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August 12, 2021

Budget Resolution Lowers Medicare Eligibility and Allows for Tax Increases; Calls for Congress to Lower Prescription Drug Prices

The following alert is from The Council’s government affairs team.

Senate Democrats’ efforts to give Medicare drug pricing negotiation authority and add benefits to the program cleared a major hurdle on early Wednesday morning. The Senate passed 50-49 with one senator not voting a budget resolution that sets up a $3.5 trillion infrastructure package expected to include key health priorities focusing on Medicare, the ACA and other tax provisions.

$3.5 Trillion Reconciliation Proposal

The Senate Budget Committee announced a framework agreement of $3.5 trillion in FY2022 Budget Reconciliation instructions to enact the Build Back Better agenda. The agreement calls for the $3.5 trillion in long-term investments to be fully offset by a combination of new tax revenues, healthcare savings, and long-term economic growth. In addition, the agreement would prohibit new taxes on families making less than $400,000 per year, and on small businesses and family farms. According to the Senate’s Committee on Budget memorandum, the reconciliation is, among other things, designed to fund:

  • Extending the expanded ACA premium subsidies (e.g., extend the temporary premium subsidies under the American Rescue Plan Act, as noted in Biden’s infrastructure plan)
  • Programs filling the Medicaid coverage gap
  • Expanding Medicare to include dental, vision, and hearing benefits
  • Lowering the Medicare eligibility age (e.g., from 65 to 60)
  • Programs providing long-term care for seniors and persons with disabilities (e.g., Medicaid’s home and community-based services program)
  • Programs addressing pandemic preparedness

The Council’s Take: The $3.5 trillion plan is only the budget resolution. This sets the stage for a battle that will likely stretch into the fall. The plan includes Medicare expansion provisions not only to ancillary services, but it lowers age eligibility from 65 to 60. We do not expect the eligibility provision to survive.

2020 reports indicated that Medicare’s trust fund will run out of reserves by 2026 and projected a 75-year fix would require a 26% increase in the payroll tax rate. In addition, the Congressional Budget Office says the vision, hearing and dental benefits included in a bill passed by the House in 2019 would have cost an estimated $358 billion over 10 years.

Prescription Drugs

President Biden issued a fact sheet this morning lowering prescription drug prices. The President’s plan includes:

  • Allowing Medicare to negotiate drug prices, specifically for a subset of expensive drugs that do not face any competition in the market. Medicare negotiators would be provided a framework for what constitutes a fair price for each drug, and incentives would be instituted to make sure drug companies agree to a reasonable price.
    • The Council’s take: Biden mentions the benefits of extending these savings to commercial payers as well, but does not explicitly state that Medicare should do so. The Council strongly believes that Medicare-negotiated pricing needs to be extended to the private insurance market in order to avoid placing additional financial burdens on employer-sponsored insurance plans to make up the cost differential.
  • Enforcing a penalty on drug companies that raise prices faster than inflation.
  • Establishing a cap on the amount that Medicare beneficiaries have to pay out-of-pocket for drugs each year.
  • Working to import lower-cost prescription drugs from Canada and accelerating the development and uptake of generic and biosimilar drugs.

Deeper Dive: Tax provisions included in $3.5 trillion budget resolution

In order to provide the services/benefits mentioned in the budget resolution, the Senate Finance Committee and the House Committee on Ways & Means have been instructed to find offsets totaling $1 trillion over the next ten years. Those instructions offer a wide berth to draft policies that would most certainly have to look at raising corporate taxes and those making more than $400,000 a year, there is also clear language to provide tax cuts for those making less. Additionally, instructions were given to provide a “more generous” SALT deduction than what was given during the Tax Cut & Jobs Act (TCJA), which could be vital to gain moderate Democrat support, but it’s also costly to do so.

The two committees of jurisdiction will decide what those tax increases would look like or how far they will reach, but it is expected President Biden’s American Families Plan will provide the following ideas:

  • Raise individual tax rate to 39.6% for individuals making over $450,000
  • Tax long-term capital gains and qualified dividends as ordinary income for those with taxable income over $1M, resulting in a top tax rate of 43.4%
  • Tax unrealized gains at death for unrealized gains above $1M
  • Apply the 3.8% Net Investment Income Tax (NIIT) to active pass-through business income over $400,00
  • Limit the 1031 Like-Kind Exchanges above $500,000 in deferred capital gains
  • End preferred treatment of carried interest
  • Make the TCJA’s limitation on excess losses that applies to non-corporate income
  • Increase Corporate Tax Rate

What’s Next?

House Majority Leader Steny Hoyer (D-MD-05) indicated the House will come back on August 23rd for the week to vote on the resolution and possibly even voting rights legislation.

Assuming the budget resolution passes, Democrat Leadership on both sides will spend the next several weeks working in the various committees to develop a package that appeals to both Moderate and Progressive members. Meanwhile the recently Senate-passed infrastructure bill will hang out until budget reconciliation moves forward. Congress will still need to consider what action to take on the debt ceiling and funding the government past September 30th.

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