President-elect Trump and the GOP-controlled Congress have the opportunity – and fully intend – to reshape the healthcare landscape by unraveling certain aspects of the ACA. For insurers, the critical question is how quickly some of these changes will be enacted and how changes to individual mandates, underwriting requirements, and government funding will impact products, membership, and profit levers.
Key provisions of the law (federal subsidies, individual and employer mandates) have long been in the sights of the GOP and were campaign targets for President-elect Trump. The campaign rhetoric focused on the repeal of Obamacare and that continues to be the mantra for the GOP in the days post-election, with some GOP leadership indicating that they will move as quickly as inauguration day to pass a bill to repeal.
However, the timing for a replacement and how the changes will be staged remain far from certain; and that is driving significant trepidation across the healthcare market. Here, we consider two scenarios for how these changes might unfold: an accelerated timeline, in which the GOP moves swiftly and broadly in their actions, and a more moderate timeline, where key elements of the law are amended over time.
Fast path to Trumpcare
Operating on the belief that they have been given a mandate by the American people, with a finite window for sweeping changes (the 2018 mid-term elections are right around the corner), the GOP could attempt to drive swift action across the individual markets, as well as Medicare and Medicaid.
An accelerated repeal and replace approach might play out along these lines:
- Obamacare is “repealed” in early 2017
- Medicaid expansion is rolled back by cutting off federal government funding for the additional members and benefits covered within ACA Funding
- Support for subsidies are withdrawn in 2017 via the Trump Administration simply dropping the Obama Administration’s opposition to a GOP-backed lawsuit alleging that ACA subsidies were not appropriated correctly by Congress when the legislation originally passed
- The individual mandate is removed and the administration signals that it will not apply tax penalties starting as early as 2017
- Presumably, this would need to be partnered with a relaxation of the restrictions on health plan underwriting rules, such as pre-existing conditions and product coverage mandates
- If the repeal doesn’t address both of these issues (subsidies and individual mandate) together, it could collapse the individual market entirely
- A Medicare overhaul is attempted.
- This would potentially drive toward a premium-support model, as laid out in Speaker Paul Ryan’s “A Better Way” plan
In our accelerated scenario, key issues for insurers to consider include:
Responding to worried consumers. Plans may need to prepare for high customer-service call volumes, as customers who bought ACA insurance will likely be questioning what a repeal means for their near-term coverage.
ACA population shifts and subsequent impact on revenue. A repeal of the individual mandate and the possibility of no subsidies could cause ACA enrollees to drop coverage at a rate even higher than previously seen (member attrition rates for ACA products over the course of a year are already high at about 30 percent). In this case, insurers will need to find ways to flex their operations over the course of 2017 in order to cut administration costs in response to reduced membership volumes.
Strategic planning for the Individual book of business. The first 2018 ACA exchange market price and product-filing deadlines are in April, less than 90 days after President-elect Trump takes office. The decision to participate in the exchanges (or not) could occur amidst continued uncertainty about the future of public exchanges – particularly if the administration announces a repeal plan in January without simultaneously clarifying and defining a replacement plan.
If this is the case, plans may need to consider how to maintain their Individual book of business, potentially via off-exchange products that (presumably) would look very different than the current ACA product and underwriting guidelines require. In order to retain profitability, plans may need to consider pivoting back to product structures that were common in the pre-ACA market (limited-benefit plans, for example) and target a different block of Individual consumers than they did under the ACA.
Medicare moves and opportunities. If passed, a premium-support system could lead to lower Medicare payments for insurers and higher out-of-pocket costs for beneficiaries. Generally, the discussed changes to Medicare could mean a material difference in how health plans will go-to-market in the future, and they may face greater price competition among MA plans. Organizations will face even greater pressure to be efficient in managing the Medicare population.
Medicaid MCO impact. Managed Medicaid organizations that have experienced substantial growth will likely experience significant loss of membership if Medicaid expansion is stopped or repealed. Coupled with disruption of the individual exchanges (where some Medicaid plans are doing very well), Medicaid MCOs should be considering how to prepare for a decrease in membership revenues, as well as a potentially sicker population, as healthier members who were part of the expansion population may no longer have coverage.
