Healthcare to Change Again and How It Will Impact You

Healthcare to Change

Healthcare to Change Again and How it’ll Impact You

Hello everyone! Thanks for stopping by today. As everyone is well aware, we are currently undergoing our nation’s great tradition of peaceful transition of power. By that I mean Mr. Donald Trump is going to soon be known as President Trump. Just like me, I’m sure you’ve all have had enough coverage of the presidential race and outcome so I won’t be going there. But I do want to address a likely change forthcoming under President Trump, and that will be the repeal and replacement of the Affordable Care Act (ACA / Obamacare).

Let me start out by saying, I don’t expect as much change to be forthcoming as many may expect / fear…so let’s get into it!

My Background

If you are a regular reader you may be aware that I am a healthcare banker and have been for the last 5 years (granted I realize this doesn’t make me an expert by any means). This has been a great time to be in healthcare given the momentous change the industry has gone through in the U.S. In the last 5 years we have seen the implementation of ACA which has in turn spurred the most heavy acquisition environment the industry has seen. Now we will likely be embarking on the repeal and replacement of ACA and likely a continued heavy acquisition environment.

As a healthcare banker, one of my primary responsibilities is to dig in and understand the broad and multi-faceted industry. Over on Financial Samurai’s blog a few months ago, I went into how I’ve grown to be a major skeptic of our healthcare system and recognize its numerous flaws, and likewise, I’ve come to realize that we are the biggest problem when it comes to reigning in healthcare costs (we require way too much expensive care!). Feel free to check that post out if you haven’t already.

But today, as the industry is about to change significantly again, I wanted to reflect on some of the likely changes, provide some context, and hopefully help explain how this may impact you and your wallet.

ACA Overview

First, as a bit of a refresher, I’d like to remind everyone what all was included in the ACA. The overarching theme of ACA was to provide health insurance to the 40-45 million people who were previously uninsured. This was accomplished primarily through expanding Medicaid for the poor, establishing the “Exchanges” for individual commercial policies, and also by allowing children up to age 25 to remain on their parents policy. To date, coverage has been expanded to approximately 20 million people, with 20-25 million people still without coverage today.

  • Medicaid was expanded by raising the income limitation. However, the Supreme Court ruled this was not mandatory for the States and, to date, 32 States (including DC) have enacted legislation to expand Medicaid which has resulted in approximately 12 million additional people being covered. Medicaid is funded by a combination of State and Federal funds.

Healthcare to Change

  • Health insurance became mandatory for everyone and exchanges were established to provide access. If you don’t have health insurance, you are liable for a penalty. Some folks have elected to take the penalty rather than buy insurance, but the commercial exchanges have extended care to approximately 8 million people. Healthcare bought on the exchanges has been heavily subsidized by the Federal government. They have also been horribly unprofitable for health insurance companies because of the significant amount of care this patient population has required.

ACA also enacted a number of regulations to affect the administration of healthcare including:

  • Mandating use of electronic health records (EHRs). EHRs are digital versions of a patient’s paper chart and allow real-time updates and access to doctors to help streamline patient care. EHRs have largely been implemented, although not entirely by all healthcare systems. The one issue that sometimes comes up is how well the various EHR systems can communicate among themselves. EHRs were largely funded by the Federal government.
  • Health insurance provided to those with pre-existing conditions (mandatory coverage by insurers).
  • Numerous “value-based care” payment models were established along with efforts to bundle payments. This may not be that apparent to the consumer of healthcare though, a lot of this goes on behind the scenes. The verdict is still out on a number of these initiatives and which methods are working best, but generally everyone is in agreement to move toward value-based payments from fee-for-service payments.

Repeal and Replace

Repeal and replace will be a top priority and all but a certainty to occur given the Republican held majority in the House, Senate and with Trump as President. This will be done through new legislation, the budget reconciliation process, or executive authority. The challenge will be coming up with a “replacement” in tandem with the “repeal” given the policy differences among various Republicans and the need to develop detailed legislation. I think there will be significant backlash if the rug is pulled out from those on the exchanges if there is a repeal without a simultaneous replacement. And, for what it’s worth, on the campaign trail Trump has said he has no intention to leave those folks in the lurch with no options.

