By David Bowen, executive vice president and global lead for the healthcare practice at Hill+Knowlton Strategies. This is part of a series of analysis and commentary that was provided by Hill+Knowlton Strategies public affairs counselors and political experts around the globe following the 2016 U.S. election.
If I had a dollar for every time since Nov. 8 that someone has asked me, “What’s going to happen to healthcare?”… well, I still wouldn’t have enough to afford a suite at Trump Tower — but close.
According to a pre-election tweet, President Trump will “immediately repeal and replace ObamaCare. We will save $’s and have much better healthcare!” How exactly he plans to do so is the $3.2 trillion question facing the US healthcare system – as is the exact meaning of the term “immediately.” No one has a perfect crystal ball to predict the answer, but comments by the Republican majority in Congress and the president-elect, as well as key health appointments, give strong clues on the direction healthcare will take in 2017 and beyond – and its impact on hospitals, pharmaceutical companies, insurers and patients.
Much attention has focused on the selection of Rep. Tom Price as the future nominee to be Secretary of Health and Human Services, but almost as important is the selection of Seema Verma to be the future Administrator of CMS, the most important agency that most Americans have never heard of (although it handles about a trillion dollars of spending a year).
Not surprisingly, Rep. Price has a clear track record as a conservative health policy expert. He currently chairs the House Budget Committee, from which he has had the ability to influence the direction of health entitlement programs, though that influence has been limited by a divided Senate and a Democratic president. As of Jan. 20, those constraints change.
The appointment of Seema Verma as Administrator of CMS has been lower profile but may be equally significant. As expected, she is also a conservative, but unlike some conservatives, who do not believe the Federal government should have any role in healthcare, Verma has embraced Medicaid expansions, although with a conservative twist. It is hard to see how this viewpoint and work experience could be reconciled with the complete repeal of the Medicaid expansion that was a major part of the ACA.
Repeal and Replace or Replace and Repeal?
Much depends on the timing of implementing the promise to repeal the ACA and replace it with some as yet unidentified Republican alternative. If the two are done synchronously, then repeal must necessarily wait until there is a replacement bill on which a functional majority in the House and Senate can agree. To create any significant healthcare structure, 60 votes would be needed to surmount a Senate filibuster.
By contrast, the procedural rules of the Senate would allow an extensive level of repeal under budget reconciliation procedures. One of the few exceptions to the requirement that doing business in the Senate requires at least 60 votes is the set of rules pertaining to the budget resolution and to bills that “reconcile” current law with that budget. Such bills follow expedited procedures that disallow filibusters and require only a simple majority for passage. To prevent these procedures from being used for routine legislation, these special rules apply only to matters directly pertaining to the budget. While it would be impossible to create a new healthcare structure out of whole cloth under budget reconciliation rules, it is possible to eviscerate key provisions of the ACA under these rules, essentially taking a shotgun to the law.
If the ACA is repealed before a replacement bill is ready, as many as 30 million people would lose coverage, according to a recent Georgetown University study. Gone too would be the $32.8 billion in tax credits provided to subsidize private coverage. Since four of the top five recipients of these Federal payments are the red states of Florida, Texas, North Carolina and Georgia, the cuts would come close to home for many Trump supporters. Also lost would be the $79 billion in Federal payments to states that have expanded Medicaid, received in the period between January 2014 and June 2015, with billions more on the way.
The current Republican plan seems to be to try to have their cake and eat it too, by enacting a repeal bill immediately, but delaying its effective date for three years while they try to come up with a replacement. Even this approach has come under attack as too timid from the House Freedom Caucus, who would prefer an immediate repeal and see two years as the absolute maximum for a delay. On the other hand, more moderate Republicans such as Lamar Alexander, the chair of the Senate HELP committee, have begun talking about a “replace and repeal” approach under which a repeal bill would not be approved until the replacement was ready. That may not happen soon. Having had the job of helping round up 60 votes in the Senate for a comprehensive health reform bill 7 years ago, I can assure you that it’s no easy task. In the years that followed, Republicans have spoken fervently about repeal and replace, but have yet to produce even a draft of a replacement bill.