Slow-and-steady shift to Trumpcare
While the “fast” scenario is a possibility, many believe it is more likely that the administration will take a measured approach and establish a timeframe of staged changes over the next several years.
The ACA is a broad and complex law that links together all of the key health markets of Medicare, Medicaid, employer-sponsored coverage (small group market), and Individual exchange markets in a deadly embrace, of sorts. It will likely be difficult to fully pick apart singular elements of the law that the GOP finds less favorable without having a ripple effect on other more favorable aspects. (For example, the individual mandate and its implicit link to the prohibition to deny people insurance for pre-existing conditions). As such, the administration may take a more staged approach to change that allows them to account for all of the various moving parts of the law that need to work in concert.
In that case, the administration’s approach may include:
- Signaling that the foundational elements of the public exchanges will persist through 2019 and focusing on more targeted changes that will encourage payer participation and competition in the meantime – adjusting the special enrollment periods that have been a real challenge for many payers, for example
- Cancellation of the planned 2020 Cadillac tax deployment
- Repeal of the SHOP marketplace for small groups, which has had lower-than-expected adoption rates to date, and remove the requirement for small businesses to comply with ACA minimum essential benefit plans by the end of 2017
- Shift Medicaid to block grants
- No disruption of Medicare given the political sensitivities of changing a program that is popular with voters
In this scenario, key issues for insurers to consider include:
Retain and prepare to reframe in the individual market. Even with a slower progression, the high level of uncertainly and disruption may cause some payers to exit. However, it seems likely that 2018 and 2019 will not see major individual market shifts and payers will have the opportunity plan for the pivot.
In the short term, retaining existing membership volumes will be important to meet 2017 revenue expectations. During this time of disruption, plans that can provide a supportive and transparent consumer experience should win loyalty that could carry through to higher retention rates when the ACA changes eventually go into effect and members need to consider a different set of plan offerings.
Shore the core commercial book of business. Given the disruption across all of the government programs lines of business, renewed focus on commercial lines of business to create an anchor of margin stability will be important, especially with small businesses.
Prepare for block-grant impact. At present, the federal government provides 60 percent of Medicaid funding and requires coverage of select groups (such as children and lower-income pregnant women) as a quid pro quo. Under the block-grant program, states would be allotted annual funds for use at their discretion and these provisions would be lost. Thus, movement to block grants may result in states altering their eligibility criteria, which would result in loss of coverage, which would (in turn) lead to membership losses for Medicaid MCOs.
In addition, because states will be responsible for overages above the block grant funds, insurers should prepare for the possibility of ratcheted-back reimbursement rates.
These changes will force a focus on operational efficiencies, as well as reconsideration of health management programs for select segments, depending on how eligibility is impacted by block-grant rollouts.
No matter the pace
Regardless of the timing or the extent of the changes, there are a few no-regrets moves that we believe health insurers should make now:
- Continue the drive toward value and invest in plan capabilities to control underlying medical costs, which continues to be the primary challenge within healthcare
- Prepare for the financially empowered consumer, who will drive more transparency and increase in consumer-directed spend
- Build big-data digital expertise as benefits and rating flexibility could be vastly expanding
- Assess financial and scale flexibility to weather enrollment shifts
- Carefully evaluate how/where to participate in the individual market
The last few years have been turbulent for the healthcare industry, especially for payers participating in the ACA individual markets. The next several years will likely see a new wave of disruption, and that will put even more pressure on health plans to efficiently and effectively pivot business models and operational capabilities. That said, the complexity of the law could lead to more gradual phase-in of changes, hopefully giving insurers leeway to chart a path for an uncertain future.
Marcia Macphearson Partner, Health and Life Sciences, Oliver Wyman
Parie Garg, PhD Partner, Health and Life Sciences, Oliver Wyman