As a result, I wouldn’t expect immediate action. But with that said, where you may potentially see an impact is either in your level and access of insurance coverage and the cost of that coverage (less coverage at less cost to make the program cheaper for the government), and indirectly through the use of collective tax dollars (if the replacement results in a larger deficit).

How Will You be Impacted?

Before chaos breaks out about ACA being repealed and replaced, let’s keep in mind a few things. First, if you get your health insurance today through your company, you won’t be directly impacted by the repeal.

For those who have commercial insurance today through the exchanges or coverage through Medicaid, the earliest you’ll see an impact is in 2018 as nothing will be done in time to affect 2017 (exchange enrollment periods will have ended before Congress reconvenes and Trump is inaugurated).

Side note, I thought it was funny to hear over 100,000 people bought insurance on the exchange the day after the election. No need to freak out people, it won’t be going away in 2017…

Commercial Exchanges

In 2018 and beyond, the commercial exchanges may no longer exist as they do today. But I would expect some form of transition of coverage. That could be offered by allowing the interstate sale of insurance which Trump is a proponent of, but that will see resistance from the insurance lobby and state insurance commissions. Additionally, as mentioned above, there are significant costs to the Federal government by way of subsidies for those buying on the exchanges.

If Trump wants to preserve coverage for these 8 million individuals, the cost burden to the government will remain significant which it can either cover with continued subsidies or push more cost onto the consumer with less subsidies. Or, alternatively, the degree of coverage could be scaled back (more catastrophic care type programs) which will be cheaper and still allow some level of health insurance for those 8 million individuals.

Medicaid

Regarding Medicaid coverage, I’m not so sure this will be pulled back to the prior coverage levels. Many governors have already come out and said they would like to find a way to preserve coverage levels. On the other hand, significant funding comes from the Federal government’s wallet and this could be one lever pulled to reduce the impact of the “repeal and replace” to the Federal deficit which Congress will prefer.

My guess is over time the Federal government will pull back on its portion to fund expanded care, thereby forcing more expense onto the State. The State can then decide whether to find ways to fund this themselves or, alternatively, restrict coverage by lowering the income limit and cut back the program.

Other ACA Features

There are a number of other ACA related features that I’d like to touch on quick. Trump hasn’t been transparent with his plans so these are completely my opinions.

  • First, the EHRs have largely been implemented. This train is on the tracks and isn’t going to stop and neither should it. This won’t have a significant ongoing cost burden to the government. It’s about time the healthcare industry enters the 21st century…
  • Initiatives for value-based payments and bundled payments for such things as dialysis care and joint reconstruction procedures (knee / hip replacements), etc will be maintained and continue to be tested. Over the long term, these should help squeeze savings from our large and overly complex healthcare system. Similar to EHRs, the train is on the tracks…might as well keep it chugging.
  • Coverage for folks with pre-existing conditions won’t change. First, the impact on a dollar basis to the healthcare system isn’t large in the grand scheme of things. Secondly, there would be outrage from the masses. I can’t imagine there would be political support for rolling this back.
  • Coverage for kids under 25 on their parents’ policy should change. To me, this is stupid. And maybe it is because I’m bitter I didn’t benefit from this provision (it was enacted a year or two too late for me) and that my younger siblings did. But in reality these folks should be able to find their own healthcare just fine…they are adults now, they are part of the workforce and making their own money, and they can afford it just as good as I could.

“Pay Fors”

I’ll touch on how ACA was initially paid for. I want to keep this post largely focused on the impact to the consumers, but there were a number of “pay fors” enacted on various healthcare companies including hospitals, insurance companies and medical device manufacturers, etc. The “pay fors” were accomplished through lower Medicare payments, taxes, fees, etc, that were levied on these companies. The rationale for the “pay fors” was justified by the increased business the companies would have through the uninsured population becoming insured through ACA. This is way too convoluted to get into the details of each, but I don’t expect many of these would change much at this point as it would hurt the deficit. But there may be tweaks around the edges.

My Wish List

Lastly, recognizing this post is getting long, I wanted to briefly list things I hope will be addressed in any future legislation.