There is a broader question of whether a repeal-only bill can command a majority in the Senate even under budget reconciliation rules. Republicans have previously received what amounts to a free pass from many stakeholders on several dozen repeal votes, since all of them were either doomed in the Senate or would face a presidential veto. It was easy for stakeholders to calculate that it was not worth angering the Republican majority by strenuously opposing a bill that would never become law. In January, all that changes. Suddenly, Congress will be firing real bullets, and may find that the reactions of patients, hospitals, doctors, businesses and many other key political players becomes a lot more heated than when they were shooting repeal blanks. The first salvo of opposition has come from the two groups representing most major hospitals in America, who warned that repeal would cost U.S. hospitals $165 billion and would result in “an unprecedented public health crisis.” If a repeal bill is enacted, even with a delayed effective date, insurers may also simply drop away from a marketplace that has been placed on death row – with Republicans rather than Democrats now on the hook for the political consequences of such dropouts. If a repeal bill does pass with a legislative time bomb ticking down till its effective date, where do the 60 votes come from in the Senate to enact a replacement – and will the Republican majority really let the bomb explode if those votes can’t be found?
Could a replacement bill, if one can be passed, simply end up being Obamacare Lite? If the repeal bill simply exempted provisions that President-elect Trump has already said he supports, such as prohibiting coverage denial based on pre-existing conditions, then the result is an unsustainable insurance market. If insurers are forced to insure all comers regardless of risk, the system quickly becomes unsustainable unless other provisions are included to make the system viable, such as a requirement to obtain coverage and financial subsidies to afford that coverage. Nationally, over 50 million adults under 65 have pre-existing conditions that could make them uninsurable, with the highest concentrations in states that voted heavily for Donald Trump, such as West Virginia, Mississippi, Kentucky and Alabama.
There are multiple ideas floating around conservative think tanks for quasi-mandates, such as closed enrollment periods, followed by penalties for non-enrollment, but all have the same basic structure: a penalty of various kinds for not maintaining coverage. If there is such a penalty, it would become a de facto tax increase on lower and middle income families (as the overwhelming majority of the uninsured are) unless paired with some kind of financial support. And once you have guaranteed issue, a requirement to maintain coverage, and Federal subsidies … that sounds a lot like the ACA, especially if the Medicaid expansion is retained.
To be sure, Republicans would nail some pelts to the wall to show that the replacement bill is different than the ACA. The Independent Payment Advisory Board, the device tax, the “Cadillac Tax” and a number of other high-profile provisions of the ACA that are particularly loathed by conservatives will be long gone from any replacement. Repealing these provisions will, however, massively increase the deficit, and it will be interesting to see if the zeal for deficit reduction persists among Republicans once President Obama departs the White House.
Beyond the insurance reforms of the ACA, the next biggest question in healthcare is what happens to Medicare and Medicaid. (Spoiler alert: not as much as you might think).
Speaker Paul Ryan has outlined a sweeping plan to privatize Medicare. Instead of a defined benefit program that promises to pay the medical costs of seniors, the Ryan “Better Way” plan would transform Medicare into a defined contribution voucher program in which seniors would receive a “premium support” payment toward the cost of private insurance, essentially replacing a right to healthcare with a discount coupon.
As with the previous ACA repeal bills, major stakeholders did not engage fully in opposition to Speaker Ryan’s plan while it had no chance of enactment, but if privatization were to move forward, groups representing seniors would fight hard in opposition. Few senior Senate Republicans have embraced this kind of massive transformation, so its adoption in full seems unlikely. More plausible is an expansion of support for private Medicare Advantage plans that would not transform the current Medicare structure.
Medicaid expansion was one of the primary means of increasing coverage under the ACA, although the impact of the law was blunted by the Supreme Court’s decision that expansion would be optional for states. Even with 19 states having declined to expand Medicaid, nearly 16 million Americans gained coverage under the expansion. If repeal of the ACA is decoupled from a replacement that preserves this expansion, those 16 million people would lose coverage.
As with Medicare, many House Republicans harbor plans to transform Medicaid, calling for it to change from a shared Federal/state partnership that provides an entitlement to healthcare for certain categories of Americans to a block grant to the states that could be spent in ways almost entirely determined in state capitals. As with the plans to privatize Medicare, these Medicaid proposals seem to be gaining little traction with the Senate or with health stakeholders.
