January 18, 2017 | Rosemarie Day and Sarah Matousek

Top 5 Things for 2017

As the new year gets underway, it’s an understatement to say that there is a lot of change coming. The new president and Congress have put health care at the top of their agenda by promising to repeal the Affordable Care Act (ACA). The effects of this activity will be far reaching and profound. Yet what lies beyond is largely undefined. So on balance, there are still more questions than answers about what will happen in the health care marketplace in 2017. Here are the top 5 things we’ll be watching in 2017, as well as what we expect and why we care about them:

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1. WHAT COMES AFTER THE AFFORDABLE CARE ACT? Planning for Uncertainty

Repeal and replace? Repeal and delay? Repeal and ____?? In spite of the strong rhetoric from the incoming president and many Republicans in Congress about repealing the Affordable Care Act (ACA), there is no consensus about what comes next. This lack of a coherent plan brings tremendous uncertainty to the marketplace. Every segment (employers, insurers, providers, and the newly insured) is facing major questions. Each segment will have to go back to the drawing board to evaluate their options in a “post-ACA” world. In general, 2017 will be a transition period. For some that will mean “watch and wait,” for others that will mean engaging in scenario planning, and for still others, it will mean taking a more active approach to influence outcomes.

While any major changes won’t happen overnight, here are some things we expect to see as 2017 unfolds:

  •  Higher insurance rates: Insurers are likely to raise prices an additional amount for 2018 to cover the uncertainties they face in the individual insurance market (if they don’t pull out entirely). The Congressional Budget office estimates that these rates will increase by 20-25%, and more in ensuing years. And, the rate increases could ripple to other areas, including employer-sponsored insurance, to cover this increased uncertainty.
  • Provider preparation: If millions of patients are expected to lose coverage due to ACA repeal, providers will also need to begin girding themselves for more uncompensated care, to the tune of an estimated $85 billion (see graphic below). We expect to see more lobbying from provider associations, and contingency planning in the C-suite.
  • State innovation: As states prepare for the probability of less ACA and Medicaid funding, and the possibility of relaxed federal rules in the health care arena, those that are committed to providing health care to their vulnerable citizens will have to engage in some policy experimentation of their own to find ways to provide that care.

And beyond 2017, there will be many more consequences of the repeal of the ACA:

  •  Increase in the number of uninsured people: The Congressional Budget Office just released an estimate that the number of uninsured people would increase by 18 million in the year following repeal, and by 32 million in 2026.
  • Loss of local jobs: The Commonwealth fund just released a study that suggests that by 2019, there will be $140 billion less flowing to states for health care, which will result in a loss of 2.6 million jobs, mostly in the private sector.

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Why do we care?  The disruption that stems from repealing the ACA will have serious, even if delayed, consequences for the millions of people who have benefitted from its coverage and protections.  And the effects don’t stop there.  Without an adequate replacement option, providers will face a return to uncompensated care.  The inevitable cost-shifting that results will have ripple effects, ultimately resulting in higher insurance costs for those who still have coverage.

Some of these “post-ACA themes” are addressed in more detail below.

2. PROVIDERS AND PAYMENT REFORM: More ACO’s Expected

Regardless of what happens with the ACA, health care cost pressures will not abate and consumers will continue to expect more from the health care system.  As a result, we expect that Accountable Care Organizations (ACOs) will continue to rise in number and type.  There are currently around 841 ACOs of all types covering nearly 30 million lives (see graph below).

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The rise in private, Medicare and Medicaid ACOs in recent years is evidence of a nationwide shift toward value-based payment reform in healthcare.  As seen in the graphic below from the Medicaid ACO Learning Collaborative, there are currently 20 states plus Washington D.C. that have or are planning to implement state-wide Medicaid ACO programs.  If federal Medicaid funding moves to block grants, as some GOP members would like, we will likely see even more states moving in the ACO direction to rein in costs and better coordinate care for their Medicaid populations.  In addition, providers that participate in an ACO will find it easier to comply with MACRA reporting requirements.