  • Transparency in Price – To me this is one of the major flaws in our healthcare system. While it has improved a bit (including cool up and coming companies like Amino), it should be easier to get price data and shop for cost effective care.
  • Incentives for good health and preventative care – I’m healthy and as is my family. I shouldn’t have to pay a fortune for my healthcare just to help subsidize the unhealthy, high users of care. Yes, you could say this is selfish of me, but health insurance should be priced on health characteristics and expected usage to a degree. This would certainly help motivate people to live healthier lifestyles. My suggestion for the government would be to continue pushing the use of Health Savings Accounts, and to fund a certain amount into everyone’s account for reaching various healthy behavior milestones.
  • Re-implementation of Catastrophic only Coverage – This goes right in tandem with the prior bullet. It’s a cheaper alternative for generally healthy folks. This option was previously restricted as part of ACA and I’d love to see it come back. This could also be a cheap alternative offered on the exchanges.
  • Negotiation of drug prices by Medicare – Why would the government Medicare program, the largest purchaser of pharmaceuticals, not be allowed to negotiate price, especially when commercial insurers and the Veterans Administration can negotiate price? The government negotiates price for other services it buys. Of course the Pharma lobby will be all over this and I know they have arguments against it (just like with Prop 61 in California which was just voted down after the lobby spent $100 million against it), but it would be huge savings to our healthcare system. The fact that Medicare isn’t allowed to negotiate price is one of the reasons why the U.S. spends more on its drugs than anywhere else in the world.

Conclusion

Let’s wrap this long post up with a quick summary. My general thoughts on anticipated changes to our healthcare system are: 1) any changes made will not be immediate, they’ll take quite a bit of time to develop giving us all time to evaluate options, 2) I don’t expect  the 20 million newly insured as a result of ACA will get kicked off coverage, but I do expect the level of coverage to change (less coverage = cheaper for gov’t) and less subsidies for those buying on exchanges, and 3) a lot of the other miscellaneous aspects of ACA that many consider to be positive (EHRs, coverage for pre-existing conditions, value-based payments) won’t be touched.

If you want further reading, check out Paul Ryan’s A Better Way Healthcare Policy white paper which may form the baseline of forthcoming changes.

Ok, that’s probably enough of a rant for today. Feel free to chime in with your comments below. I wrote this article quick so I could get it posted in a timely fashion, while also having a pretty busy work at week. So if I missed something that I should have touched on about ACA, let me know!

Thanks for taking a look!

The Green Swan

 

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Go Finance Yourself!

There’s a ton of uncertainty right now with the change in party. It seems very costly to completely repeal the ACA. Plus I don’t think anyone has a better alternative that can be quickly put in place. I wouldn’t be surprised if the ACA isn’t fully repealed but modified instead. Trump is already talking about certain provisions he likes such as the preexisting conditions and ability to stay on your parents insurance up through age 25. I guess we’ll see. Like you said, it will take some time even if they decide to completely repeal it.

JW

Yeah I agree. Repeal and replace has a nice ring to it but it’s not entirely feasible or rationale. We’ll see what kind of deal Trump ends up striking.

Apathy Ends

Thanks for putting your perspective out here Mr Swan

I was assuming it would take at least through next year to see any significant changes as well. The ol government is not known for its speed.

I think exploring incentives for preventative health care is a great idea, its one of those win – win situations that shouldn’t be overlooked.

I did not know Medicaid was not allowed to negotiate – very interesting

earlyretirementnow

Great post. And very timely, too! This will be front and center of the policy debate come 2017. If we retire in 2018 we might be the first cohort under the new regime of health insurance. We don’t like the uncertainty. But let’s face it: either way, there would have been uncertainty: a new government reforming it or the old system eventually collapsing, so we might as well face the music in January 2017.
Completely agree with your wishlist. I would probably add 1) competition across state lines and 2) tort reform to lower the cost of lawsuits for the medical profession.
Cheers!
ERN

JW

Yeah that’ll be a fair amount of uncertainty for a 2018 retirement. I’d focus on what you can control though (good health) and expect healthcare to remain expensive. We’ll see how it unfolds next year!

