I’m thrilled to have health futurist Jeff Goldsmith back on THCB, and given Biden was only confirmed as President-elect this morning, his article on what to expect is extremely timely!–Matthew Holt
By JEFF GOLDSMITH
The Trump administration’s health care journey began with a trillion dollar near miss–the failed Repeal and Replacement of ObamaCare- and ended with a full-on train wreck, the catastrophically mismanaged COVID epidemic that will have claimed 300,000 lives by the time he leaves office. After four years of posturing and lethal incompetence, it will be a relief to see caring and professionalism return to the White House health policy under President-Elect Joe Biden.
Like Inheriting a Badly Managed World War
Like Barack Obama, Joe Biden will be saddled at the beginning of his regime with a damaged national economy. He will also walk in the door to the immediate need to manage the greatest public health catastrophe in a century as well as its economic consequences–a deep and enduring recession. Biden will be inheriting the equivalent of a badly managed World War we are presently losing.
Public health professionals who were marginalized by Trump will be challenged not only to craft coherent policy to contain and extinguish COVID but also to sell it to a frightened and polarized general public, many of whom reject the need for basic public safety measures.
Controlling COVID and rebuilding the critical public health agencies–CDC and FDA–that have damaged by political meddling will consume the lion’s share of the administration’s health policy bandwidth in its first year. It will be pressed to address a huge readiness gap–from critical PPE supplies to the development and deployment of testing and tracing capability to public health co-ordination and messaging–for the next pandemic. Increasing the presently inadequate level of public health funding (less than $100 billion a year in a $21 trillion economy) seems inevitable.
The inability of Congress to produce a fall round of COVID relief will create pressure on Biden to take immediate action to help struggling sectors of the economy, like airlines, restaurants and hospitals, as well as further help for the long term unemployed. Only a little more than half of the 22 million jobs lost in the spring have returned by November. Twenty million Americans were stranded by the July expiration of supplemental unemployment benefits as well as countless millions more “free agents” and contractors not eligible for traditional unemployment that are losing coverage at the end of the year. Mortgage, credit card and consumer loan forbearance are ending, and unless Congress acts, acres of rotten credit will turn rapidly into a banking and bond market crisis which the Federal Reserve cannot fix by itself.
State governments face FY21 deficits equaling $500 billion over the next two years , against a current annual spending base of about $900 billion. Further assistance to state and local governments will almost certainly include an additional increase in the federal match for Medicaid (FMAP), beyond the 6.2% temporary increase passed in March). Medicaid enrollment will likely top 80 million by mid 2021, almost one-quarter of the US population. Some states will have upwards of 40% of their population on Medicaid by mid-2021.
States laboring under severe revenue shortfalls will be unable to afford the expanded Medicaid program that was part of ObamaCare without a further increase in the FMAP rate. President Trump and Senate Republicans blamed the state and local government fiscal crisis on profligate Democratic mismanagement, and blocked aid to them during 2020. But Texas, Florida, Georgia and other red states have the same problems New York and California do.
Serious Fiscal Limitations Push the Health Policy Agenda Away from Coverage Expansion
Barack Obama entered office with a FY08 federal deficit of $420 billion. Joe Biden enters with a FY20 deficit of $3.1 trillion and a baseline FY21 deficit of $1.8 trillion, before adding the cost of the likely additional trillion dollar-plus stimulus package early next year. It will be passed over the dead bodies of Republican Congressional leadership suddenly recommitted to deficit reduction after racking up $8 trillion in deficit spending during the four years they controlled the federal government.
Coverage Expansion via Medicare and Public Option Unlikely
That deficit will significantly constrain a further expansion of health coverage. Not only will “Medicare for All” be off the table. Severe fiscal pressures will cause the new administration to “slow walk” a public option (which would require federal subsidies to implement) and Medicare expansion to people over age 60. These expansions were going to be controversial and politically costly because they would be fiercely contested by hospitals and other care providers concerned about the erosion of their commercial insured customer base (the source of perhaps 130% of their bottom lines) as well as the use of Medicare as a de facto price control lever.
By the time Biden addresses the first two problems–COVID and the economic crisis–he will probably have expended his limited stock of political capital and be weakened enough to be unable to take on the large messy issues of health coverage expansion and cost control. The Affordable Care Act exhausted Obama’s store of political capital, by early 2010. His administration’s failure to turn the economy cost the Democrats control of the House of Representatives and 20 (!) state legislatures in 2010.
What Can Biden Do in Health that Does Not Require Federal Spending?
Thus, the focus of Biden health policy is likely to be on items not requiring fresh spending.
