Healthcare to Change Again and How it’ll Impact You
Hello everyone! Thanks for stopping by today. As everyone is well aware, we are currently undergoing our nation’s great tradition of peaceful transition of power. By that I mean Mr. Donald Trump is going to soon be known as President Trump. Just like me, I’m sure you’ve all have had enough coverage of the presidential race and outcome so I won’t be going there. But I do want to address a likely change forthcoming under President Trump, and that will be the repeal and replacement of the Affordable Care Act (ACA / Obamacare).
Let me start out by saying, I don’t expect as much change to be forthcoming as many may expect / fear…so let’s get into it!
If you are a regular reader you may be aware that I am a healthcare banker and have been for the last 5 years (granted I realize this doesn’t make me an expert by any means). This has been a great time to be in healthcare given the momentous change the industry has gone through in the U.S. In the last 5 years we have seen the implementation of ACA which has in turn spurred the most heavy acquisition environment the industry has seen. Now we will likely be embarking on the repeal and replacement of ACA and likely a continued heavy acquisition environment.
As a healthcare banker, one of my primary responsibilities is to dig in and understand the broad and multi-faceted industry. Over on Financial Samurai’s blog a few months ago, I went into how I’ve grown to be a major skeptic of our healthcare system and recognize its numerous flaws, and likewise, I’ve come to realize that we are the biggest problem when it comes to reigning in healthcare costs (we require way too much expensive care!). Feel free to check that post out if you haven’t already.
But today, as the industry is about to change significantly again, I wanted to reflect on some of the likely changes, provide some context, and hopefully help explain how this may impact you and your wallet.
First, as a bit of a refresher, I’d like to remind everyone what all was included in the ACA. The overarching theme of ACA was to provide health insurance to the 40-45 million people who were previously uninsured. This was accomplished primarily through expanding Medicaid for the poor, establishing the “Exchanges” for individual commercial policies, and also by allowing children up to age 25 to remain on their parents policy. To date, coverage has been expanded to approximately 20 million people, with 20-25 million people still without coverage today.
- Medicaid was expanded by raising the income limitation. However, the Supreme Court ruled this was not mandatory for the States and, to date, 32 States (including DC) have enacted legislation to expand Medicaid which has resulted in approximately 12 million additional people being covered. Medicaid is funded by a combination of State and Federal funds.
- Health insurance became mandatory for everyone and exchanges were established to provide access. If you don’t have health insurance, you are liable for a penalty. Some folks have elected to take the penalty rather than buy insurance, but the commercial exchanges have extended care to approximately 8 million people. Healthcare bought on the exchanges has been heavily subsidized by the Federal government. They have also been horribly unprofitable for health insurance companies because of the significant amount of care this patient population has required.
ACA also enacted a number of regulations to affect the administration of healthcare including:
- Mandating use of electronic health records (EHRs). EHRs are digital versions of a patient’s paper chart and allow real-time updates and access to doctors to help streamline patient care. EHRs have largely been implemented, although not entirely by all healthcare systems. The one issue that sometimes comes up is how well the various EHR systems can communicate among themselves. EHRs were largely funded by the Federal government.
- Health insurance provided to those with pre-existing conditions (mandatory coverage by insurers).
- Numerous “value-based care” payment models were established along with efforts to bundle payments. This may not be that apparent to the consumer of healthcare though, a lot of this goes on behind the scenes. The verdict is still out on a number of these initiatives and which methods are working best, but generally everyone is in agreement to move toward value-based payments from fee-for-service payments.
Repeal and Replace
Repeal and replace will be a top priority and all but a certainty to occur given the Republican held majority in the House, Senate and with Trump as President. This will be done through new legislation, the budget reconciliation process, or executive authority. The challenge will be coming up with a “replacement” in tandem with the “repeal” given the policy differences among various Republicans and the need to develop detailed legislation. I think there will be significant backlash if the rug is pulled out from those on the exchanges if there is a repeal without a simultaneous replacement. And, for what it’s worth, on the campaign trail Trump has said he has no intention to leave those folks in the lurch with no options.
As a result, I wouldn’t expect immediate action. But with that said, where you may potentially see an impact is either in your level and access of insurance coverage and the cost of that coverage (less coverage at less cost to make the program cheaper for the government), and indirectly through the use of collective tax dollars (if the replacement results in a larger deficit).
How Will You be Impacted?
Before chaos breaks out about ACA being repealed and replaced, let’s keep in mind a few things. First, if you get your health insurance today through your company, you won’t be directly impacted by the repeal.
For those who have commercial insurance today through the exchanges or coverage through Medicaid, the earliest you’ll see an impact is in 2018 as nothing will be done in time to affect 2017 (exchange enrollment periods will have ended before Congress reconvenes and Trump is inaugurated).
Side note, I thought it was funny to hear over 100,000 people bought insurance on the exchange the day after the election. No need to freak out people, it won’t be going away in 2017…
In 2018 and beyond, the commercial exchanges may no longer exist as they do today. But I would expect some form of transition of coverage. That could be offered by allowing the interstate sale of insurance which Trump is a proponent of, but that will see resistance from the insurance lobby and state insurance commissions. Additionally, as mentioned above, there are significant costs to the Federal government by way of subsidies for those buying on the exchanges.