Mr. SSC

That’s the most well constructed “rant” I’ve read in a while. 🙂 Thanks for your perspective on this and I agree, while uncertain things aren’t just going to change as soon as he takes office. I think the slow bureaucracy of getting anything done is going to shock the hell out of him, to be quite honest.

I’m on board with your wishlist especially the incentives for preventative health care, and price negotiation on drugs for Medicare. How do they not negotiate that? Mind boggling…

JW

It was quite a rant but I tried keep it somewhat organized!

I know! They are the largest purchaser of pharmaceuticals, I have to imagine they could get a better deal than they are currently.

Mrs. Picky Pincher

That’s a shame that the insurance plans on the healthcare exchanges were heavily subsidized by the government, unprofitable for insurance companies, and (in my experience/opinion) largely expensive for patients to purchase. I was hoping the ACA would bring affordable care to more people, but it sounds like that wasn’t always the case.

I’d welcome some new ideas on bringing more people affordable healthcare, but the changes are always scary. I did benefit tremendously after the ACA changes, which meant my monthly prescription went from costing me $100 to $0. I do worry that a repeal/replace might mean higher costs, but hey, we’ll see what happens. This is why it’s important to get out of debt and have positive cash flow! If push comes ot shove, I’ll be able to afford to pay out of pocket for meds if needed.

JW

Yeah it’s too bad the promises made by the ACA including affordability and good doctor options have turned out better. It’ll be tough, but I’m optimistic positive changes can be made. At the very least, more options for buying insurance plans should help us find something suitable including better pharmaceutical coverage for you. We can hope, but we’ll just have too wait and see and like you said plan accordingly.

Kelsey @ Tealmama

As of last fall my husband and I have not been covered under an employer’s plan — we’ve seen a 35%+ premium increase from 2015 to 2016 and a 29% increase from 2016 to 2017. Which is on the low side compared to other states. So something’s gotta give. We’re welcoming changes, but also glad they’ll be keeping pieces of the plan. Great information, thank you.

JW

That’s a tremendous increase, especially for the young and healthy. Part of the problem which I didn’t touch on in the article is the cap on plans for old folks of 3x that of younger cohorts rather than the traditional and more sustainable 5x. This has made it tough on insurers and expensive for younger generations.

Hopefully you’ll have some better options in the years ahead!

Jon @ Money Smart Guides

I agree about price transparency. We’ve been trained to not comparison shop healthcare because we would only pay deductibles. Now that more of us are under high deductible plans, we need to do the legwork and find out who offers the best service for the best price. I’ve never heard of Amino but am excited to hear there could be a way to comparison shop much easier for healthcare.

JW

That’s for sure and that was the intent for the popularizing of high deductible plans… But even when you try to price shop it’s ridiculously hard or even impossible still. Amino has been a positive start though.

Josh @MoneyBuffalo

I think a complete repeal will be impossible because of the pre-existing conditions coverage. But it would be nice to see catastrophic-only plans be “legal” again and your other wish for rewards for prevention. I remember before the ACA passed my employer’s human resources department was heavily pushing prevention incentives instead of treatment.

Besides the increased life expectancy & plethora of available medical procedures, I also think decades of eating junk food and processed food (i.e. epidemic obesity & adult diabetes rates) are also driving up the cost of healthcare. Another plug for preventive incentives.

We currently belong to a healh-sharing ministry becuase it is the only way we can afford basic medical coverage as the bronze-level marketplace plans are three times the cost.

JW

I agree, Josh. Are diets are awful and people just don’t seem to care or realize how expensive care will be down the road. Sugar is a huge culprit and maybe the worst thing in our diets. I watched a great documentary a while back called Sugar Coated on Netflix, you should check it out.

I’ve heard a lot about health insurance ministries lately. That just goes to show there should be better and cheaper options for people on the exchanges. Hopefully change is coming, but we’ll see.

Jon @ Be Net Worthy

What an awesome overview of the situation with ACA JW! That’s one of the nice thing about reading enough PF bloggers, everyone has a different expertise!

