Back in December of last year we ran a webinar titled “So What’s Next for the ACA?” Then, as now, there was a lot of “sky is falling” commentary around health policy and how the current government would completely dismantle the health safety net for millions.
Our webinar had two goals. The first was to place the Patient Protection and Affordable Care Act (ACA) within the context of broader healthcare industry trends. The second was to highlight the aspects of the ACA that would realistically change with the current administration.
We also made three predictions based on the emerging healthcare industry trends.
- Repeal & Replace would quietly evolve into merely an amendment of the ACA
- Emergence of regions with a market-based single payer
- Emergence of value-based reimbursement as the standard
It’s early days yet, but its worthwhile to see how well our predictions are holding up.
Health Policy That Amends, Not Replaces ACA
There have been three major healthcare bills proposed from the GOP congress since the beginning of the year. The first was the Patient Freedom Act, introduced to the senate by Senators Bill Cassidy and Susan Collins on January 23. The second was the Obamacare Replacement Act, introduced to the Senate by Rand Paul a day later. The third was the American Health Care Act (AHCA), introduced to the House by Representative Diane Black on March 20 and passed in a hurry by the House on May 4 after failing a previous vote.
All three are touted by their authors and supporters as ACA replacement bills. How accurate is that? Let’s briefly examine all three.
Patient Freedom Act Highlights
-Allows states who choose to continue with the ACA to do so (including Medicaid expansion and the federal exchanges), and maintains much of the ACA’s infrastructure to enable that
-The “replacement” piece of the legislation revolves largely around allowing states to develop their own health insurance alternatives without federal assistance
-The bill’s authors explained their “Obamacare-lite” approach as a practical measure to ensure bipartisan support (that is no longer necessary).
Obamacare Replacement Act
-Repeals virtually all of the ACA’s major mandates such as the individual mandate, employer mandate, essential health benefits, and more
-It leaves in place the ACA’s subsidies for purchasing insurance via federal exchange as well as Medicaid expansion
-Tax credits up to $5000 for individuals who contribute to a Health Savings Account (HSA)
-supplements the current, uncapped exclusion on employer-provided health insurance with a new, uncapped deduction for individual-provided health insurance
American Health Care Act
-Retains key ACA provisions such as
- Prohibiting insurance from denying coverage for a pre-existing problem
- Children can stay on parent’s plans until age 26
- Insurance exchanges stay in place
- Insurance premium subsidies, though at roughly 60% of the level of the ACA
-Helps people making below certain income levels purchase insurance on their own through refundable tax credits that scale based on age
-Like Rand Paul’s proposal, eliminates the mandates put in place by the ACA
-Federal payments to state Medicaid programs switches to capitated model, although states also have the option for block grants for non-expansion Medicaid participants
-States have the option to impose a Medicaid work requirement for anyone who is not pregnant, elderly, or disabled.
-Tax incentives for HSA’s
You can find a more detailed, point-by-point comparison of the proposals here.
Big To-Do About Small Philosophical Differences
A true repeal and replace would not use the ACA’s core infrastructure as a starting point – it would start from where things were before ACA. We stated this in our webinar and it bears repeating: these proposals are all merely a step further in the same direction that the ACA was already moving. Remember, before it was Obamacare, the core concepts of the ACA were implemented by GOP governor Mitt Romney in Massachusetts. Calling any of this “repeal and replace” should be seen as nothing more than pandering.
These proposals come across as unempathetic. Particularly the AHCA after the first Congressional Budget Office impact report. With so many news outlets screaming bloody murder, it’s easy to get lost in the emotion. Health is such a deeply personal topic, and unlike most hot topic issues, actually effects everyone.
