What Trump Means for Health System

“Repeal and replace” of the ACA may increase the number of uninsured, reduce healthcare revenues and expand the federal deficit.

SUMMARY: Like a chief executive hired to turn a failing company into a profitable one, president-elect Trump has said he will take an unflinching corporate approach to overhauling the U.S. healthcare system. For an industry that prefers stability to surprises—and one that has worked to adapt to the Affordable Care Act—Trump’s “repeal and replace” agenda may create new uncertainty and opportunity for healthcare leaders. President-elect Donald Trump will likely enter the White House seeking to “repeal and replace” the six-year-old Affordable Care Act (ACA). While the law has reduced the number of uninsured people and accelerated the shift to a more value-based healthcare system, it has struggled to lower costs, make care more affordable and win over a majority of Americans. Though complex, full repeal may not be a far reach for the president-elect. And even if Trump falls short of full repeal, he still may have congressional and regulatory paths to more targeted changes. For example, Trump could push Republican senators to defund the consumer exchange subsidies in a budgetary maneuver known as reconciliation. If successful in repealing the ACA, Trump said he would implement long-held Republican policies, plus a few new to his party’s thinking, designed to shift control of the $3 trillion healthcare industry away from the federal government and toward private enterprises, state governments and consumers. To push through his platform, Trump will likely have to navigate mounting pressure from macroeconomic forces— including rising healthcare expenditures and challenging Medicare financial and demographic projections—that may affect how he approaches his health reform agenda. Trump will likely need to mend relationships with congressional lawmakers—including Republicans who drew fire from him on the campaign trail. Consumers’ expectations for the evolving U.S. health system may also affect the Trump administration’s ability to negotiate with policymakers. Americans view healthcare as a top issue. While the candidates did not make healthcare a top-tier priority until the last weeks of the campaign, 76% of consumers told PwC's Health Research Institute (HRI) that it is important to them. For Trump, the challenge will likely be making healthcare more affordable for consumers while offering plenty of choices. In interviews with HRI, health industry experts said they viewed Trump as a corporate chief executive—an image he projected on the campaign trail. As such, the Trump administration is more likely to rely on free market levers, such as price transparency for providers and open negotiations with pharmaceutical companies, than the traditional regulatory process. This approach could benefit consumers by giving them the tools they need to shop around for their care. See also: What Trump Means for Healthcare Reform   “The refreshing part of it is he is bringing in completely new people, and, presumably, they will re-evaluate everything that’s been done in terms of policies and building for the future,” said Chip Kahn, president and chief executive of the Federation of American Hospitals, a Washington, DC-based association that represents for-profit health systems. For this report, HRI interviewed healthcare advisers and association executives to gain a clearer understanding of how Trump’s presidency will likely affect the industry. HRI also surveyed American consumers about healthcare policy issues that may emerge under the new administration. HRI assessed Trump’s proposals as he presented them during campaign speeches and on his campaign website from July through November. Trump’s health policy priorities: From “repeal and replace” to “the art of the deal” During his campaign, Trump promised to immediately repeal the ACA. He also unveiled a multi-point plan to overhaul the U.S. healthcare system, aiming to lower the cost of care through market, tax and legal reforms. His proposals include the expanded use of health savings accounts, cross-state insurance sales, increased transparency around provider prices and re-importation of medications, as well as allowing Medicare to negotiate with drug makers, giving tax credits to individuals who pay out-of-pocket for their care and block-granting Medicaid. HRI conducted an analysis of Trump’s proposals based on industry, consumer and congressional sentiments toward the president-elect’s policy goals (see figure 1). Screen Shot 2016-11-11 at 10.13.50 PM Repeal of the ACA would greatly affect the healthcare industry Repealing the ACA would be a major change to the current healthcare system, which has spent much of the past six years implementing its many moving parts. The industry has learned to live with and even, in many cases, embrace the law. Industry executives have questions about the implication of Trump’s policies to replace the ACA, which could increase the deficit in the long run and the number of uninsured by almost 20 million people, according to a Commonwealth Fund study.  