I will be very curious to see how things turn out. I know that after meeting with Obama he’s already walking back some of his “repeal and replace” rhetoric. Some sound bites are good for campaigning and some ideas are good for governing. I hope he makes the distinctions well!

JW

I agree, Jon, I hope there will be a prudent balance to the approach to healthcare reform. A lot needs to be fixed, but there were some good reforms buried in that 3,000 page legislation known as ObamaCare as well that should be retained.

Gary @ Super Saving Tips

Thanks for your perspective on the ACA and the future of healthcare coverage. Both my wife and I are on Medicare, so the main impact we’re looking at is Medicare negotiating prescription prices, which would be huge. Our current prescription co-pays cost more than our mortgage each month! It’s crazy that we can’t use the same manufacturer coupons that non-Medicare customers use. Price transparency would be another area I’d like to improve.

I do hope that whatever changes are in store for us, we manage to keep the previously uninsured and uninsurable (pre-existing conditions) on coverage. Healthcare is a basic human need and we all need access to it.

JW

Medicare being able to negotiate would be great and there may be a trickle down benefit to the price commercial insurers pay for their pharmaceuticals too. It’s not encouraging though that Prop 61 was voted down in California, it’s just the latest example of the influence of the world’s most powerful lobby in Big Parma. So I’m not getting my hopes up.

Andrew

GS,

Thanks for the overview! Very appreciated 🙂

Personally, I find the ACA very complicated. I think we’re all still waiting for clear policy transparency from Trump.

For now, I’m just glad it’ll be the status quo for 2017. I get pretty good health insurance from my employer and the premiums only went up slightly this year (I think by 8 or 9%), so I have it much better than some people I know. Let’s just hope rates don’t go through the roof in 2018 haha!

JW

Yeah let’s hope! I’m sure there will be plenty of debate in the coming year about the right path forward.

My policy increased a similar amount which is still too high in my opinion.

Thanks for the comment!

Mr. PIE

Very thoughtful summary GS.

The forward thinking approach is for both sides to work towards a system of good healthcare that is essentially a basic human right.

Disease affects the young, old, healthy and those who don’t give a damn what they do to their body. Early onset RA, MS in women or Alzheimer’s or blood cancers do not give a shit about what one eats for lunch, dinner or how mnay reps were thrashed out at the gym. Genetics (major), environmental factors, and more dictate what diseases you will be afflicted with for the most part. Yes, there are some metabolic disease that can benefit from diet, exercise no doubt.

To live in a country where the greatest innovation the world has to offer is a great thing. To live in a country where our healthcare system is so poor is incredibly sad.

JW

Couldn’t agree more. I see it very frequently in my life of work too, where otherwise healthy folks are inflected terrible diseases which are expensive to treat. I wouldn’t down play the metabolic disorders which can be impacted by diet, those are some of the biggest killers in America and most costly.

But either way it’s the responsibility of those in D.C. to find a solution that works and fix some of the issues we currently see in the system. Hopefully we see some positive changes and nothing that tears down the foundation that ObamaCare established.

Emily @ JohnJaneDoe

Nice overview, JW.
I don’t think healthcare costs can ever become reasonable without price transparency. While we’ve benefited from ACA, the overall insurance structure didn’t seem to improve because there’s no way and no incentives for most consumers to make rational decisions. If the repeal and replace drive could address that, they might win me.

Financial Slacker

Great overview, Green Swan.

I’ve also been in healthcare for most of my 20 years. And ACA had some pretty dramatic impacts in other ways that didn’t directly impact consumers. For instance, there were restrictions placed on the profitability of insurance companies. This has led these companies to seek out profit centers in other areas not capped (i.e., PPO networks).

I am hoping to see the changes you mentioned in providing coverage across states lines. Living in a smaller market dominated by a single integrated hospital/health plan, we have long suffered from a lack of competition, I’m hoping that changes in the future.

Thanks again for this.

JW

Yes some of the restrictions placed on the health insurers were pretty extreme and maybe some of the most drastic implications compared to other healthcare sub sectors. Hopefully the next reforms put in place will be more customer focused!

That’s a shame about your market. The lack of competition has seemed to be more prevalent, especially in the commercial exchanges. But also with state restrictions including CON laws for hospitals.

