The Outlook for Government-Sponsored Health Programs in 2018

As 2018 and Year 2 of the chaotic Trump Administration kick off, trying to predict what will happen in Medicare, Medicaid, and the Affordable Care Act is as challenging as ever. It’s a midterm election year with terrible headwinds for the GOP, so the legislative calendar is abbreviated, and partisan rancor will peak. That makes it less likely Republicans will get to do much damage but also more likely they will try to serve up red meat for their base, like a return to “repeal and replace.” Congressional leaders, fresh off their billionaire bailout tax bill, are already talking about taking up “reform” (aka cuts) of Medicare and Medicaid and other social welfare programs. The only thing that is certain is 2018 will be another battleground year for government health programs.

Affordable Care Act (ACA)

In its latest act of ACA sabotage, this week the Administration released its proposed rules to implement Trump’s October Executive Order on Association Health Plans (AHPs). The new rules will let certain small businesses and trade groups band together to buy healthcare in the latest move to weaken Obamacare’s Health Insurance Marketplace. The expansion of AHPs is part of a broader effort to encourage the rise of cheaper coverage options exempt from certain ACA patient protections and benefit rules. Advocates and state insurance regulators warn the new rules will open the floodgates to junk insurance policies that exclude key services required by the ACA like prescription drugs or maternity care. When considered in tandem with repeal of the ACA’s individual mandate in the tax bill, the new rules could siphon favorable risk from the ACA Exchanges, leaving sicker beneficiaries in a potential Exchange death spiral. These rules are likely to attract a range of lawsuits, so stay tuned. We suspect Blue States would regulate AHPs so aggressively as to blunt their impact there, but expect “open season” in Red States and those operating under the Exchange. AHPs could mean damaged Exchange plans essentially offer a second tier of Medicaid. The proposed rule suggests a questionable 11 million potential customers for AHPs, but thus far there is little interest from insurers in participating.

Leadership in Congress may make another run at ACA “repeal and replace” in 2018 as part of the 2019 budget resolution. Congress has been trying to dismantle pieces of the law in other legislation with, for example, the individual mandate being repealed in tax reform. This incremental approach may offer a path for new repeal and replace legislation, both with a more favorable Congressional Budget Office (CBO) score and a simple majority required to pass in the Senate. Changes with bipartisan support would include repeal of the health insurer fee, the device tax, and the Cadillac tax, all of which were strangely omitted from the GOP tax bill. Still, with midterm elections looming, the most likely outcome is that major healthcare legislation doesn’t happen in 2018.

Medicare

Medicare could face significant challenges in Year 2 of Trump. Decrying deficits to which they just added $1.5 trillion with the tax bill, Speaker Ryan is calling for further cuts to Medicare, Medicaid, and the rest of the social safety net. The recent GOP strategy summit at Camp David offered little more than declarations of Trump’s stable genius and hopes for an infrastructure bill in 2018.  But Ryan is considering retirement and would love nothing more than to cap his career with his “premium support” plan for Medicare, block grants for Medicaid, and a rethinking of Social Security and food security programs. I have to believe if he gets any traction on any of his agenda in the House, Senate Republicans would likely try to run with it, albeit with only a single-vote margin. Medicare promises to be noisy in 2018, but in the end, it seems a long shot for major legislative action in an election year.

The road to value-based payment got rough in 2017, and 2018 should be a snooze in comparison. Trump’s Centers for Medicare & Medicaid Services (CMS) rescinded bundling demonstrations, objected to mandatory provider participation in value-based initiatives, and exempted more physicians from participation in the Quality Payment Program. This year promises a return to the drawing board, with greater flexibility given to providers in design of CMS demos. We expect little uptake on new initiatives and expanded participation in those programs already on the books and working: Accountable Care Organizations (ACOs) and Alternative Payment Models (APMs).

Over 550 ACOs contracting with Medicare will continue to expand and evolve in 2018, driven by experience, record shared savings in 2017, and new on-ramps, thanks to the Medicare Access and CHIP Reauthorization Act (MACRA) APMs. CMS has identified risk contracts with Medicare Advantage (MA) plans as APMs, providing a 5% boost under Medicare Part B and a significant incentive for sophisticated medical groups to move up the food chain, with an ACO being the next step. Recent studies indicate ACOs have plenty of outstanding opportunities to achieve shared savings with CMS, as much of the savings generated to date have come from ambulatory-sensitive conditions and not high-risk, high-cost beneficiaries. And ACOs haven’t begun to scratch the surface of overtreatment and fraud and abuse.

