Health policy has become a highly charged partisan issue in American politics. Each party claims its policies will improve the quality, efficiency, and availability of American health care, while the other party’s policies will destroy what is good about the health care system that Americans enjoy now. Realistically, however, any major changes in federal health policy will require broad public support and bipartisan agreement in Congress, even if one party controls both the White House and the legislative branch of government, and especially if power remains divided.
In a less polarized political atmosphere, the 2016 campaign could have allowed candidates to articulate realistic positions, help voters understand the options, and provide a basis for legislation when the new president and Congress take office in 2017. Unfortunately, the campaign has mainly featured slogans such as “Repeal Obamacare!” and “Save Medicare!” and mutual accusations of nefarious intentions that only deepen the partisan divide and raise barriers to constructive action in 2017 and beyond.
The next president and congress will have to deal with at least three big health policy issues:
- Resolving the future of the Affordable Care Act (ACA);
- Slowing projected growth of national health spending, including private and state, as well as federal, health spending; and
- Reforming the Medicare program in a way that extends the life of the Medicare HI Trust Fund and moderates the growth of the Supplementary Medical Insurance trust fund so as to ensure the viability of Medicare for the rapidly increasing population of beneficiaries.
These issues are necessarily complex because the American system of delivering and paying for health care is extraordinarily complex. Hence, proposed policy changes are inevitably complicated and hard to make clear to most voters. The three issues are also highly interrelated. For example, the ACA increased federal spending for health by creating subsidies for the purchase of health insurance and expanding Medicaid. At the same time, the ACA reduced spending for Medicare and introduced reforms likely to make health care delivery more efficient. Hence, repealing the ACA in its entirety would make the other two issues harder to resolve.
PARTISAN IDEOLOGY AND POLITICAL REALITY
While there are diverse views on health policy within both parties, presidential and Congressional candidates in the 2016 election continue to emphasize traditional Republican and Democratic approaches to health care. Republicans talk about market solutions, empowering consumers to make choices, reducing waste and regulation, and giving states more flexibility to design and execute health programs. They argue for tort reform as a way of reducing malpractice premiums, health savings accounts as a way of giving consumers more control over health spending, and selling health insurance across state lines as a way of enhancing competition that would lower premiums. Republican candidates demonize Obamacare as a federal power grab that is forcing people to buy health insurance even if they don’t want it, punishing small business with mandatory costs, and raising premiums for everyone. They paint a grim picture of the future of Medicare if Democrats resist changes in that program.
Democrats, for their part, talk about the millions of families getting life-saving care because they now have affordable health insurance purchased in the ACA marketplaces or are covered by expanded Medicaid. They point to dire consequences of repeal, such as again allowing insurers to deny coverage or jack up premiums to people with pre-existing conditions. They talk about the millions of elderly and vulnerable people benefiting from Medicare and Medicaid and accuse Republicans of wanting to gut Medicaid by transforming it into a block grant to the states, and destroying Medicare by turning it into a voucher program with ever-escalating costs to beneficiaries. They push for expansions in coverage and benefits in federal programs on the grounds that current programs are still inadequate to meet the goal of high quality, affordable health care for all.
When a new president and Congress begin to tackle these challenges, however, they will find their options severely limited no matter who has won. The American public is generally nervous about change in anything as vital and personal as health care. Medicare, for example, is such a popular program that any modifications to it must be carefully designed to assuage the fear of current beneficiaries and their families that they might end up worse off. Moreover, the current health care establishment—providers, insurers, suppliers—forms a large, politically sophisticated sector of the economy (comprising 18 percent of the nation’s GDP) whose powerful lobbies protect the jobs and incomes derived from the current health system. So any new team proposing major health policy changes will face a daunting battle with entrenched stakeholders determined to defend and enhance their varied interests. As many past policymakers have learned: be careful what you wish for!
