Magazine Article | January 1, 2017

Risks And Rewards Of Repeal And Replace

Source: Life Science Leader

By John McManus, president and founder, The McManus Group

“Why do you speak ever of hiding and destroying? Why should we not think that the Great Ring has come into our hands to serve us in the very hour of need? ... Let the Ring be your weapon, if it has the power you say. Take it and go forth to victory!”
— Boromir, The Fellowship of the Ring

There is a pivotal scene in Tolkien’s Lord of the Rings trilogy where the Council of Elrond is debating what to do with the Great Ring of power. Boromir suggests using the power of the ring for good but is rightfully admonished by the rest of the council that it is too powerful to wield and must be destroyed in the fiery chasm of Mt. Doom from whence it was forged. The remainder of the great saga tracks Frodo’s efforts to journey to Mordor and destroy the ring once and for all so it can never be used for evil.

The Republican sweep in the 2016 elections similarly hands the enormous power of the Center for Medicare and Medicaid Innovation (CMMI) — which can effectively rewrite long-standing Medicare statutes without Congress’s input or consent — to the Trump administration. What to do with this power?

Speaker Paul Ryan’s healthcare blueprint, “A Better Way,” released last summer suggests an immediate repeal of every key Obamacare provision — the taxes (including the $30B pharmaceutical fee), the funding of Medicaid expansion and subsidies for the exchange plans, the expensive regulations, and the Independent Payment Advisory Board. But it curiously suggests waiting until 2020 to abolish CMMI. Why the delay?

There is now chatter among some Republicans that the CMMI power can be used for good purposes, such as reforming Medicare to a more market-based program. However, Republicans would be wise to dismiss those musings and immediately repeal or at least “guardrail” CMMI — substantially limiting the scope and duration of demonstrations — to ensure that Congress’s vital role in the care and nurturing of the program can never be outsourced or usurped again. The people’s representatives are far more responsive to beneficiaries and other stakeholders than cloistered bureaucrats, regardless of party. Controversial reforms should go through the deliberative legislative process.

Fortunately, President-Elect Trump’s selection of Budget Chairman Tom Price (R-GA) as Secretary of Health and Human Services elevates the most prominent and articulate opponent of CMMI to the most important health position in the government.

In a September 2016 op-ed, Price stated, “The broad powers vested in CMMI, and the agency’s interpretation of that authority, have the potential to further degrade Congress’s lawmaking authority by shifting decision making away from elected officials into the hands of unelected bureaucrats. In addition, CMMI has an automatic appropriation of $10 billion once every 10 years, forever. Consequently, this little agency can spend that money however it chooses — escaping the oversight authority Congress should have through its power of the purse.”

Just as important, Price brings a number of key skills and background to the job. He is a former orthopedic surgeon who operated his own practice and intimately understands patient care and how well-meaning regulations can actually stifle innovation and disrupt care. He is a seasoned lawmaker, using his position as a senior member of the Ways and Means Committee and the GOP Doctors Caucus to author numerous healthcare bills that have been enacted, as well as drafting visionary, comprehensive legislation to replace Obamacare.

The first 100 days of the Trump administration will be focused on repealing and replacing Obamacare. Repealing the numerous taxes and funding for the Medicaid expansion and means-tested subsidies for enrollees in exchange plans is relatively straightforward. It can be accomplished through a parliamentary tactic known as budget reconciliation, which requires a simple majority vote in the Senate. This means if Republicans stick together they do not need to negotiate with Democrats.

But how to handle the more complicated question of replacing Obamacare? Funding can be provided for a refundable tax credit outlined in Ryan’s “A Better Way” blueprint through that same reconciliation bill. But repeal of the costly insurance mandates and a raft of other provisions that micromanage nearly every aspect of healthcare delivery must be enacted through regular order – i.e., 60 votes in the Senate. That reality empowers the newly elevated and cagey Democratic Minority Leader Chuck Schumer (D-NY), as Republicans will need eight of his members to join their 52-vote majority in passing any bill out of the Senate.

Republicans will be pressed to demonstrate how those now covered under Obamacare will be provided coverage under their plan once Obamacare is repealed. But how many individuals are actually receiving coverage under Obamacare, and is that coverage reliable under current law, where the insurance exchanges now appear to be imploding?

Analysis by the Heritage Foundation’s Edmund Haislmaier and Drew Gonshorowski takes issue with the Department of Health and Human Services’ estimate that 20 million people gained coverage under Obamacare. They point out that estimate is based on survey data rather than calculating the actual change in coverage in various markets. Heritage found that 14 million gained coverage in the first years of Obamacare implementation with 11.8 million through Medicaid and 2.4 million through private coverage. Enrollment in the exchange plans was offset by declines in employment-based coverage.

“A compelling case can be made that Obamacare is presently collapsing of its own accord."

Additionally, many individuals counted as gaining coverage under Obamacare will keep their coverage under any replacement plan. Trump has said he intends to retain the provision allowing 2.3 million young Americans to remain on their parents’ insurance. And many of the newly covered Medicaid lives will continue to be covered through the underlying coverage rules that preceded Medicaid expansion. For example, Ohio estimated that 28.9 percent of Medicaid enrollees who gained coverage in 2015 would have been covered under the old criteria. And the Heritage study found that 1.4 million of the newly covered Medicaid lives occurred in states that did NOT expand Medicaid. Publicity of the Medicaid expansion resulted in coverage of already-eligible individuals.

Just as important, a compelling case can be made that Obamacare is presently collapsing of its own accord. Health plans have been exiting the exchanges in record numbers, leaving just a single plan in 960 counties across the country, including just a single plan in the following states: Alaska, Alabama, South Carolina, Oklahoma, and Wyoming. North Carolina and Arizona have only two insurance plans, with one serving most of the counties.

Moreover, funding schemes to stabilize the exchange are expiring or being contested in court.

  • Risk corridors which shield plans from excessive losses expired December 31, 2016, and plans are unlikely to receive the $8.3 billion in losses for 2014 and 2015 they are now suing to recover, as Congress explicitly prohibited taxpayer funds from being used for risk corridors in those years.
  • Reinsurance subsidies to assist plans with expensive enrollees similarly terminate at the end of 2016.
  • The cost-sharing subsidies for low-income enrollees were not funded in the statute, determined illegal by a federal court and certain to be rescinded by the incoming Trump administration.

And under current law, effective in 2020, premium subsidies will no longer be tied to health costs but only grow with the consumer price index, leaving individuals to shoulder the difference in higher premiums.

There is an old maxim: You cannot force a company to lose money. And what would compel health insurers that had already been vilified for substantially hiking premiums and cost-sharing while absorbing huge losses to remain in a fundamentally untenable market that was getting worse?

Republican plans to replace Obamacare will actually secure coverage that is eroding in front of people’s eyes but without the heavy-handedness that has disrupted the entire insurance market to assist a small slice of the population that is uninsured.