However, it’s important to note that the ACA is attempting to be all things for everyone. A social safety net that subsidizes access to the most vulnerable, and a market-based solution that shifts financial risk from payers/employers to providers by incentivizing capitation and value-based reimbursement. The GOP proposals appear unpalatable to the vast majority involved. However, there is nothing to turn back to. The ACA does not provide a financially sustainable solution to the aspects of healthcare that are badly broken. Let’s not forget that the country is in the middle of diabetes, obesity, and opiate addiction epidemics that collectively are decreasing our life expectancy. Living in America has become a literally toxic experience for all but the wealthiest. Neither the ACA nor any of these proposals explicitly address any of these problems.
On the other hand, the Senate and House will eventually come up with a version of AHCA they both like. And it will probably be something that is budget positive without creating much value to providers or healthcare users. So we will end up with a Frankenstein’s monster version of the ACA with Medicaid on financial life support. That lays the groundwork for our second prediction
Market-based Single Payer
The most distinctive feature of the federal insurance exchanges nearly 4 years along is the lack of choice. There are 7 states in which participants have either only one private insurance option or none at all. There are 4 more where a majority of regions face the same lack of options. These are areas where we are already seeing government-subsidized single private payer options.
The current GOP government seems to have two major philosophies for controlling cost
- Capitation and block grants for state Medicaid programs to make providers share in financial risk
- Health policy that pushes more financial risk onto Medicaid recipients
Most actors in the healthcare industry have already accepted value-based payment as the near future. Nearly 58% of all payers today have value-based reimbursement protocols in place. That’s up 10% from 2014. Capitation and other fixed-reimbursement models force a focus on value-based care by putting the provider financially at risk for care delivery costs in excess of the fixed, per-capita payments they receive.
The second philosophy treats places primary responsibility for health outcomes on the patient. This is arguably an unreasonable expectation, given the opacity of health services pricing and heavy stratification of health outcomes by income.
Consolidation – the Road to Private Single Payer Healthcare
In addition to pushing for value-based care, payers have another tool for controlling cost. Consolidation.
Since the late 90’s, we have seen a consistent wave of provider, and payer-provider consolidation.
While provider consolidation is largely around increasing reimbursement margins for physician practices, payer-provider consolidation centers on tighter control of the entire care delivery value chain.
Since the ACA passed into law, roughly 13 million previously uninsured people have entered into the health insurance pool. The majority of this group are high utilizers and were, prior to the ACA, deemed “uninsurable.” Assuming that the final version of the AHCA does not kick tens of millions out of the insurance pool, the few payers who remain on the exchanges have a strong financial incentive to exact even tighter controls on the providers in their networks.
The financial opportunity is huge for any payer who can figure out how to do population health. The exchanges present a massive captive audience of potential insurance customers. These are customers who will bear high out-of-pocket costs regardless of income. However, payers who remain on the networks need deep reserves they can dig into, because it will take them a few years still to scale profitable cost control. This is where we will start to see a third type of consolidation accelerate and get us closer to private single payer markets – payer to payer consolidation.
The Department of Justice under Obama took a dim view to mega mergers between large payers. By contrast, the market philosophy of the current administration might be more friendly. I would even argue that payer to payer consolidation is part of the natural long term strategy behind the AHCA. If that is correct, it would make sense for these GOP plans to all use the core infrastructure of the ACA as a way to gradually push Medicaid recipients onto private insurance plans.
Value-Based Reimbursement as the Standard
As stated above, roughly 58% of payers currently use value-based payments as part of their reimbursement mix. As the payer-provider and payer-payer markets consolidate even more, the mega providers will have enough market power to push virtually all financial risk onto providers. Beyond at-risk reimbursement, we will likely start to see the same kind of punitive health policy placed on providers who cannot control costs as states advised by Seema Verma place on Medicaid recipients.
Volume-based reimbursement, particularly for areas like primary and acute care with high downstream costs, will likely disappear completely over the next decade.
There is still a long way to go before Congress passes a final version of the AHCA. Much of the GOP’s philosophical agenda is contingent upon maintaining a complete government mandate beyond the 2018 midterm election. But the shifts we are already seeing around consolidation and adoption of value-based reimbursement are independent of possible legislation.
Stay with us – we’ll keep you updated as we see the healthcare market and health policy progress.