Trump's win caught health care investors off guard this morning with that old uncertainty thing. Heaven knows there is no more a dynamic place than American politics these days but a surprise election result does not translate into a complete dismantling of the ACA election rhetoric notwithstanding. After all, there are a number of things in the law even Republicans like. There are a few things needed to control Medicare spending growth. Changes to the ACA are constrained by the legislative process and the people - and parties - managing it. Regardless of what happens over the next 18 months or so, the possibilities have been telegraphed and documented for months, if not years. Below, we break down the three major options to overhauling/amending but probably not repealing the ACA.
Option 1: Repeal & Replace. Under this circumstance, Republicans would repeal the ACA and replace it with their own health care program. While the talking point for most Democrats throughout the election season has been that Republicans have not offered an alternative, the fact is, they have. House Republicans published their "A Better Way" policy framework earlier in the year. The major features of that program are:
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Expand use of HSAs -
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Allow spouses to make catch-up contributions
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Permit use for all qualified medical expenses if established within 60 days of incurring expense
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Set maximum contribution to HSAs at maximum combined and allowed annual deductible and out-of-pocket expense limits
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Establish refundable tax credit for people not eligible for employer coverage, Medicare or Medicaid. Credit would be age adjusted and could be used to purchase insurance in any market
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Change age band from 1:3 to 1:5
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Create one time enrollment
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Permit states to design own Medicaid program using per capita allotment from federal government. For states that opt out of per capita allotment scheme, create a block grant program
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Repeal benchmark caps on Medicare Advantage
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Repeal IPAB
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Implement value-based insurance design for Medicare Advantage plans
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Limit coding adjustments for Medicare Advantage plans
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Combine Medicare Part A and B creating one deductible with uniform cost-sharing requirement for all services
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Convert Medicare to a premium support program with plans available on a Medicare exchange by 2024
What should strike you about this program is the way in which it is designed to preserve insurance coverage for millions of Americans ("people not eligible for employer based insurance, Medicare and Medicaid") - but to do so differently than the ACA. The Republican's platform might even expand the insured population because it would allow purchase of insurance in any market (Federal exchange, state-based exchange, direct purchase). The Republican plans would also relax the onerous age bands for health insurers - something the industry very much wants. So, the best possible scenario for Republicans is not exactly the doomsday today's sell-off would suggest (our usual advice to pay attention to what the fundamental team of Tom Tobin and Andrew Freedman have to say about this applies here.)
Also, you should note that the Republican health care agenda is very friendly to Medicare Advantage and that position is likely to persist regardless of what happens to the ACA.
It is hard to tell how Medicaid will change because a per capita system and a block grant program is going to affect each state a little differently. That said, Medicaid is fast becoming a significant area of innovation. The focus, particularly in red states that did not expand Medicaid, has shifted to exanding coverage to those populations that cost the most money - the chronically ill and those with behavioral health and substance abuse problems. While that means the Medicaid expansion envisioned by HCA, THC, LPNT and CYH is not likely to come to pass, it does suggest that Medicaid managed care could see some pickup in covered lives since the expansion target would be populations that need management. Also, the resistance to Medicaid expansion on the part of some states was part and parcel of their political objection to the ACA. In a repeal scenario and potentially a more flexible Medicaid program may pave the way for once resisted expansions.
What is the likelihood Option 1 becomes a reality? The Senate will be a major impediment. Republicans retained control but did not pick up enough seats to overcome a filibuster. In other words, cooperation from Senate Democrats will be necessary for a repeal and replace scenario. Speaker Paul Ryan has good working relationships with Senators Patty Murray, Chuck Schumer and Ron Wyden. Together they have actually gotten some good legislation passed. Senate Democrats will want to preserve coverage and affordability. Republicans will want to keep costs down and limit government's role. Can they meet in the middle? The electoral map is not going to get any better in 2018 for Democrats but we put the chances of repeal and replace at less than 50 percent without some compromise catalyst (see below). The Sanders/Warren wing of the Democrat Party is influential and often used as an excuse by everyone else not to find compromise and it will come into play here.
