Biden’s Underwhelming Plan to Cut Health Costs

President Biden’s latest plan to lower health care costs for American households, which he outlined recently in remarks at the White House, are far too trivial to matter much for most patients. If anything, the net effect is more likely to be an increase in overall costs rather than a reduction.

The three new policies the administration announced (as described in a fact sheet) are:

• A proposed rule that would, if finalized, reimpose tight restrictions on short-term, limited-duration insurance (STLDI) and apply new limits on fixed indemnity policies;
• A new guidance document clarifying that certain billing practices violate surprise billing rules; and
• An official inquiry, beginning with a request for information issued by the Consumer Financial Protection Bureau (CFPB) and the Departments of Health and Human Services and Treasury, into the effects of credit cards and loans provided by medical service providers.

The proposed rule on STLDI and indemnity policies isn’t really a cost-cutting initiative. Its primary aim is to reverse a Trump-era policy that liberalized the rules for STLDI coverage. These insurance plans were retained under the Affordable Care Act (ACA) based on the assumption that they could serve as temporary bridge policies for individuals losing coverage due to changing life circumstances. STLDI plans can be cheaper than standard insurance because they can exclude some benefit coverage otherwise required by the ACA and also offer discounts to lower-risk consumers.

The dispute is over the length of time a person can stay covered by an STLDI plan. The Trump administration issued a rule in 2018 that set the maximum period at three years. The Biden proposal would reverse the Trump policy and limit STLDI enrollment to no more than four months.

Either way, however, very few people will be affected. The administration indicates that one survey found there were only 173,000 individuals enrolled in such plans in 2021. The STLDI market is not a consequential feature of US health care.

Still, pulling back on it will force some individuals who rely on the coverage to find other insurance, or else go uninsured. Remarkably, the draft rule admits that the number of uninsured in the US might rise if it is finalized, and that total costs could go up rather than down.

The administration also wants to limit the usefulness of indemnity policies. These are plans that it claims are supposed to operate differently from traditional health insurance by paying cash benefits to enrollees and not to medical service providers. There is no evidence presented indicating that this is a problem requiring immediate attention, or that stopping these practices will lower overall costs.

The other announced policies are even less consequential. The guidance intended to tighten requirements around surprise billing limits is just a clarification and not a new regulatory step. The suggestion by the administration is that some providers are evading the surprise billing restrictions by blurring the distinction between in-network and out-of-network facilities and also by charging facility fees inappropriately.

While it is possible that some providers are trying to find ways around the surprise billing rules, the administration provides no data or context to suggest the problem is widespread and contributes to rising costs. Nor does it attempt to estimate what consumers might save through its planned clarification.

The last item on the list—the RFI—is a study that may or may not result in a policy response that falls within the existing powers of the executive branch. The concern is that the medical sector is taking advantage of some customers by offering high-interest-rate credit cards or loans to cover their unpaid bills. The CFPB issued a report in May providing an overview of the growing use of these products. While it is possible to envision steps that curtail the use of these financing products, doing so would not necessarily lead to lower prices for medical services.

The administration seems aware that its newly announced policies might not impress, which explains why the White House announcement was paired with the release of a new study from HHS on the estimated savings to Medicare beneficiaries from the drug coverage and pricing provisions enacted by Congress last year. The study shows that starting in 2025, the average annual savings will be $400 for the 36 percent of beneficiaries who will be affected by the policies. Most seniors will see little or no change in their out-of-pocket costs.

The US spent $4.3 trillion on health care in 2021, or the equivalent of 18.3 percent of GDP. Playing it safe as the White House did with the policies it recently unveiled might be smart politics, but it won’t convince many voters that the president has a serious plan to tackle this important problem.