Thanks for the comment, FS!

DC @ Young Adult Money

I’ve worked in finance at a major health care company the past 6 1/2 years, and it’s been really interesting to see the progression of the ACA and a lot of my work the first four years was focused on ACA-related regulations. You wrote a really great overview and I think we will only see more of a focus on value-based care in the future. With each passing day I feel like Trump’s health care positions are becoming more and more moderate. I don’t think things will change to a great degree and he seems to care a lot about legacy and I don’t think those with pre-existing conditions are at risk of losing coverage. He seems to be set on delivering better care for cheaper so I’m curious to see what he ultimately decides to push for.

JW

Thanks, DC, I appreciate that feedback!

And I agree. It seems like Trump will act somewhat rationally regarding healthcare buy time will tell. There are changes to be made, but there is no need for an overhaul.

Mr. Groovy

Hallelujah! Someone who has far more knowledge than the average lay person writes a post about the ACA that is learned and constructive. I can’t argue with any of your points. As long as we protect the vulnerable and find a way to inject price transparency and competition, I’m good. It won’t be perfect but it will be moving in the right direction. Thank you Green Swan, I really enjoyed this post. It’s RockStar worthy but I know they won’t go there. Healthcare is just far too emotional for too many people.

JW

Thanks Mr Groovy, I really appreciate those kind words. I enjoyed your post on healthcare as well, spot on!

Yes, hopefully healthcare keeps moving in the right direction. Thanks for the comment.

ChrisCD

Many points I agree with you on. But no one ever seems to touch on the cost of an education for a Dr, the salaries of the Drs, the salaries of the executives, & the salaries of the bureaucrats running it. You can’t just control one side of the equation and pass the cost of running this thing on to the consumers. If the country desires (and that could be a big IF), a universal healthcare system, then all segments need to make significant sacrifices to see it through.

I do agree the cost should be tied to expected use and I think smokers rates should start high and other risky behaviors/careers, too. Also, you may initially end up in a lower tier, but like auto insurance, if you keep using it, your rates go up. I agree that generally healthy people shouldn’t subsidize generally, non-healthy.

JW

Good point, Chris. Thanks very much for the comment and adding to the discussion. That’s an interesting idea of healthcare insurance being more like auto, with premiums going up if you use it frequently. I like that and it makes sense to me.

Dr. POD

Thanks for the post. I agree that the president-elect and the republicans in both houses are unlikely to abolish or radically reform the ACA or government’s role in health care generally and that many of your ideas would help to improve the catastrophically expensive health care system.
However, until the public recognizes that government is the overriding reason for the devastating price inflation in medical care (just like in higher education) and demands a free market in health care, the problem of health care affordability will continue to worsen. Government will not solve the problem of its own creation.

JW

Thanks for the comment, Dr POD. Just to be clear, you’re referencing the government’s role in Medicare and Medicaid even prior to ACA as the reason for higher costs? I don’t disagree with that thought. I’m a proponent of the free market and don’t doubt a private solution could be better.

Dr. POD

That’s correct, Medicare, Medicaid, the V.A., Indian Health, TriCare and ObamaCare; taken together these governmental programs are financing the lion’s share of health care in this country as well as dictating the terms of its delivery. The results have not been pretty-increasing costs, poor quality and a bureaucracy that would make the old Soviet Communists proud.
Some on the right complain about Obamacare (with good cause), but those of us in the trenches know that the socialization of medical care stretches back a lot further than this administration.
Unfortunately every government intervention leads to failure and more government intervention, instead of the recognition that the original intervention was the problem and a demand for the complete divorce of government from health care financing and delivery.
I understand where you are coming from in your article, and I applaud your proposed solutions as good first steps, but we must always recognize the ultimate goal should be to allow patients and doctors to interact freely absent the coercive army of politicians and bureaucrats setting the terms.

JW

I’m a fan of the free markets so I’d certainly be on board with what you’re saying and don’t disagree that government intervention was the original sin here. I think you could look at the success Medicare Advantage (the private option to Medicare) has had as proof of success in the private sector (albeit on a small scale).

Thanks for the constructive comments!

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