our life sciences and health care clients?

Democrats have tended to place a greater emphasis on regulatory and enforcement activity in the past. It is reasonable to expect a change from the Trump administration’s focus on deferring to states over expanding federal regulation, even if some of the goals are similar. Greater oversight of federal spending, such as how federal funding for COVID-19 relief was spent, and other compliance activities may increase.

New coverage proposals and reforms to drug pricing might bring significant shifts in how health care and life sciences companies operate and get paid. However, any major change to coverage or payment policy is likely to take time and get shaped by many stakeholders before passage and implementation.

Every new president comes in with political capital after winning an election, but they need to quickly organize their administration and choose among competing priorities. President-elect Biden should work with the new Congress to prioritize and deliver on a signature accomplishment or immediate wins. Such a plan could be omnibus in nature—affecting health, climate, the economy, infrastructure, and tax. But the greater the complexity and the disruption of interests, the more challenging it is to forge agreement.

The response to COVID-19 and the ability to help people safely return to work and school will likely remain the critical health care issue for most Americans. We predict that health care policy changes are likely to be incremental/continuation of current trends or, even if bigger policies like the public option or Medicare expansion move forward, we think there will be time to scenario plan this fall and into 2021.

Endnotes

^{1.   Medicaid enrollment & spending growth: FY 2020 & 2021, Kaiser Family Foundation, October 14, 2020}

^{2.  The COVID-19 pandemic and resulting economic crash have cause he greatest health insurance losses in American history, Families USA, July 17, 2020}

^{3.  What about the German negotiation model? Biden steers drug pricing debate to a showdown, Endpoints News, October 19, 2020}

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