Private Insurance Wins in Democrats’ First Try at Expanding Health Coverage



Democrats spent much of the 2020 presidential primary debating the best way to expand public health insurance. They sparred over whether to enroll everyone in public coverage — the preferred policy of Senator Bernie Sanders — or to give everyone a choice to do so, the public option plan that President Biden supports.

The candidates repeatedly proposed a future in which private insurers play a diminished role in the American health system — or no role at all.

But the first major legislation of the Biden administration, if it passes in the Senate, moves in the opposite direction: It proposes spending billions to expand private health insurance coverage to millions more Americans.

The American Rescue Plan, a $1.9 trillion stimulus package that the House passed last week, would increase government subsidies to health insurers for covering recently laid-off workers and those who purchase their own coverage.

The new subsidies do not preclude future legislation that could make public plans more available. Some congressional aides say they are already laying groundwork for the inclusion of a public option plan in a legislative package expected later this year. And the stimulus package does introduce an incentive for states to expand public coverage through Medicaid, though it is unclear whether any states will take it up.

The decision to start with subsidizing private insurance shows how it can often be the path of least resistance when legislators want to expand coverage. The changes can slot neatly into a pre-existing system, and tend to garner support from the health care sector (which benefits).

“The politics of expanding public coverage in a way that would shift people to public insurance gets tricky really fast,” said Karyn Schwartz, a senior fellow at the Kaiser Family Foundation. “There are very concrete losers: the providers who would see their payments go down.”

Private health plans cover 176 million Americans, outnumbering the combined enrollment of Medicare and Medicaid. The stimulus plan would probably increase private insurance sign-ups by a few million people with the new subsidies it provides to those buying their plans.

The American Rescue Plan spends $34 billion expanding the Affordable Care Act subsidies for two years. The changes would make upper-middle-income Americans newly eligible for financial help to buy plans on the Obamacare marketplaces, and would increase the subsidies already going to lower-income enrollees.

The stimulus package also subsidizes private health insurance premiums for newly unemployed workers. They typically have the opportunity to purchase their former employers’ health benefits through a federal program called COBRA, which can often be prohibitively expensive because the employer is no longer paying a share of the worker’s premium.

The legislation that the House passed would cover 85 percent of COBRA premiums through September. The Senate plans to bump up the amount to 100 percent, meaning the government would pay the full cost of premiums. The Joint Committee on Taxation estimates the more generous Senate version will cost $35 billion.

There is not yet an estimate of how many people would gain coverage under the Senate plan, but the Congressional Budget Office did estimate that the original House version would reach 2.2 million former workers.

These policies have moved forward easily and with little opposition. The health care industry has generally supported the changes because private health plans typically pay higher prices to doctors and hospitals. Democrats who support expanding public coverage generally describe these changes as low-hanging fruit — the changes they could accomplish quickly to expand coverage.

But some progressives have questioned the decision to route patients into private health plans, which will cost the government more because of the high prices they pay for care.

“I don’t think this was the most efficient way to do this,” said Pramila Jayapal, a Democratic congresswoman from Washington State, who is the lead sponsor of the House’s Medicare for All bill. She proposed legislation that would have allowed unemployed Americans transition to Medicare rather than staying on their former employers’ plans.

This did not move forward. Nor has a plan from Senators Tim Kaine and Michael Bennet to create a version of Medicare, which they call “Medicare X,” available to all Americans.

In recent years, Democrats have increasingly embraced the idea of a large expansion of public health benefits. The public option would give all Americans the option to sign up for a Medicare-like plan, and a “Medicare for all” program would move everyone to a government health plan.

Polling shows public support for each idea also going up, with the public option tending to rank more favorably than Medicare for all.

Those types of public coverage expansions tend to be politically divisive in Washington. They often draw fierce opposition from the health care industry for the same reason supporters like the policy: They would be disruptive, and significantly reduce fees paid to hospitals and doctors.

A Kaiser Family Foundation report this week estimated that total health spending for those with private insurance would decline by $350 billion in a year if those private plans paid claims at Medicare rates.

“You can’t take $350 billion from a system and expect it to look exactly the same,” said Ms. Schwartz, an author of the report. “Every time I drive past a hospital, I see a big construction project. You’d probably see less of that.”

In coming years, Democrats will probably confront more decisions about how to expand coverage. The new Affordable Care Act subsidies expire at the end of 2022, setting up a figurative cliff in which premiums would go back up if Congress did not act.

Democrats could use the moment to make those changes permanent, further solidifying the role of private health insurance. If enrollees find themselves satisfied with their increasingly subsidized plans — if they perceive the coverage as more affordable because the government pays a bigger share of the tab — the urgency to expand public coverage may lessen.

“Sometimes the path of least resistance is self-reinforcing,” said Jacob Hacker, a political scientist at Yale who helped develop the public option plan supported by Mr. Biden.

But legislators could find themselves balking at the price tag. Making the subsidy permanent would most likely cost hundreds of billions. That could push the party to think about the cheaper but more politically challenging route of expanding public plans.

Which way the party goes could depend on whether Democrats continue to hold a majority in both chambers of Congress, and if the caucus can unite around expanding public coverage in the same way it has around increased spending on private plans.

“It’s revealing that they’re sun-setting the expansion of subsidies, and not dealing with the longer-term challenge of how do you finance this,” Professor Hacker said. “Their plan to bolster the A.C.A. is the path of least resistance, but it’s a path that only takes you so far.”

Margot-Sanger Katz contributed reporting.


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