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Speaking of MACRA, 2017 marks the first reporting period for the Medicare payment reform law.  By the end of 2017, we should have a good idea of who intends to play and what the reporting burden will mean at the provider level.  (For an overview of MACRA and what it means for providers, check out our highly-reviewed 2016 blog.)

In addition to dealing with regulatory guidelines and payment reform, providers will increasingly be dealing with price-conscious patients with high deductible health plans who demand valuable, convenient, affordable care.  As noted in the discussion of “consumerism” below, we are entering an age where hyper-convenience and low cost is crucial for healthcare consumers, and the providers who adjust will win. 

Why do we care?  Despite the uncertainty regarding the future of health reform, rising health costs have led to nationwide movement toward value-based payment models that we think, done well, could improve care.  And with far-reaching policies like MACRA, it is no longer an option for providers to ignore the trend.

3. CONSUMERISM: A Continued Emphasis

Consumerism has been on the rise in health care and we expect that to continue.  Employees and individuals purchasing health insurance expect a more customized experience from the health care system.  The ACA fostered some of this, but it was largely due to the availability of terrific new technology and the rising expectations of consumers themselves (the “Amazon effect” that we’ve talked about).  We expect this trend to continue, and it is likely to be fueled by the Republican reliance on policies that incorporate health savings accounts and other “consumer-driven” devices.  Private exchanges fit into this by being part of an overall digital solution that employers can offer to help empower their employees to make smart, cost-effective benefits choices and better manage their health.

Why do we care?  We believe that empowered consumers can help to “move the needle” in both improving their own health and in transforming health care to be a more patient-centered, cost-effective system.

4. EMPLOYERS: Mixed Feelings

As employers contemplate the repeal of the ACA, they can look forward to a day with fewer mandates and compliance paperwork, which for most will be a welcome relief.  That said, there is little in the discussion of ACA replacement options that will help employers to address their ongoing health care cost challenges.  And in fact, some proposals may chip away at the tax subsidy that employers currently enjoy for the health care benefits they offer.  This would have broad implications, going well beyond the impact of the ACA’s (now deferred) Cadillac Tax.  In addition, as noted above, when providers face uncompensated care in one part of the health care system, they are likely to shift costs to other segments, which could impact employers if they have to pay higher commercial insurance rates.

Why do we care?  Employers provide health insurance coverage to 150 million Americans, but that number will erode if the underlying problems they face with offering coverage (namely its affordability) are not addressed and are in fact, exacerbated.

5. PHARMA: Expect More Scrutiny

Pharma is increasingly being viewed as a major culprit for high health care costs.  For example, the Massachusetts Health Policy Commission recently reported that pharmaceutical price increases were largely responsible for above-benchmark cost trends for the last two years in a row.  As a result, large employers and local governments are demanding more accountability for this portion of their health care spending.  Even the president-elect has called out pharma for blame.  Based on these pressures, we expect increased scrutiny from all stakeholders.

  • Pharma Price Predictions: As shown in Segal’s prediction graph below, we will continue to see huge increases in total drug spending that dwarf growth in total healthcare spending (any potential policies aimed at curbing prices wouldn’t affect hikes until after 2017). There are a few glimmers of hope for consumers, as some pharmaceutical companies are experiencing declining pricing power in certain markets, like diabetes and arthritis, where there are more competitors and increasing generic availability.  (These companies depend on annual price hikes to offset volume decline; however, pricing pressure will likely limit hikes for certain drug classes.)  However, it’s not enough to “bend the trend” at this point.
  • The Cures Act: The overwhelmingly bipartisan 21st Century Cures Act passed in early December of last year marked a substantial deregulation of the pharmaceutical and medical device industries. The Act allows the FDA to approve new uses for existing drugs without stringent clinical testing and enables pharmaceutical companies to promote off-label use to insurers.  Due to these standards, we will see a broadening of drug indications and shorter throughput for approval.  Drug companies can expect to save money by shortening the time to market and increasing their customer base, but there is no reason to expect that to translate into lower prices for the consumer, as the law does not include price controls.

Why do we care?  Pharmaceutical prices have been a significant driver of health care cost increases in recent years, and those cost increases are unsustainable in the long run.

Graph from Segal:

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