Option 2: Limited Repeal through Reconciliation. Under this scenario, Republicans would overcome the thin majority they have in the Senate by using the budget reconciliation process. This approach is much more limited; only those provisions of the law related to finances, taxes, revenue, budget and the like would be eligible for elimination via reconciliation which is a lot of stuff. One benefit of reconciliation is that it allows Republicans to keep in place certain popular provisions like guaranteed issue and dependent coverage until 26 years of age. In December 2015, both the House and the Senate passed H.R. 3762 which eliminated large chunks of the ACA via reconciliation. The bill was ultimately vetoed by the president but provides a good bit of guidance on what to expect from a reconciliation bill. The major and relevant provisions included in the December edition are:
- Increased Funding for Community Health Centers
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Repeal of Individual Mandate
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Repeal of Employer Mandate
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Repeal of Medical Device Tax
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Repeal of Cadillac Tax
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ACA Applicability in Territories
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Termination of Risk Adjustment Program
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Increased Funding for Mental Health and Substance Use Disorders (SUD)
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Termination of Premium Tax Credits
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Repeal of Cost-sharing Subsidies
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Termination of Small Business Tax Credit
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Termination of Medicaid Expansion
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Repeal of DSH Reductions
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Repeal of Tax on OTC Medications
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Repeal of Tax on Health Savings Accounts
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Repeal of Limitations on Contributions to Flexible Spending Accounts
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Repeal of Tax on Prescription Medications
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Repeal of Tax on Health Insurance
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Repeal of Elimination of Deduction for Expenses Allocable to Medicare Part D Subsidy
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Repeal of Chronic Care Tax
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Repeal of Medicare Tax Increase
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Repeal of Tanning Tax
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Repeal of Net Investment Tax
The problem with reconciliation is that there is no replacement and about 9 million people who buy insurance on the state and federal exchanges and potentially another 10-12 million under the state Medicaid expansion (we would assume that states could opt to retain their expansion regardless of what Congress does). The December bill was a safe vote for most Members because an Obama veto was inevitable. Without a veto from a Trump president, Members will more seriously consider their votes in light of what it means to their constituents. So, the smooth path reconciliation had in December may get a little bumpy as the idea moves from an abstraction to a meaningful reality. Former presidential candidate Ben Carson acknowledged the problems in an interview today: "I think the replacement obviously must come first and it must be something that is very appealing and easy to understand. And then, only then, would you dismantle what's in place."
Regardless, reconciliation serves the purpose of being a good threat to force a compromise. In a separate interview, Paul Ryan said today, "This Congress, this House majority, this Senate majority has already demonstrated and proven we're able to pass that legislation and put it on the president's desk. Problem is, President [Barack] Obama vetoed it. Now we have a President Trump who has promised to fix this." Ryan is, of course referring to the December reconciliation vote. Repeal through reconciliation is not an idle threat - the House has passed 50 versions of repeal legislation, one that got to the president's desk. With at least four years of a Republican in the White House and 25 Democrat Senate seats to defend in 2018, including last nights' bright red states of Ohio and Pennsylvania, the argument for resisting compromise gets a little frayed. So, we place the probability of repeal through reconciliation at 75 percent but largely as a tool to force everyone to the table rather than to pull the rug out from under 20 million Americans. Striking a conciliatory tone, Senator John Barrasso, said today, "People had significant disruption in their lives already. We want a smoother transition — as smooth as possible. We're moving away from Obamacare to patient-centered care and putting competition back in the system."
Option 3. Executive or Administrative Action. President Obama expanded use of executive orders and administrative action like no president in recent memory. So, one theory is that what is good for the goose is good for the gander when it comes to the ACA. Executive/administrative action might be a good signal by Trump to House Republicans, for example, that he is committed to changes in the ACA. A relaxation of enforcement of the individual or the much maligned employer mandate, for example, which have precedent in the disasterous rollout in 2014 might be two of those signals. With major changes to the law in the offing and Republicans firmly in control of the government, we would anticipate use of administrative or executive action to be unnecessary but like the threat of reconciliation might prove useful in getting all sides to the table. Also, significant administrative or executive action would deny Congressional Republicans something they have yearned for since 2010 - the final word. We put the probability for any major administrative or executive action at less than 50 percent.
Call with questions.
Emily Evans
Managing Director
Health Policy
@HedgeyeEEvans