THE FUTURE OF THE AFFORDABLE CARE ACT
The clearest policy divide between the Republican and Democratic presidential candidates is over the future of the Affordable Care Act. In the primary phase of the campaign, all Republican candidates trashed “ObamaCare,” and promised to “repeal and replace” the ACA, thereby aiming to fulfil the unsuccessful 4-year effort of Congressional Republicans, and delivering on a major plank in the party’s platform. Several candidates in the Republican primaries offered ideas for replacing it: tax credits for the purchase of health insurance, and either retaining the ACA insurance market reforms, or replacing them with federally supported state-based high-risk pools or other devices. Donald Trump did not. The Republican presidential nominee has said only that he will replace it with “something great.” His campaign materials state his belief that “every American deserves access to high quality, affordable health care,” but provide few relevant policy detailsabout how he thinks that can be achieved. He would allow those without employer-sponsored insurance to deduct their premiums from taxable income, allow health insurance to sold across state lines, expand importation of prescription drugs, have Medicare negotiate drug prices with pharmaceutical manufacturers, and transform Medicaid into a block grant.
In the Democratic primary campaign, Bernie Sanders argued forcefully for a single-payer system (Medicare for All), a proposal long popular with the progressive wing of the Democratic Party. He acknowledged that such a program would balloon the federal budget, because it would eventually replace employer-sponsored health insurance with a universal federal entitlement program, and require higher federal taxes to pay for it. Hillary Clinton celebrated the accomplishments of the ACA in drastically cutting the proportion of Americans without health insurance, argued for enhancing the incentives to states to expand Medicaid, and proposed policies that would make ACA insurance more accessible and affordable. As Democratic nominee, Clinton has emphasized her health policy experience, reiterated her support for retaining and strengthening the ACA, suggested that people over 55 be allowed to buy into Medicare before they reach the current eligibility age of 65, and that a public option be available on the ACA exchanges in all states to compete with private plans.
If Republicans win the White House, they will almost certainly retain control of both chambers of Congress and be in a good position to repeal Obamacare early in 2017. Even if Democrats are able to throw sufficient sand in the legislative gears to thwart clean repeal, the Administration, through executive actions, regulatory forbearance, and reduced appropriations, could cripple the program. In either situation the question would be, “But then, what?”
Even if Democrats retain control of the White House and win a slim majority in the Senate, they will have to engage Republicans if they hope to pass legislation to fix the difficulties that have emerged in implementing the ACA. It will be challenging to find some common ground with Congressional Republicans who almost certainly will retain control of the House and have sufficient votes to keep the Democrats from attaining the 60 vote margin needed to get controversial legislation through the Senate.
There may be several policy areas in which Democrats may be able to enlist some Republican cooperation. Some of these involve non-ACA related Clinton proposals that might appeal to Republicans and which Democrats could use to sweeten any ACA-related legislation. Among these are Clinton’s proposals for a refundable tax credit for those with high out-of-pocket expenses, limitations on out-of-network charges for care delivered in in-network hospitals, greater price transparency, and relaxation of restrictions on the importation of prescription drugs.
With respect to policies directly related to the ACA that might attract some Republican support: one is to develop some alternative to the Independent Payment Advisory Board (IPAB), which is unlikely to be constituted as long as Republicans control more than 40 Senate seats. Another is the elimination of the employer mandate which some independent analystshave concluded has only a marginal impact on coverage (but not on costs). A third is a restructuring of the Cadillac tax on employers that offer high-cost health insurance to their workers, before this tax takes effect in 2020.
To engage Republicans, a more fundamental step would be for a new Democratic administration to actively encourage several conservative states to consider using Section 1332 waivers. Under this section of the law, starting in 2017, states can substitute a state-designed structure for the ACA as long as the plan achieves the access, coverage, quality and cost goals of the ACA.
Similarly, a new Democratic Administration could try to engage Republican lawmakers in developing new incentives that might entice the 19 conservative states that have not expanded Medicaid eligibility to 138 percent of the Federal Poverty Level (FPL), as the ACA allows, to take advantage of this opportunity, which could save them tens of millions of dollars and end a glaring inequity that developed after the Supreme Court decision made this ACA requirement optional. The Obama Administration has used Medicaid’s Section 1115 waiver authority to extend coverage in six states but clearly more will have to be done if the roughly 3 million uninsured who fall into the coverage gap—those whose incomes are less than the 100 percent of poverty threshold for eligibility for subsidized coverage in the exchange, but above their state’s Medicaid eligibility level—are to be protected. Another approach would be to provide states with the option of scaling back the Medicaid expansion threshold to 100 percent of the FPL while providing somewhat more generous federally funded premium tax credits and cost sharing subsidies to those with incomes between 100-138 percent of the FPL who enroll in fully federally subsidized exchange plans. This would assuage concerns some states have had about their future responsibility for Medicaid costs for the expansion population. It would also reduce the numbers of families shifting between Medicaid and exchange coverage.[1]
Beyond these policies which might attract some small measure of bipartisan agreement, there is a long list of ways in which the ACA needs strengthening. Urban Institute analysts and others have suggested that the accomplishments of the ACA could begin to erode as the premium and cost-sharing requirements of exchange policies become increasingly unaffordable for middle income and elderly families and as the consequences of inadequate funding for administration become more apparent. Thus a Democratic White House is likely to propose more generous tax credits and cost-sharing schedules for exchange participants; a fix for the employer-based insurance “glitch;”[2] and augmented federal grants for IT development and operations, education, outreach, enrollment, and oversight and enforcement of insurance regulations.