Two major candidates for Biden policy activism: facilitating unionization of health care workers and antitrust enforcement. Labor unions were major Democratic supporters in this election cycle. Moreover, they were extremely active this spring and summer as advocates for the safety of health workers. They ran a very effective orchestrated press campaign to pressure large health systems such as HCA and Providence Health. Union leaders were prominent in health policy working groups for the Biden campaign after the conclusion of the primary season. Aggressively pro-union appointments to the National Labor Relations Board and legislation to facilitate union elections are almost certain to be early Biden initiatives.
Antitrust action to slow down or unwind hospital and health insurance mergers are also likely. The California Attorney General Xavier Becerra’s settlement of his aggressive anti-trust action against Sutter Health not only resulted in a huge financial payment (useful for reducing California’s budget deficit) but also forbade Sutter from “all or nothing” rate negotiations with health insurers. Spreading this approach nationally would significantly damage the financial position of large multi-hospital systems and complicate the forthcoming rate negotiation cycle with health insurers.
It is also likely that the Biden administration will continue the push begun during Trump for price transparency and disclosure of patient financial responsibility prior to service, further complicating rate negotiations with health insurers. Resolution of the deadlock over surprise billing is also likely.
Finally, Biden is likely to attack the 5% margins generated by Medicare Advantage carriers who now control 37% of all Medicare lives, and are getting a 50% share of each year’s worth of baby boomers enrolling in the program. Only half of boomers are yet enrolled in Medicare, and cutting Medicare Advantage cap rates will be a juicy target for Biden’s OMB in attempting to control the exploding federal deficit. Cutting health insurer profits is not the same as “cutting Medicare”.
Health care’s corporate sector is presently basking in record valuations and a largely favorable regulatory climate from the outgoing Trump administration, even as the care system has reeled from COVID. Financial pressures from the COVID health economy and continued slack demand for care will certainly challenge the care system, as it faces renewed regulatory and political pressures from the new administration.
Jeff Goldsmith is the President of Health Futures, Inc
States with greatest exposures are those with high unemployment, and most aggressive post-ACA Medicaid expansion. The Pacific Coast, NY, etc.
Do not agree with your point about CDC and FDA. The long term damage I referred to wasn’t from political meddling itself, but from the the departures of Senior Executive Service (aka “deep state”) folks from all federal agencies with great technical complexity. The issues raised by Michael Lewis’ Fifth Risk book from a few years ago- the complex challenges of big parts of the federal government, and the looming neglect of readiness for catastrophes in general exposed the general population to all sorts of risks, including pandemics. If you were a federal Supergrade civil servant in a technical agency and were nearing retirement, the rising politicization of issues in your space has been a goad to retirement. It will take years to replace all that expertise.
On your Sutter point, If you are a state budget officer, ANY nine figure revenue source generated by not raising taxes is like PLATINUM.
Sutter settlement was $575 million, not chump change.
Great article, Jeff.
Two small points of contention:
My impression is that the CDC and FDA failures were due to public-employee inertia, as much as political meddling;
The Sutter settlement cannot be that much help against California’s budget deficit of $54 billion.
Your highlighting of the financial crunch facing Medicaid is very valuable. At some point the ex-slave states have to be dragged into the 21st Century.
Maybe $3 trillion of the $8 trillion was due to the two big tranches of COVID relief.
You are quite correct. The tax cuts were unfunded/did not pay for themselves, and were thus a big piece of the balance.
Jeff, I’d also like to say that much of the Obama loss of control from voters was his (and Democrats) refusal jail bankers for the fraud and theft they committed.
“A big chunk of that deficit spending was bipartisan”
“Republican Congressional leadership suddenly recommitted to deficit reduction after racking up $8 trillion in deficit spending during the four years they controlled the federal government.’’
Deficits include tax cuts – like the self serving Trump cut for the rich.
A big chunk of that deficit spending was bipartisan- this spring’s fiscal stimulus package, which was the most aggressive stimulus of any major country as a % of GDP. However, when it became clear that Biden was going to win, the Senate Republicans pulled back. They will revert to the same strategy they pursued at the beginning of the Obama term. They will not commit political capital to help a vigorous economic recovery, hoping to repeat the 201o election cycle that returned the House to Republican control, due largely to a popular backlash against ObamaCare and the auto industry and banking bailouts. The anemic recovery hurt Obama for the rest of his time in office. A vigorous recovery helps Biden.
” Joe Biden enters with a FY20 deficit of $3.1 trillion and a baseline FY21 deficit of $1.8 trillion, before adding the cost of the likely additional trillion dollar-plus stimulus package early next year. It will be passed over the dead bodies of Republican Congressional leadership suddenly recommitted to deficit reduction after racking up $8 trillion in deficit spending during the four years they controlled the federal government.’
This is Trump’s legacy to the country. At least he did not get to bankrupt us as he has done with his own businesses. I doubt we will see much of health care expansion now. It’s a hollow victory, but a necessary one.