Gorman Health Group | POST-ELECTION STATEMENT FROM JOHN GORMAN - Gorman Health Group
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POST-ELECTION STATEMENT FROM JOHN GORMAN

It’s hard to argue this wasn’t a decisive victory for the President and Democrats in the Senate, where the GOP snatched defeat from the jaws of victory. The big question is whether Congressional Republicans will hear what the people said.

 

While it was a distant #2 issue in exit polls, this election was a de facto referendum on health reform. The ACA will not be repealed and is now assured to be Obama’s lasting legacy. The “repeal and replace” charade is over. The GOP fought it so fiercely because they knew that if Obamacare wasn’t killed before it walked, it would be popular and voters’ appreciation will accrue to the party which gave blood to enact it – and it will be hugely popular by 2016. Our hope is that Congressional Republicans will lay down their arms and help shape the ACA’s implementation so they can share the credit when it’s as successful as Medicare Part D has been.

 

Many Red States held out hope the election would settle whether they must prepare for health reform. The 11th hour means they’ve been caught flat-footed and the Federal Exchange will operate in nearly three dozen states and will be the defining marketplace for health insurance starting in 2014.

 

Medicaid: expansion is a state decision but we expect that most, if not all, of the Red States who opposed expansion following the Supreme Court ruling will fold and take the expansion funds in the next 90 days – it’s just too good a deal to pass up.

 

Dual Eligibles: The migration of dual eligibles to health plans will now move forward in literally dozens of states. The state fiscal crisis will overwhelm concerns about the speed of the migration, and it will result in over $200 Billion in new annualized premiums for plans in the next 3 years. The duals are now affirmed as the biggest opportunity for health insurers in a generation – bigger than the exchanges.

 

Sequestration and Fiscal Cliff: we anticipate the sequester will not happen and the two parties will agree to delay the fiscal cliff while they work on a compromise. The political dynamics strongly favor the President, as his ideal scenario – raising taxes on the wealthy to accompany budget cuts — occurs without any legislative action, and nothing happening in Congress is always a safe bet these days. Any deal reached will now involve both entitlement cuts and tax increases, we’d guess in the neighborhood of $2T or roughly half that recommended by the Simpson-Bowles Commission, and it will have bipartisan support.

 

Medicare Advantage will continue on the course set by the ACA, and we expect the consolidations within the industry to continue. It is unlikely, but the 2% cut under the sequester could happen if the parties are unable to agree on a larger budget deal. Regardless, we fully expect a continued increase in oversight, with more regulations and a tougher compliance posture from CMS for Medicare Advantage plans.
• The Stars program’s current trends will continue: Standards will change every year and Plans will be culled. CMS may get moving on SNP-specific rating standards, as SNP plans will be in trouble soon without them. Plans with four stars and better will continue to get bonuses under the ACA. We fully expect that plans below the 3 stars for three years will be terminated starting in 2013 by a much tougher CMS.
• CMS will keep trying to find a better way to risk adjust. We expect an attempt to recalibrate the HCC coefficients based on encounter data, which will change the dynamic: Plans will have to find missing codes to avoid being cut, rather than getting paid more. How CMS adjusts for the FFS error rate will be crucial.
• SNP and 1876 reauthorizations will both get paid for, but we need a vehicle to get the 1876 extension quickly, since it expires the end of December 2012. SNPs expire at the end of 2013, and so have more time for reauthorization.

 

“Doc Fix”: The Sustainable Growth Rate (SGR) or the “doc cut” will be fixed, but it has to be paid for – and that’s the obstacle both parties struggle with. MA rates are profoundly impacted by this issue, and Congress’s inclination to deal with it through annual increments rather than the 10-year price tag in CBO estimates means that MA plans must wait until the next year’s rates are announced. The discrepancy between how and when MA rates are set vs. FFS means that MA plans are never really made whole. It’s a tremendous challenge for this industry.

 

Medicare: We expect Medicare will serve as a piggy bank for deficit-reduction proposals, given its size and fiscal situation.
• The Ryan/Wyden Medicare reform proposal will be debated as a gesture of “cross the aisle” goodwill from the President, but won’t come close to enactment.
• We expect the cuts that have been considered in prior budget proposals will be back on the table, including: fraud detection, reforming Medicare cost sharing rules, increasing the age of eligibility to 67, restricting first dollar coverage in Medigap, extending Medicaid drug rebates to duals and LIS, and more means testing. Provider cuts will also be on the table, especially for hospitals.
• An increase in the eligibility age is a possibility, and will be part of discussions regarding entitlement reform generally, and especially as it relates to the budget. But unlike with social security, deferring the eligibility age merely cuts off the lowest-cost tail of the distribution. The cost reduction would be disproportionately small compared to the number of people politicians would upset.

 

ACOs: with the ACA intact, the surge in ACOs participating in Medicare will continue. Over 500 applications were received by CMS for the September filing deadline for the Medicare Shared Savings Program, and over 300 ACOs are active in the commercial market. With tonight’s election ACOs are here to stay.