Of even more importance is the need to take measures to expand and stabilize the insurance offerings in the exchanges. Citing losses, a number of large for-profit insurers have withdrawn from the exchange marketplaces altogether while others have reduced the counties in which they are offering coverage. Only six of the original 23 Consumer Operated and Oriented (CO-OP) plans will be offering policies in 2017. In some areas, plan premiums have increased at rapid rates while deductibles and cost sharing in lower cost plans have soared. Among the explanations suggested for these trends are that marketplace enrollees are less healthy than expected, market place enrollment is much smaller overall than projected, especially in rural areas, many use special enrollment periods to purchase insurance when they need expensive care and then stop paying their premiums after treatment, and the failure of the mechanisms that were intended to redistribute revenue from plans with relatively healthy participants to those with less healthy enrollees.
While congressional Republicans are unlikely to support such policies, Democrats will push for a public option either in areas where there are none or just one or two private plans available. Alternatively, they may support making the public option available nationwide or in areas where average premiums are relatively high. A more palatable response might be for the federal government to pay for, through a system of competitive bids, a private plan that would offer insurance in counties with no or few exchange offerings.
Until the exchange marketplaces stabilize, insurers need to be more comfortable with the accuracy and predictability of the risk adjustment system and more certain that adequate payments will be made.
MODERATING THE GROWTH OF NATIONAL AND FEDERAL HEALTH CARE SPENDING
The United States devotes an extraordinary 18 percent of its GDP to health care—a substantially larger fraction than other advanced countries with modern health care systems. For several decades, health spending per capita grew faster than most other spending. Continuation of past trends seemed likely to push the fraction of economic resources devoted to health care ever higher—to 20 percent and beyond—squeezing out spending for competing needs in public and private budgets, including investment needed to give young people the skills and tools necessary to ensure future prosperity. However, recently, health spending slowed markedly. Over the past 5 years (2010-15) National Health Expenditures (NHE) rose at an average rate of 3.5 percent a year on a per capita basis, compared with 6.0 percent in the previous decade (2000-2010). Over the 2010 to 2015 period Medicare spending rose at a rate of 1.4 percent per beneficiary and the comparable figure for Medicaid is 1.7 percent.
The causes of the recent spending slowdown are the subject of a lively debate. The Great Recession and the slow recovery from it, low overall inflation, the ACA’s cost reduction measures and other federal initiatives, efforts by employers to constrain spending by shifting costs onto workers through high deductible and narrow network plans and other mechanisms, the shift to generic drugs, a slowdown in the introduction of expensive new interventions and blockbuster branded drugs, and provider efforts to improve efficiency have all played some role in slowing the growth in per capita costs.
Even without disruption in the health sector that could result from election-related policy turmoil, spending growth is projected to accelerate in the future. Per capita NHE are projected to rise at an annual rate of 4.9 percent over the next 10 years, Medicare spending at a rate of 4.3 percent per beneficiary, and Medicaid expenditures at a rate of 4.6 percent per enrollee. And when looking at total, rather than per capita, health care spending, demographic trends will exacerbate the situation. Over the next decade, the Baby Boomers will expand Medicare’s rolls by almost 3 percent a year. While the under 65 population will be growing at an anemic rate of 0.4 percent a year, an increasing fraction of them will be concentrated in the 50-64 age group where average medical expenditures tend to be high for the nonelderly population.
