Trump and Congressional Republicans Begin to Align on Health CareMarch 6, 2017 – Client Advisory
The bottom line: Health care and life sciences stakeholders should expect that, starting in 2018 and accelerating considerably in 2020, the percentage of Americans having health coverage will slowly decline and people who have insurance will feel more of the pinch of out-of-pocket costs. Ultimately, this could lead to a combination of lower consumption of those services and products for which usage is discretionary plus more uncompensated care where demand is driven by urgent medical need.
President Trump’s February 28 speech to Congress offered few details of a White House vision on health care reform (see box below). But the president seemed to endorse House Speaker Paul Ryan’s plan to repeal and replace the Affordable Care Act (ACA) and to radically alter the way that the federal government funds Medicaid. Since then, Health and Human Services Secretary Tom Price has moved to tamp down resistance from the more conservative wing of the party—of which he is a recent veteran—that wants to repeal the ACA but not offer as generous tax credits to people who purchase health insurance. So, it seems likely that the House will push through a bill soon.
The Senate will not be as easy to move. Only three Republican senators need to vote against a bill for it to fail. A few, like Rand Paul (KY) and Ted Cruz (TX), favor the more conservative approach. A few others, like Susan Collins (ME) and Lisa Murkowski (AK), lean toward a more moderate stance; this includes opposition to the provision in the draft House bill to defund Planned Parenthood. For the Senate to pass any bill, significant changes to the House version are probable.
HOUSE BILL FEATURES
Mandates, exchange plans, subsidies, and essential health benefits: All these ACA features are to be repealed. In their place would be tax credits—between $2,000 and $4,000, scaled by age, not income, though an income-based phase-out could appear—to buy private insurance. Private plans would neither have to offer the full array of benefits nor meet a minimum actuarial value. People who buy high-deductible plans would be able to fund tax-advantaged health savings accounts (HSAs). Limits on tax deductibility would be higher than under current law.
Pre-existing conditions and high-risk individuals: People with pre-existing conditions would have some protection against being dropped if they maintain continuous coverage. For people who might fall through the cracks, the bill offers “state innovation grants” of no defined amount to support high-risk pools and other measures that states could design. There would be a default reinsurance fund for states that fail to accept grants. Insurers would be reimbursed for covered individuals having medical claims above $50,000 but with a cap of $350,000.
Taxes: All of the taxes imposed by the ACA would be eliminated. While the “Cadillac tax” is included among those taxes, something not too dissimilar will appear. To fund the new subsidies and HSA tax breaks, there would be a cap on the tax exemption for employer-sponsored plans at the 90th percentile of current premiums.
Medicaid expansion: The ACA expansion of Medicaid would phase out by 2020. States that expanded could continue to cover non-disabled adults over 100 percent of the federal poverty level but without enhanced federal funding. Disproportionate share hospital (DSH) funds taken away by the ACA would be restored to help cover uncompensated care costs of safety net hospitals.
Medicaid funding: The core Medicaid funding design that has functioned for more than 50 years—it was not brought about by the ACA—would be transitioned, starting in 2020, from open-ended entitlement to fixed per capita allotments to each state, distinct for each of four eligibility categories. Trending is proposed at Medical CPI plus 1 percentage point. This is at least 1 percent below the Centers for Medicare & Medicaid Services’ estimates of Medicaid cost growth, so it would leave states with less and less of a federal contribution over time. States could opt for block grants (no variation based on population) and receive added flexibility.
What Trump Said
The following are excerpts on health topics from President Trump’s speech to Congress, February 28, 2017:
Pre-existing conditions: "[W]e should ensure that Americans with pre-existing conditions have access to coverage . . . .”
Health insurance exchanges: “[W]e should ensure . . . that we have a stable transition for Americans currently enrolled in the health care exchanges.”
Replacement coverage: “[W]e should help Americans purchase their own coverage, through the use of tax credits and expanded health savings accounts—but it must be the plan they want, not the plan forced on them by the government.”
Medicaid flexibility: “[W]e should give our great state governors the resources and flexibility they need with Medicaid to make sure no one is left out.”
Insurance market regulation: “[T]he time has come to give Americans the freedom to purchase health insurance across state lines [to create] a truly competitive national marketplace that will bring cost way down and provide far better care.”
Malpractice reform: “[W]e should implement legal reforms that protect patients and doctors from unnecessary costs that drive up the price of insurance . . . .”
New drug approvals: Reform the Food and Drug Administration’s “slow and burdensome approval process” and “slash the restraints” that keep advances from reaching patients.
Drug prices: “[W]e should . . . work to bring down the artificially high price of drugs and bring them down immediately.”
We note that the Medicaid provisions, in particular, are facing pushback from Republican governors, about half of whom are in states that took up Medicaid expansion under the ACA. Most want to keep the expansion alive. We will write more on that topic in the next Perspectives on Health Care & Life Sciences.
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This advisory was authored by Robert F. Atlas of EBG Advisors. For additional information about the issues discussed in this advisory, please contact the author or the Epstein Becker Green attorney or EBG Advisors consultant who regularly assists you.
The contents of this document should not be construed as legal, investment, tax, regulatory, or accounting advice. The recipient should consult with qualified professional advisors before acting on pertinent matters. The information contained herein does not necessarily reflect the official position of the sponsoring entities.