DC Quick Takes: Speaker’s Vote, the Debt Limit and Healthcare Extenders

Debt Limit

We have long believed that there would be no real debt limit crisis during this Congress with Republicans holding the House, Senate and White House, and we still hold that view.  Yes, Congress might wait until the last moment to extend the debt limit as is usually the case, but we see it being extended without going over the “X” date, which we expect to be sometime in June.

However, despite Trump’s insistence, we doubt the debt limit is eliminated since conservative congressional Republicans will argue that it can act somewhat as a governor on spending. However, in reality, the debt limit hasn’t had much of an impact on forcing spending cuts.     

How the debt limit will be extended is another question. We think the easiest way would be to add it to an omnibus spending bill that needs to pass by March 14 to avoid a government shutdown.  That appropriations bill very likely will require bipartisan support, which means that a debt limit extension could catch a ride.  However, such a move will surely incense the ultraconservatives in the House.

In addition, Speaker Johnson has stated he wants to pair $2.5 trillion in spending cuts with a $1.5 trillion debt limit increase.  We see this as an unlikely scenario. We still can’t figure out how Republicans are going to pay for the tax bill, and any budgetary savings that could be coupled with a debt limit extension will likely try to be used to offset the ~$5 trillion tax package in our view, assuming those cuts conform to the reconciliation’s Byrd rule. Offsetting a debt limit extension seems to be a luxury the Republicans can’t afford.

Republicans have also talked about adding a debt limit extension to a reconciliation bill. Right now, it appears that Republicans intend to pass two reconciliation bills. The first one, which is expected to focus on immigration, energy and potentially defense spending, would be passed within the first ~100 days of President Trump’s term while the second, much larger one that would include extending the Trump tax cuts would likely pass in Q4, which is after “X” date when the debt limit needs to be raised.

While a debt limit increase could be added to the first reconciliation bill, we doubt that measure could pass if it includes such an extension. Simply put, we see at least a dozen House Republicans opposing the bill if the debt limit is added. 

Republicans are probably looking at other ways of passing a debt limit extension and while we don’t see a clear way of the debt limit being addressed, we highly doubt that the “X” date is crossed.

Healthcare Extenders

We expect the healthcare extenders package, which was largely discarded from the late December CR after weeks of negotiation, will be resurrected and added to either the March government funding bill or the first reconciliation measure being eyed during Trump’s first 100 days. We ascribe higher odds of attachment to the spending bill, which must be passed by March 14 when current funding for the government and the few federal healthcare extensions run out.

Recall that the healthcare extenders package intended for the initial December spending band-aid would have included:

• A partial one-year Medicare physician fee fix and bonus bump in the Medicare alternative payment model.
• A two-year delay to cuts of the Medicaid disproportionate share hospital bonuses.
• A two-year extension of telehealth waivers.
• PAYGO waiver of the maximum 4% cut in Medicare reimbursements.
• Limits on prior authorization in Medicare Advantage.
• Requirements for updated provider directories in Medicare Advantage.
• Medicare coverage of multicancer early detection screening tests.
• Codification of insurer and price transparency.
• Longer-term extensions of Medicare, Medicaid and federal healthcare spending programs that were set to run out January 1.
• Multiyear reauthorization of the Pandemic and All Hazards Preparedness Act (PAHPA), SUPPORT Act, and the FDA’s pediatric priority review vouchers.

This healthcare package would have also included the following payfors: 1) PBM reforms (mandatory PBM disclosures to employer/insurer clients, mandatory rebate pass-through to commercial customers, Medicare Part D delinking of compensation from drug price, Part D standardized pharmacy provisions, Medicaid spread pricing ban and Medicaid pharmacy payment policies); 2) extension of Medicare 2% sequestration cut on providers; 3) requirement of tax identification numbers for all off-campus hospital outpatient departments; 4) extension of Medicare hospice cap indexing changes; 5) ban on drug patent thickets; 6) and a reduction of the Medicare Improvement fund.

However, the only healthcare items that survived into the final short-term CR were three-month extensions of the telehealth waivers and limited Medicare spending as well as PAYGO waiver that averted the potential maximum 4% cut to all Medicare reimbursements. The rest of the above healthcare items were left unaddressed, which we think will very likely be taken up for debate and passage during Q1.

One item likely to be added to this healthcare package – and providing additional savings – is the repeal of the Biden regulation imposing minimum nurse staffing requirements for nursing homes.   

While the healthcare package could be added to the immigration/energy/defense reconciliation bill, especially if it takes precedence over government spending measure, we think such a move would force Congress to split up the healthcare policies as a few (some PBM reforms, healthcare price transparency, reauthorizations of Pandemic and All Hazards Preparedness Act and SUPPORT Act, etc.) could run into obstacles under the Byrd rule. Yet, the bipartisan support for these items may save them from the budget reconciliation cutting room floor as we have a hard time seeing Democrats raise a budget point of order and kill these policies that they have long called for.