Employers, who complained about the administrative costs of implementing the ACA, could find themselves spending money on changing employer policies and data systems to implement laws meant to replace the ACA, if it were repealed. Repeal also ends popular ACA provisions, like the guaranteed issue of insurance, allowing young adults to remain on their parents’ health plans until the age of 26 and filling in the Medicare Part D donut hole. It is unclear from his proposals whether Trump would try to keep any of these ACA provisions intact. The industry has other concerns about repeal, which would mean an end to revenue and tax provisions, including tax credits to offset premium costs. Medicaid expansion also would presumably be reversed, as would care delivery reforms that accelerated the move away from traditional fee-for-service payments to ones focused on quality and outcomes. "‘Repeal and replace’ could be very tough on hospitals that worked in the last process in 2009 and 2010 to accept tremendous Medicare and Medicaid reductions to help health reform happen,” Kahn said. “It would be important for us to see if those two things go together. If you want to repeal, fine, but you have to repeal the whole thing. And that’s going to be hard.” If attempts to fully repeal the ACA fall short, however, Trump and Republicans in Congress have other tools they can use to dismantle the law, including the use of reconciliation and the appropriations process, where Congress may be able cut spending to ACA programs. Some of those taxes have proven unpopular with health industry leaders. Under Trump, ACA foes in Congress now have an ally who is likely to push to remove those provisions. Beyond repeal, Trump embraces a free-market approach to healthcare Trump views healthcare as an industry that should look and feel like other industries, complete with market competition and consumer choice. From that perspective, Trump likely will first use traditional open-market levers to affect prices, a move that may be well-received by the public. According to the HRI survey, 62% of consumers said lowering the cost of health services should be a priority for the new president. Trump likely will look to build on the momentum toward more transparent pricing in healthcare. Some of it is rooted in the ACA, which requires hospitals to make public their lists of charges for medical procedures. Some states, such as Ohio and Florida, already have passed price transparency laws that take the ACA’s provisions further. The push for more transparent pricing is reflected by a growing number of consumers across the U.S. who are beginning to shop around for medical services. In 2015, 30% of consumers said they had contacted providers about prices, according to a survey conducted by HRI.  In turn, some hospitals and health systems have started offering more retail-like experiences around pricing, with at least one system offering to refund a portion of costs if patients are unhappy with their care. Trump also said he aims to expand consumer use of tax-advantaged health savings accounts, or HSAs. HSAs would be allowed to be handed down from family member to family member. Sixty-two percent of employers already offer HSAs, while 21% are considering offering them to their employees. See also: What Trump Means for Business   Despite the wide availability of HSA plans, U.S. consumers have been slow to adopt these tax-advantaged accounts. That may be changing. According to a 2015 report by America's Health Insurance Plans (AHIP), HSA plans participating in an AHIP survey experienced a 22% increase in enrollment between 2014 and 2015. The art of the deal: What works in business may be challenged by Congress On the campaign trail, Trump mentioned his skills as a business negotiator as crucial to how he would push through his policy agenda once elected. Trump may need to fine-tune his pitch to Congress if he wants to push through major parts of his health reform agenda, including giving Medicare the power to negotiate directly with drug makers and allowing the re-importation of prescription drugs. Both proposals have been stalled in the past. Determining Medicare’s power to negotiate with drug makers has been difficult to define because Medicare deals only with private insurers, which design and sell Medicare Part D plans and already negotiate with manufacturers. And, drug safety is a looming concern with re-importation. Even allowing insurers to sell coverage across state lines could face obstacles. Trump has positioned the idea as a way to lessen regulatory hurdles, lowering the cost of coverage for consumers and decreasing administrative burdens for insurers. But under a repeal scenario, there could be wide variations in how much insurers could charge enrollees and differences in benefits and premiums from plan to plan. Cross-state insurance sales may better meet the needs of younger and healthier individuals and lower standard benefit requirements, but it could also leave some consumers susceptible to higher out-of-pocket costs or lack of coverage for serious conditions. Trump also has proposed giving consumers tax credits to defray the costs of their coverage. However, the costly proposal, estimated at $41 billion, would likely require spending offsets. Under repeal, providing tax credits in the individual market could undermine employer-provided health insurance and increase the number of uninsured. Trump’s plans for Medicaid include turning it into a block grants program. A 2015 block grant proposal by House Budget Committee Chairman Tom Price found that it would reduce federal funding by $913 billion over 10 years. But the result could mean the loss of coverage for some people, a reduction in Medicaid benefit coverage or both. A major change in Medicaid, especially one that is intended to reduce federal spending, is likely to be opposed by the states that expect the largest losses from the proposed block grant program. Trump also has said he may favor expanding Medicaid. This expansion likely would mirror the efforts by Vice President-elect Mike Pence to expand the program in Indiana through a waiver that reflected more GOP-leaning principles. The Healthy Indiana Plan requires individuals to pay into a “personal wellness and responsibility account,” which is used to cover a $2,500 deductible. The state pays a majority share, but individuals also are on the hook for some amount. If an individual’s healthcare expenses are less than $2,500 in a year, the balance rolls over