The House on Wednesday voted 220-211, largely along party lines, to approve President Biden's $1.9 trillion American Rescue Plan Act, providing financial relief to small businesses and households impacted by the coronavirus epidemic.
Congressional Democrats passed the bill via budget reconciliation, which allows them to pass legislation on a simple majority vote and without Republican support. The Senate last week voted 51-50, along party lines, to approve the package with Vice President Kamala Harris casting the tie-breaking vote. Rep. Jared Golden (D-Maine) joined all Republicans in the House in voting against the measure. While the latest Morning Consult poll found 76% of Americans supported the bill—including nearly 60% of Republican voters who said they either "strongly" or "somewhat" support the package—congressional Republicans have balked at the overall size of the package and the impact on the growing national debt. At the start of the relief package negotiations, a group of Senate Republicans offered an alternative $600 billion proposal. Though Biden signaled he was open to negotiations, Democrats ultimately stuck with the $1.9 trillion cost.
Unlike past Covid-19 relief packages, such as the Cares Act, the health care industry is not the primary benefactor—but that doesn't mean the industry will not feel the effects of the bill. Below, I outline four ways the American Rescue Plan could affect the health care industry in the short- and long-term.
1) More money in consumers' pockets could mean more doctor visits and paid medical bills
The American Rescue Plan will provide $1,400 stimulus checks to millions of Americans with annual incomes up to $75,000, with check amounts fully phased out for those with annual incomes of $80,000 and higher. The measure also extends the $300 weekly unemployment insurance through Sept. 6, provides full coverage of COBRA insurance premiums through September for those who were laid off amid the pandemic, and increases the child tax credit.
Each of these provisions translates to more money in many Americans' pockets. A recent Pew Research survey found 66% of low-income adults said they planned to use most of their stimulus funds on short-term items like bills or other essential needs. Meanwhile, a separate survey conducted at the end of 2020 found 66% of consumers were concerned about paying their medical expenses in 2021. The additional stimulus checks and unemployment insurance extension is likely to help at least some consumers pay needed medical bills.
2) No additional PRF funds means providers must double down on recovering patient volumes
Provider groups made three big asks of Congress as they negotiated this bill: Include an additional $35 billion for the Provider Relief Fund (PRF), extend the moratorium on the 2% Medicare payment cuts set to expire on March 31, and delay the looming 4% Medicare cuts called for under the PAYGO rules. The American Rescue Plan does not include any of these asks, at least not in full.
While the bill does not include a boost to PRF funds, the Senate did add $8.5 billion to help rural providers or suppliers cover health care expenses and lost revenues related to the pandemic. Eligible providers or suppliers must apply for the funding and provide documentation of their Covid-related expenses and revenue losses. One notable change is the Senate ultimately removed a requirement for parent organizations to pass all of the funding on to the rural provider. The bill also provides $500 million in grant funding for Department of Agriculture to award to eligible entities, including rural hospitals, to help cover pandemic-related expenses. In addition, the bill restores the wage index "rural floor" for hospitals in states considered all urban beginning Oct. 1, 2021 (currently this applies to Delaware, New Jersey, and Rhode Island), and ensures ambulance providers are fully reimbursed when Covid-19 prevents them from transporting a Medicare beneficiary to an approved location. But the bill does not include any additional funding for the PRF—and it's not entirely clear that more funding was needed.
The latest data—and our own conversations with hospital executives—suggest that hospitals are OK for the near term. The Cares Act provided grants and loans to hospitals when they needed it most—and those funds, coupled with the winter surge in Covid-19 cases that filled hospital beds, appears to have staved off any immediate solvency crisis for providers. The extra costs and relatively meager reimbursement for Covid-19 patients have certainly eroded margins—even with the extra volumes—and the Cares Act money was almost certainly necessary to keep providers in the black. But most CFOs report that loans are getting repaid, and that they expect volume growth in 2021 to at least partially restore profitability.
And while the exact amount remains uncertain (AHA previously said $4.4 billion was left in PRF, but other estimates have placed that number higher), the PRF still has funds available for hospitals that are in need so it's not too surprising that lawmakers were unwilling to divert funds from other needed areas (rural hospitals, schools, states, and vaccine and testing efforts to name a few) to put more money into PRF.
