Election Gives Health Reform the Kiss of Life

It’s hard to argue this wasn’t a decisive victory for the President and Democrats in the Senate.  What remains to be seen is whether intractable Congressional Republicans will come to the table to get stuff done.

While it was a distant #2 issue in exit polls, this election was a de facto referendum on health reform. The ACA will not be repealed and is now assured to be Obama’s lasting legacy.  The “repeal and replace” campaign — over three dozen repeal attempts in Obama’s first term at taxpayer expense of more than $50 million — is over.  The GOP fought the ACA fiercely but I expect it will be hugely popular by 2016.  Our hope is that Congressional Republicans will lay down their arms and help shape the ACA’s implementation so they can share the credit when it’s as successful as Medicare Part D has been.  House Speaker John Boehner made some welcome gestures this week, asserting that “ObamaCare is the law of the land” and that the repeal agenda is over.  We’ll see.

Here are some thoughts on what happens in government health programs now that the election is over:

Sequestration and Fiscal Cliff: the 2% across-the-board sequester will not happen and the two parties will make a deal on the fiscal cliff that leaves everyone pissed — like compromise is supposed to.  The political dynamics strongly favor the President, as his ideal scenario — raising taxes on the wealthy to accompany budget cuts — occurs without any legislative action, and nothing happening in Congress is always a safe bet these days.  Any deal reached will now involve both entitlement cuts and tax increases, we’d guess in the neighborhood of $2T or roughly half that recommended by the Simpson-Bowles Commission, and it will have bipartisan support.

“Doc Fix”: The Sustainable Growth Rate (SGR) or the “doc cut” will be fixed, but it has to be paid for — and that’s the obstacle both parties struggle with.  MA rates are profoundly impacted by this issue, and Congress’s inclination to deal with it through annual increments rather than the 10-year price tag in CBO estimates means that MA plans must wait until the next year’s rates are announced.  The discrepancy between how and when MA rates are set vs. FFS means that MA plans are never really made whole.  It’s a tremendous challenge for our industry — and an enormous windfall for MA in 2014 and beyond if Congress solves the problem.

Exchanges: Many Red State governors held out hope the election would settle whether they must prepare for health reform.  The 11^th hour means most have been caught flat-footed and the Federal Exchange will operate in over 30 states and will be the defining marketplace for health insurance starting in 2014. Far-right governors in Kansas and Virginia will eat the Federal fallback; Wisconsin Governor Scott Walker is now scrambling to get his own exchange together, and a handful of others may follow.  It’s one of the supreme ironies of Obama’s reelection: the governors who screamed loudest of a “government takeover of health care” are about to get just that for their inaction, when the Federal Exchange comes to town in 2014.

Medicaid: most, if not all, of the 7-8 Red States who opposed expansion following the Supreme Court ruling will fold and take the expansion funds in the next 90 days — it’s just too good a deal to pass up.  Most of the 16 Million new Medicaid beneficiaries envisioned by the ACA — many childless uninsured adults — will be assured of coverage in a second Obama term.

Dual Eligibles: The migration of dual eligibles to health plans will now move forward in more than two dozen of states in the next two years.  The state fiscal crisis will overwhelm concerns about the speed of the migration, and it will result in over $200 Billion in new annualized premiums for plans in the next 3 years.  The duals are now affirmed as the biggest opportunity for health insurers in a generation — bigger than the exchanges.  They’re also the most vulnerable, complex and expensive patients in the entire US health system and will challenge health plans like never before.

Medicare Advantage and Part D will continue on the course set by the ACA, and we expect the consolidations within the industry to accelerate with the election’s uncertainty resolved.  Look for a much tougher CMS in a second Obama term, with a continued increase in oversight, bolder regulations raising the bar, and a tougher compliance posture from CMS for Medicare Advantage and Part D plans.

• The Stars program’s current trends will continue:  Standards will change every year and underperforming plans will be hunted down and eliminated.  CMS may get moving on SNP-specific rating standards, as SNP plans will be in trouble soon without them.  Plans with 4+ Stars will continue to get bonuses and rebates under the ACA, but 2013 will usher in a new era of sub-3 Star plans being shut down by a much tougher CMS.
• CMS will keep trying to find a better way to risk adjust.  We expect an attempt to recalibrate the HCC coefficients based on encounter data, which will change the dynamic: Plans will have to find missing codes to avoid being cut, rather than getting paid more.  How CMS adjusts for the FFS error rate will be crucial.
• SNP and 1876 reauthorizations will both get paid for, but we need a vehicle to get the 1876 extension quickly, since it expires the end of December 2012.  SNPs expire at the end of 2013, and so have more time for reauthorization.

Medicare: We expect Medicare will serve as a piggy bank for deficit-reduction proposals, given its size and fiscal situation.

• The Ryan/Wyden Medicare reform proposal will be debated as a gesture of “cross the aisle” goodwill from the President, but won’t come close to enactment. But “premium support” will go mainstream in the debate and become more palatable over time — it reeks of inevitability and Democrats must come to the table to save the program we all hold so dear.  The discussion begun by Ryan and Wyden must have its day.
• We expect the cuts that have been considered in prior budget proposals will be back on the table, including: fraud detection, reforming Medicare cost sharing rules, restricting first dollar coverage in Medigap, extending Medicaid drug rebates to duals and LIS, and more means testing.  Provider cuts will also be on the table, especially for hospitals.
• An increase in the eligibility age to 67 is a possibility.  But unlike with Social Security, deferring the eligibility age merely cuts off the lowest-cost tail of the distribution.  The cost reduction would be disproportionately small compared to the number of people politicians would upset.

ACOs: with the ACA intact, the truly astounding surge in ACOs participating in Medicare, Medicaid and the commercial market will continue.  Over 100 ACOs are already operating in Medicare.  Over 500 applications were received by CMS for the September filing deadline for the Medicare Shared Savings Program, and over 300 ACOs are active in the commercial market and Medicaid reforms.  With the election ACOs are here to stay as the bedrock contracting vehicle for the evolution and enrichment of forward-looking providers.

While it ended up a “status quo election” it gave the Affordable Care Act an indelible kiss of life and ushers in one of the biggest changes in our domestic policy in a generation.  Now it’s time to get down to the real work of implementing it.