The Election: Everything. Has. Changed.
Other than geo-politics and energy, there is no area of federal policy more poised for change than health care. The long held aspirations of Republicans to reform Medicaid and Medicare, repeal the ACA and drive toward a consumer oriented health care market are now more than wishful thinking. It is an opportunity that cannot go to waste lest Republicans find themselves once again in the minority.
A change to a consumer driven system is a long and painful road but one – due to high deductibles – we were already on. It also marks a dramatic departure from the health care policy vision that has dominated federal decision making since the Clinton administration that actually happened. Economist like Elliot Fisher at Dartmouth and Peter Orszag had concluded that, after studying Medicare data, 30 percent of American health care spending was unnecessary. Their thesis was politically alluring. No need to limit price increases or ration care. All that was needed was to manage care appropriately through Accountable Care Organizations, “medical homes” and the like and billions of dollars would be saved. Except it didn’t.
Republicans hope that a consumer-oriented system where health care purchases are made with some consideration given to price and volume will prevent health care from swallowing the American economy. That means fads like ACOs and medical homes are probably not going to see the political support they have enjoyed for the last 25 years.
Instead, the dramatic change in health policy is going to mean a heavier reliance on price and value. Ironically, a number of the elements of, what one wag called the Dartmouth syllogism, will be redeployed to meet the demands of a market oriented system because, as I have already noted, high deductibles were taking most of us down that road anyway. Anything that lowers cost or increases the value of the health care experience will transcend that change in policy direction. That base case is enhanced if reform efforts in Medicare and Medicaid are successful.
1. ACA Exchanges – All Hat and No Cattle
Never has there been a weaker correlation between the impact of a failed government program (little) and the number of headlines describing it (lots). The ACA exchanges – marketplaces if you prefer – never lived up to their hype. The vision of drafters of the law was to create a middle class benefit that, like Medicare, would be difficult to dislodge. In the end, only about 10 million Americans found the program useful enough to enroll.
Those that did enroll were poorer and sicker than anyone thought likely. Premiums escalated, insurers fled and enrollment growth faltered. The resulting headlines going into the November elections only served to reinforce America’s skepticism about federal health policy. The direct line from the failure of the ACA marketplaces to the election of Donald Trump extends through the repeal of the ACA.
In the end, the true impact of the ACA which was a massive Medicaid expansion was ignored while America turned its attention to the failings of a small sliver of the law. That experience will no doubt dictate health policy in 2017 and in many years to come.
2. We are All Self-insured Now
We know economists who have yearned for years to see health care purchases subject to some market forces. They may finally get their wish.
According to the Kaiser Family Foundation’s Annual Workplace Survey, 29 percent of American workers are enrolled in some kind of high deductible plan in 2015 – up from 20 percent in 2014. The Centers for Disease Control puts the figure at 36.7 percent. Regardless of which one is accurate, enrollment in high deductible plans is on a growth trajectory we have never seen before.
Market forces being what they are, one result has been the declining demand for health care services because, well the price might just be too high. The health care team has done a great job this year of describing the effects of that decline demand through their #ACATaper thesis and a recent Black Book on HCA. (Hit sales@hedgeye.com for more information.)
Another result of high deductibles has been an increase in bad debt for providers. Intermountain Health, a 22 hospital system in the western, saw bad debt increase 41 percent in 2015. The Integris system in Oklahoma posted an operating loss due in part to an increase in bad debt associated with high deductible plans, according to management.
3. Medicaid – Where the Action Is
The story of the ACA, as we alluded to above, is really a tale of Medicaid expansion – especially in California. Enrollment in Medicaid has grown from about 57 million people in 2013 to 73 million in July 2016. About 1/3 of the growth is attributable to California where Medicaid enrollment ballooned from 8 million to over 12 million people. After employer sponsored insurance – Medicaid is now the largest health insurer in the U.S.
States, which have not had to concern themselves with enrollment and the associated eligibility determinations, have promoted and celebrated reductions in their uninsured rates. Reality returns in 2017 when the federal taxpayer stops picking up 100 percent of the cost of expansion.
States that did not expand Medicaid but saw enrollment growth due to the woodwork effect or lousy eligibility redeterminations, have busied themselves with alternative payment models like episode payments for hip and knee replacements and NICU care. Meanwhile, Medicaid reform is poised to be front and center as the ACA is repealed and replaced in 2017.
From payment reform to a program overhaul, Medicaid is going be ground zero for health policy change in 2017.
As far as health policy goes, we are entering what promises to be a very interesting year. I hope you continue to ride along with us.