Rather than a transformation of the program, the coming years are likely to see more changes along the lines that incoming CMS Administrator Verma pioneered through her consulting services in Indiana and several other Republican-led states. Under the Section 1115 waiver program, CMS has broad authority to approve or reject states’ plans to modify their Medicaid programs. In Indiana, Verma helped design Section 1115 waivers that imposed requirements on recipients to contribute to savings plans and emphasized seeking work if physically able. A Trump Administration CMS will likely expand these kinds of requirements in other state Medicaid programs, but not to eliminate or fundamentally transform the program.
The pharmaceutical industry: Let the good times roll
Drug companies, biotech firms, and medical device manufacturers are likely to have much to celebrate over the next few years. Although president-elect Trump has said that he wants to bring down drug prices, there are no major proposals to do so that enjoy any significant support among Republicans in Congress. There is likely to be little real effort, beyond occasional rhetorical potshots, to curb prices in the next four years, and the device industry will see a windfall from the likely permanent repeal of the device tax.
On FDA, the Republican bill to repeal the ACA does not target its provisions to allow FDA to approve biosimilars, nor does it disrupt the highly sought 12 years of market monopoly that the biosimilars law provided to drug makers. These incentives would remain intact even if repeal were enacted on Day 1. Names currently being floated for FDA Commissioner are all united by their belief that the agency over-regulates, and that a freer market is needed. Expect to see expanded use of real-world data, fewer enforcement actions, greater license for off-label promotion, and a generally cozier relationship between industry and its regulator.
Sacred cows and gored oxen
Away from the high-finance world of entitlement payments and drug costs, there will likely be major differences in the way a Trump Administration approaches public health. Expect to see HHS fund research on the alleged link between abortion and suicide or cancer, as well as on the benefits of abstinence-only education, and provide a greater role for churches in administering Federal programs. HHS is also likely to expand conscience protections to allow sponsors of insurance to opt out of requirements to cover birth control. Public health research on the possibility of a link between widespread access to guns and widespread injuries from guns will be stifled, while funding for reproductive health and Planned Parenthood will come under more intense pressure.
Robin Hood in reverse
On health tax policy, health savings accounts (HSAs) will also receive a boost from the new Administration. Unlike Flexible Savings Accounts, which do not carry over from year to year, HSAs are investment vehicles for health that do not sunset at year’s end. Like all tax-advantaged accounts, HSAs provide the greatest proportional benefit to those at the highest income levels, so high-income taxpayers will have expanded ways to shield income from taxation, while low-income filers will see little benefit. A similar math could apply to the Trump proposal to allow individuals to deduct the cost of premiums from their taxes, depending on whether this policy was written as a tax credit or a deduction from income. Repealing the ACA would also roll back the increased taxation of investment income for high-income individuals, and a Medicare surtax on the wealthy. The investment tax repeal alone is estimated to provide a rebate of $154,000 annually to filers in the top 0.1% of incomes. The ACA funded coverage expansions for poor and middle income Americans by increasing taxation on the wealthy. A repeal bill would do the reverse.
The bottom line: Winners and Losers
The pharmaceutical and biotech, and device industries. No price restraints, reduced taxes, and a lighter hand from the regulators. From an industry standpoint, what’s not to like?
High-income taxpayers. Expansions of Health Savings Accounts, a reduction in the Medicare tax paid by high-income seniors, and the repeal of the investment tax increase on high-income filers will all fatten the wallets of the wealthy. Of course, the benefits from these health-related tax changes would be dwarfed by the enormous windfall to high-income filers of next year’s tax legislation that is expected to reduce the top rate of income tax.
Insurers. An expanded role for Medicare Advantage, with increased payments, and a liberalization of market rules will give insurers a boost.
Insurers. If either the ACA is repealed before a replacement bill is ready to be enacted, or if the replacement bill guts the insurance markets, then insurance companies could be left with an unworkable marketplace, the loss of millions of customers – and a consumer backlash for the ages.
Hospitals. If the ACA is replaced with legislation that less effectively provides coverage, then hospitals will see a huge reduction in the number of insured patients. People won’t stop getting sick, of course, but would lack the insurance to make their care financially viable, resulting in massive financial losses for hospitals.
Low- and Middle-Income Americans. Losing subsidized care under the ACA, the possibility of privatized Medicare that gives a voucher instead of a guarantee of care, tax programs that don’t benefit them. It’s hard to see that Americans outside the high-income elites have much to look forward to in healthcare.