If Trump wants to preserve coverage for these 8 million individuals, the cost burden to the government will remain significant which it can either cover with continued subsidies or push more cost onto the consumer with less subsidies. Or, alternatively, the degree of coverage could be scaled back (more catastrophic care type programs) which will be cheaper and still allow some level of health insurance for those 8 million individuals.
Regarding Medicaid coverage, I’m not so sure this will be pulled back to the prior coverage levels. Many governors have already come out and said they would like to find a way to preserve coverage levels. On the other hand, significant funding comes from the Federal government’s wallet and this could be one lever pulled to reduce the impact of the “repeal and replace” to the Federal deficit which Congress will prefer.
My guess is over time the Federal government will pull back on its portion to fund expanded care, thereby forcing more expense onto the State. The State can then decide whether to find ways to fund this themselves or, alternatively, restrict coverage by lowering the income limit and cut back the program.
Other ACA Features
There are a number of other ACA related features that I’d like to touch on quick. Trump hasn’t been transparent with his plans so these are completely my opinions.
- First, the EHRs have largely been implemented. This train is on the tracks and isn’t going to stop and neither should it. This won’t have a significant ongoing cost burden to the government. It’s about time the healthcare industry enters the 21st century…
- Initiatives for value-based payments and bundled payments for such things as dialysis care and joint reconstruction procedures (knee / hip replacements), etc will be maintained and continue to be tested. Over the long term, these should help squeeze savings from our large and overly complex healthcare system. Similar to EHRs, the train is on the tracks…might as well keep it chugging.
- Coverage for folks with pre-existing conditions won’t change. First, the impact on a dollar basis to the healthcare system isn’t large in the grand scheme of things. Secondly, there would be outrage from the masses. I can’t imagine there would be political support for rolling this back.
- Coverage for kids under 25 on their parents’ policy should change. To me, this is stupid. And maybe it is because I’m bitter I didn’t benefit from this provision (it was enacted a year or two too late for me) and that my younger siblings did. But in reality these folks should be able to find their own healthcare just fine…they are adults now, they are part of the workforce and making their own money, and they can afford it just as good as I could.
I’ll touch on how ACA was initially paid for. I want to keep this post largely focused on the impact to the consumers, but there were a number of “pay fors” enacted on various healthcare companies including hospitals, insurance companies and medical device manufacturers, etc. The “pay fors” were accomplished through lower Medicare payments, taxes, fees, etc, that were levied on these companies. The rationale for the “pay fors” was justified by the increased business the companies would have through the uninsured population becoming insured through ACA. This is way too convoluted to get into the details of each, but I don’t expect many of these would change much at this point as it would hurt the deficit. But there may be tweaks around the edges.
My Wish List
Lastly, recognizing this post is getting long, I wanted to briefly list things I hope will be addressed in any future legislation.
- Transparency in Price – To me this is one of the major flaws in our healthcare system. While it has improved a bit (including cool up and coming companies like Amino), it should be easier to get price data and shop for cost effective care.
- Incentives for good health and preventative care – I’m healthy and as is my family. I shouldn’t have to pay a fortune for my healthcare just to help subsidize the unhealthy, high users of care. Yes, you could say this is selfish of me, but health insurance should be priced on health characteristics and expected usage to a degree. This would certainly help motivate people to live healthier lifestyles. My suggestion for the government would be to continue pushing the use of Health Savings Accounts, and to fund a certain amount into everyone’s account for reaching various healthy behavior milestones.
- Re-implementation of Catastrophic only Coverage – This goes right in tandem with the prior bullet. It’s a cheaper alternative for generally healthy folks. This option was previously restricted as part of ACA and I’d love to see it come back. This could also be a cheap alternative offered on the exchanges.
- Negotiation of drug prices by Medicare – Why would the government Medicare program, the largest purchaser of pharmaceuticals, not be allowed to negotiate price, especially when commercial insurers and the Veterans Administration can negotiate price? The government negotiates price for other services it buys. Of course the Pharma lobby will be all over this and I know they have arguments against it (just like with Prop 61 in California which was just voted down after the lobby spent $100 million against it), but it would be huge savings to our healthcare system. The fact that Medicare isn’t allowed to negotiate price is one of the reasons why the U.S. spends more on its drugs than anywhere else in the world.
Let’s wrap this long post up with a quick summary. My general thoughts on anticipated changes to our healthcare system are: 1) any changes made will not be immediate, they’ll take quite a bit of time to develop giving us all time to evaluate options, 2) I don’t expect the 20 million newly insured as a result of ACA will get kicked off coverage, but I do expect the level of coverage to change (less coverage = cheaper for gov’t) and less subsidies for those buying on exchanges, and 3) a lot of the other miscellaneous aspects of ACA that many consider to be positive (EHRs, coverage for pre-existing conditions, value-based payments) won’t be touched.
If you want further reading, check out Paul Ryan’s A Better Way Healthcare Policy white paper which may form the baseline of forthcoming changes.
Ok, that’s probably enough of a rant for today. Feel free to chime in with your comments below. I wrote this article quick so I could get it posted in a timely fashion, while also having a pretty busy work at week. So if I missed something that I should have touched on about ACA, let me know!
Thanks for taking a look!
The Green Swan