A little-known provision in MACRA banning the sale of Medigap policies with first-dollar coverage in 2020 will initiate an arms race in MA in 2018 and 2019. The ban on Medigap’s most popular plans, especially the Type C and F supplements comprising two-thirds of the supplemental insurance market, will force millions of baby boomers to rethink their coverage.  Many will be drawn to “Cadillac” MA Preferred Provider Organizations (PPOs) with broad provider directories, rich benefits, and low out-of-pocket costs, and forward-looking plans are positioning to offer them early. PPOs already comprise almost 6 million of the 20 million MA enrollees, and the MACRA shift will cement the product as the go-to offering for more affluent seniors. Expect to see PPOs popping up like mushrooms in 2018 and 2019, especially in states with large Medigap populations like Texas and Florida.

MA will continue to grow rapidly, with new operational challenges that will stress even veteran plans: provider directory accuracy, risk adjustment methodology changes, and revisions and additions to Star Ratings. The industry is “stuck” in Star Ratings with little improvement in performance, especially among MA plans 5 years old or younger. This year will demand greater focus on real intervention and execution at the member level and in improving the member experience. More plans will insource appeals and grievances from delegates like pharmacy benefit managers (PBMs), seeking to avoid growing compliance exposure and poor member interactions. We’re expecting MA growth of 7% in 2018 year over year, with enrollment accelerating to 8-9% in 2019 and 2020 with the MACRA change.

Congress’ failure to reauthorize Special Needs Plans (SNPs) in 2017 means uncertainty abounds for a product serving almost 3 million at-risk Medicare beneficiaries.  The program is funded through 2018, but plans have to submit applications for 2019 in February, formularies for 2018 plans in April, and bids in June, with no sign of movement on extending the program.

We don’t expect any major activity in Medicare Part D or drug pricing in 2018. While the program should be steady, we will begin to see decline in stand-alone Prescription Drug Plans (PDPs), which are often paired with Medigap Plans C and F banned in 2020. The impact of mega-mergers like CVS-Aetna and possible emergence of “Amazon Rx” remain to be seen but seem certain to place greater emphasis on leveraging narrow networks of retail pharmacies to improve drug spend, the member experience, and Part D Star Ratings.

Medicaid/CHIP

While Congress failed to reauthorize the Children’s Health Insurance Program (CHIP) over 100 days ago, a new, much cheaper score from CBO this week should make extension of the program a relatively easy task this month. The biggest fights of 2018 will be around Medicaid.

Following the November 2017 win of the first statewide referendum for Medicaid reform, a half-dozen other states, including Utah and Idaho, are considering similar ballot initiatives in 2018. Trump and CMS Administrator Seema Verma are advancing new work requirements and other “conservative principles” for the program, and almost two dozen states have submitted statewide Medicaid reform waivers to advance them, including the first 10-year waiver just approved for Mississippi. The “Vermization” of Medicaid will spread quickly in 2018 with a single goal: reducing the rolls. She will be successful, and Medicaid-focused plans will rightly seek to diversify.

This year will also see a rollback of the Obama-era Medicaid “mega-reg,” which sought to streamline requirements with the ACA Marketplace and MA. It’s yet to be seen how far Verma will go in erasing the Obama legacy on Medicaid.  We expect a proposed rule from CMS this summer.

Most states are already experimenting with Managed Long-Term Services and Supports (MLTSS) to try to rein in crushing costs of long-term care. With states still mired in fiscal crisis, states will redouble and expand their efforts to capitate long-term care costs and shift deficits into the private sector. The trend presents unprecedented opportunities for health plans that are equipped and prepared to serve the most vulnerable and lucrative population in the nation.

Even with a short legislative session and midterm elections, government health programs promise to be volatile and chaotic in Year 2 of Trump. Forward-looking plans and the vendors who support them will have to pay attention and invest in adaptation to stay ahead.

 

 

Resources:

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John Gorman
John Gorman

Under John’s leadership, Gorman Health Group has become the leading professional services and solutions firm for government-sponsored health care, providing thought leadership and expert strategic, operational, and technology-based solutions. Read more

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