Democrats’ Healthcare, Paid Leave Ambitions Hit Fiscal Reality

Democrats are facing tough choices on how to make good on their healthcare and paid leave ambitions as they struggle to find consensus on how to scale back the $3.5 trillion budget plan proposed in the House.

President Biden and lawmakers are now locked in contentious negotiations over how to make the bill smaller, as demanded by centrist Democrats, while addressing progressives’ insistence on fitting as much as possible into the bill. The party is now grappling with whether to try to squeeze in funding for a broader array of health and leave programs by shortening their duration or trimming their cost, or spending on fewer programs for a longer period.

Many moderate Democrats want a smaller bill to focus on long-term certainty for a handful of programs, including a House bill provision to make permanent the American Rescue Plan’s (ARPA’s) two-year (2021 and 2022) expansion and increase of subsidies for Affordable Care Act (ACA) marketplace coverage. Under the provision, marketplace coverage would continue to be fully subsidized for individuals earning up to 150% of the federal poverty level (FPL), and subsidies would continue to be available for individuals earning more than 400% of the FPL.

It’s not clear if lawmakers will push for another provision that would lower the ACA’s employer shared-responsibility benchmark for determining the affordability of employer-sponsored healthcare coverage to 8.5% (from the current 9.83%) of employee household income. As currently drafted, the provision would be effective in 2022 and the new benchmark would not be indexed for inflation. A lower threshold could affect individuals’ eligibility for federally subsidized ACA marketplace coverage, as well as employers’ potential liability for play-or-pay assessments.

Moderates’ priorities also include providing broader access to Medicaid and health coverage in states that didn’t expand the program under the ACA. The House bill aims to achieve this in part by temporarily allowing certain low-income individuals and their family members in non-expansion states get an ACA subsidy for exchange coverage even if their employer offers affordable, minimum value coverage. Employer “play-or-pay” assessments for these subsidy-eligible individuals would not apply.

Progressive Democrats support these changes but are also pushing to retain House proposals to let Medicare negotiate drug prices, expand Medicare to cover dental, vision and hearing benefits, and create a new federal paid leave entitlement. Cost concerns cloud the outlook for these proposals, but supporters are urging two- or three-year authorizations of new programs instead of making them less generous or dropping them altogether.

While Democrats hope to tap multiple funding sources to pay for all of these initiatives, they’re leaning most heavily on lowering drug prices, which could potentially save the government hundreds of billions of dollars. But there isn’t yet agreement on how best to go about it. The House bill’s plan to let Medicare directly negotiate the cost of prescription drugs is a non-starter with many moderates and can’t pass the Senate. The Senate Finance Committee is currently working on an alternative that might win broader support, but a plan has yet to emerge.

For employers, it’s critical that drug pricing reforms that reduce costs for government programs also extend those lower prices to the commercial market. President Biden and most Democrats want to do that, but whether it can be done under budget reconciliation rules, which require that legislation have a direct effect on the federal budget, is uncertain.  

Budget pressures are also forcing Democrats to consider major cuts to the House bill’s paid leave proposal. The plan would create a new program guaranteeing up to 12 weeks of paid family and medical leave for all workers, which would be available through either a new public program run by the Treasury Department, existing state paid leave programs, or employer programs. Employers offering benefits at least as generous as the federal program’s and that meet other conditions could be reimbursed up to 90% of their costs. Potential cuts now on the table include reducing or eliminating employer reimbursements, cutting the duration of paid leave, delaying the beginning date of the benefits, limiting the scope of the benefits, or limiting employee eligibility.

These cuts could encourage states to accelerate efforts to create their own programs. Already a major concern for employers is that the House bill would leave in place existing state paid family and medical leave laws and appears to leave the door open for future state action. This and an array of other potential problems with the bill’s paid leave provisions are explained in a recent analysis prepared by the Leveraging Employers And Valuing Employees (LEAVE) Coalition, a group formed by the American Benefits Council to advocate for employer paid leave programs. Mercer is a member of the coalition.

These complex discussions might not even matter, however, if Senator Joe Manchin, D-WV, gets his way. The moderate Democrat is reportedly demanding that party leaders choose between paid leave, more funding for child care, or an expanded child tax credit in order to win his support.

Manchin’s support is vital. Budget reconciliation rules allow passage in the Senate with a simple majority (as opposed to needing a filibuster-proof 60 vote) and thus would not need any Republican support, but Democrats have no votes to spare in the Senate, and can lose no more than three in the House.

House Speaker Nancy Pelosi said this week that Democrats need to make crucial decisions “in the next few days” about how to cut back the $3.5 trillion House package if they’re going to meet a self-imposed end-of-October deadline. That seems like a tall order at this point, and any final deal seems unlikely until later this year.

Geoff Manville
by Geoff Manville

Partner, Mercer’s Law & Policy Group

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