to the next year. Enrollees also can take additional reductions if they complete wellness programs and use preventative services. This model, with its personal responsibility flavor and focus on HSAs, might be popular with state Republicans. But not all waiver programs succeed. The Department of Human and Health Services (HHS) has denied some states' Medicaid waivers. The federal government turned back Ohio’s Medicaid proposal because it required increased cost-sharing for beneficiaries and would have led to dropped coverage for those who could not pay. Yet these types of denials could change under a Trump presidency. Macroeconomic healthcare trends will challenge the new president Complicating Trump’s efforts are broader macroeconomic healthcare trends. Discussion of these forces was virtually non-existent on the campaign trail. But if Trump does not take steps to tackle these economic issues, he may have a hard time advancing his healthcare platform without reductions in mandatory spending on major health entitlements (see figure 2). Mandatory spending on major health programs, such as Medicare and Medicaid, coupled with Social Security, are expected to account for 88% of the growth in federal spending over the next decade. The remaining 12%, the discretionary federal budget, which pays for such programs as defense, education and transportation, will likely be crowded out by healthcare spending. Unless Trump is willing to accept large increases in the federal deficit, he will likely be forced to look for ways to significantly reduce healthcare spending to make room for other domestic priorities. Screen Shot 2016-11-12 at 1.01.49 PM In addition, the Medicare Hospital Insurance Trust Fund, or the Part A trust fund, will be depleted by 2028, according to actuaries at the Centers for Medicare and Medicaid Services (CMS). The Medicare program is very popular with Americans. More than 70% of consumer survey respondents told HRI that it is an important policy issue. The federal government won’t let either program become insolvent. Medicare is the nation’s largest payer of healthcare services. It sets policies that are replicated throughout the industry. But the new administration will likely face significant pressure to tamp down healthcare spending. From an industry perspective, providers and other parts of the healthcare sector may have to defend against proposals to slow Medicare growth by cutting their reimbursements. The persistence of uninsured individuals is another unresolved issue for Trump. Although the number of uninsured Americans is at a historic low, 8.9%, so roughly 28.4 million people still lack coverage. The ACA exchanges have fallen short of earlier projections for enrollment (see Figure 3). Moreover, 19 states have yet to expand Medicaid to the levels set out in the ACA. The number of uninsured is expected to grow to about 50 million people with "repeal and replace." Trump’s challenge will be to lower that number through his replacement proposals. Medicare reform also looms large on Trump’s agenda. The new administration will be in charge during the first year of MACRA, the Obama administration’s overhaul of physician Medicare reimbursement. With MACRA, Medicare will double down on the shift from volume-based payments to value-based care. Trump likely will support the continued move to value-based care, which, in part, pushes hospitals, health systems and other parts of the industry to operate more like retailers. But the savings results from value-based reforms have been mixed, which means hospitals, physicians and health systems can expect more tinkering in their reimbursement programs. Screen Shot 2016-11-12 at 1.07.08 PM Implications for the health sectors Trump’s health proposals would touch nearly every corner of the U.S. healthcare system. In keeping with his background, his approach likely will be more business-oriented. This could mean allowing the health sectors to operate with a freer hand and without overly burdensome regulations, or it could take the form of Trump delegating much of the health policy work to his administration. See also: What Trump Means for Workplace Wellness   HRI analyzed the impact of Trump's proposals on the U.S. health sectors based on interviews with internal firm experts and external policy influencers. Proposals were taken from Trump’s campaign website, which HRI accessed multiple times between July and November. Screen Shot 2016-11-12 at 1.08.43 PM Screen Shot 2016-11-12 at 1.09.12 PM Screen Shot 2016-11-12 at 1.09.43 PM Conclusion Trump’s candidacy raised more questions about his healthcare proposals than it provided answers. This uncertainty—if not addressed early in his tenure—could frustrate industry players, new and established. They will likely be looking for clear direction on how they should proceed. This uncertainty could stall efforts to shift to value-based payment models. Trump’s corporate business tools will likely be challenged as he attempts to reshape the U.S. health industry, which does not operate like a typical business sector. “Repeal and replace” of the ACA may be difficult. Experts estimate that it could substantially increase the number of uninsured, reduce revenues to the healthcare sector and potentially drive up the federal deficit. These economic uncertainties place significant cost pressures on industry stakeholders. The replacement proposals outlined address a patchwork of issues but not the loss of coverage that would result from a repeal of the law. Overall, Trump’s proposals present a new set of challenges and opportunities for an industry that already faces uncertainties over a burgeoning New Health Economy. You can download the full report here. It was written with Kelly Barnes, Bob Valletta and Mike Swanick.

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