But the long-term picture looks different. Future profitability will be determined by hospitals' ability to recover patient volumes for scheduled care. The latest data indicate hospitals could lose up to $122 billion in 2021 if vaccine distribution wanes and hospitals do not recover patient volumes lost amid the pandemic. And this figure does not include the sequester cuts that are set to take effect March 31 or the 4% Medicare cut under PAYGO rules that the Congressional Budget Office (CBO) said would be triggered in 2022. That means hospitals, physicians, and other Medicare providers would receive lower reimbursement at a time when they are still recovering from the pandemic. It's worth noting, though, that Congress does have time to act to stave off those cuts, and a bipartisan group of lawmakers recently said there is bipartisan support to tackle that issue after Congress passed the Covid-19 relief package.
3) More people could gain coverage via the ACA's exchanges and Medicaid expansion
The legislation also takes initial steps toward the coverage expansions Biden campaigned on, making notable updates to the Affordable Care Act that temporarily address what some public health experts have labeled the ACA's affordability problem and offer holdout states a financial incentive to expand their Medicaid programs.
First, the bill eliminates the so-called "subsidy cliff" that prevents individuals with annual incomes over 400% of the federal poverty level (FPL) from qualifying for subsidies to offset the cost of purchasing coverage on the ACA's exchanges. Under the bill, people above 400% FPL will qualify for subsidies and their premium costs will be capped at 8.5% of their incomes for two years. The bill also fully subsidizes coverage for people with annual incomes up to 150% FPL for two years. CBO projected the provision would cost $4.5 billion over the 2021-2030 period and lead to 1.3 million fewer uninsured people in 2022.
The changes are being lauded as a win for consumers who will have access to more affordable coverage, providers who benefit from a lower uninsured rate, and insurers who are likely to see a temporary increase in enrollees for 2021 and 2022. But it's important to remember that these provisions are temporary—the funding to cover the additional subsidies is allocated for two years—and Congress will need to take additional action to keep those coverage expansions in place.
The bill also includes a carrot for the 12 remaining states that have not expanded Medicaid under the ACA. Currently, the government pays 90% of states' expansion costs for the first three years. Under the bill, the government would still cover 90% of those costs, but it also would provide a 5% FMAP bump for the states' non-expansion population if they choose to expand their Medicaid programs under the ACA. But it's not yet clear if states will take the carrot. Governors in states that have not expanded their Medicaid programs continue to face political hurdles regarding the ACA. But many of those governors are likely to feel increased pressure to expand Medicaid coverage from both a budget standpoint and local advocacy groups. Already this year, we’ve seen ballot initiatives to expand Medicaid in at least four states. .
4. Cap on drugmakers' Medicaid rebates will expire in 2024
One interesting provision that has largely flown under the radar will eliminate the cap on Medicaid inflation rebates in 2024. Under current law, Medicaid requires drugmakers to pay a rebate for brand-name and generic drugs, as well as an inflation rebate penalty for drugs whose prices rise faster than inflation. The ACA capped the maximum total rebate, meaning the sum of both the basic rebate and the inflation rebate, at 100% of the drug's average manufacturer price.
However, the American Rescue Plan removes the 100% cap, opening up the potential for drugmakers to pay rebates that exceed the price of their drugs. This scenario is only possible if a drug's price increases faster than inflation, but in such cases, the total rebate that the drugmaker must pay to a state Medicaid program could total more than the drug's average manufacturer price.
MACPAC recommended this change back in 2019, noting that it would save states money and act as a disincentive for steep price increases. CBO last month projected the change would reduce federal Medicaid spending by $15.9 billion over 10 years. However, some experts have noted that the change could prompt drug manufacturers to simply set higher prices for new drugs or adopt other cost shifting mechanisms.
Another key component is which drugs will be affected by the change. In 2019, MACPAC noted that 18.5% of brand-name drugs hit the 100% rebate cap during the fourth quarter of 2015. While the rule change is likely to affect drugs like insulin that have seen steep price increases in recent years, it may also curtail price increases for lower-cost generics that have lower margin for drugmakers to begin with.