The lull in new expensive medical innovations seems to be coming to an end. Pharmaceutical manufacturers are introducing new drugs for cancer and other chronic conditions with extremely high price tags—often well in excess of $50,000 per year—and costly innovations based on genomic and nano technology breakthroughs are being developed. In addition, provider consolidation (hospital, nursing home, and home health agency mergers), acquisitions of insurance companies by other insurers, and the purchase of physician groups by hospitals threaten to reduce what little effective competition exists in the health care sector.
Faced with the prospect that rapid health care spending growth will resume on their watch, the new Administration should lay out its view on the seriousness of the challenge and how they propose to address it. Republicans who advocate repealing the ACA will have to specify what they will do to replace the ACA’s health spending reductions. The ACA contains initiatives—such as the Cadillac tax (an excise tax on high cost employer sponsored plans), Medical Loss Ratio limits and premium rate reviews that are intended, at least in part, to dampen expenditure growth by private plans. What measures, if any, would replace these?
The ACA also reduces the growth of Medicare’s spending significantly. It cut payments to most institutional providers and to Medicare Advantage (MA) plans, initiated multiple demonstrations and pilot programs designed to test the efficacy of various approaches to reducing costs, and established the Innovation Center within the Centers for Medicare and Medicaid (CMS) to explore new payment methods for government programs and a non-profit Patient-Centered Outcomes Research Institute (PCORI) to sponsor clinical comparative effectiveness research of medical treatments that hopefully will reduce costs and improve the efficiency of care delivery. It also called for creation of the IPAB, a body charged with instituting cost-reducing measures if Medicare’s spending exceeds specified target growth rates.[3] While many of these initiatives have yet to show significant impacts on the pace of cost growth, the Congressional Budget Office (CBO) has estimated that Medicare’s direct spending would increase $802 billion over the 2016-25 period if the ACA were repealed.[4] Advocates of repeal will have to decide which, if any, of the ACA’s cost saving measures they would retain and what alternative approaches they would propose.
REFORMING MEDICARE TO EXTEND THE LIFE OF THE TRUST FUND
Even if the future of the ACA were not an issue of political contention, a continuation of current policy would not be sufficient to address the challenges facing Medicare. The Trustees project that the Trust Fund out of which Medicare pays hospital claims will be depleted in 2028, even assuming realization of all of the ACA’s Medicare savings. At that point, revenues dedicated to Medicare will be sufficient to pay only 87 percent of Medicare’s Hospital Insurance’s (HI) costs. Unlike other components of the federal budget except Social Security, Medicare has no legal authority to run a deficit in the Trust Fund and would have to cut spending. Repealing the ACA would accelerate, possibly to the middle of the next decade, the date of Trust Fund depletion. This would occur because Trust Fund spending would increase when the productivity-related reductions in payment updates for institutional providers (hospitals, skilled nursing facilities, etc.) and other cost-reducing measures disappear, and when the increase in payroll taxes on those with high earnings required by the ACA is terminated, thereby reducing the Trust Fund’s revenue.[5]
Moderating the growth of spending of the physician and drug components of Medicare (Parts B and D) is also important. Under current law, general revenues automatically cover the any difference between spending in Parts B and D and premiums collected. In other words, the extra spending increases the federal deficit. With total Part B and Part D spending projected to rise by an average of 7.3 percent and 9.7 percent a year respectively over the next decade, these two programs will impose an increasing burden on federal budget resources as well as on beneficiaries who will face rising premiums tied to increased program costs. Over the next two decades, expenditures for part B and D are projected to grow by .67 percent of GDP.
It would be highly desirable for the next president and Congress to address the future of Medicare and not wait until HI trust fund depletion forces hasty action. Taking action sooner rather than later will permit consideration of a wider range of solutions, solutions that can distribute the unavoidable burden across a broader array of stakeholders and generations. Furthermore, significant policy modifications to Medicare (and Social Security) must be phased in gradually to allow affected individuals, businesses and institutions adequate time to adjust.
However, Medicare, perhaps even more than Social Security, is the third rail of American politics. The millions of older and disabled people who depend on Medicare—and their children—are extremely fearful of proposals to limit Medicare’s benefits or increase beneficiary costs, and they tend to show up at the polls. The list of policies that have been suggested for putting Medicare’s finances on a more sustainable path is long but all the items are controversial. The policies include transforming Medicare into a system of premium supports in which beneficiaries receive a government subsidy (voucher) that enables them to purchase insurance through an exchange; raising the age at which Medicare is available from 65 to the age at which unreduced Social Security benefits are available (or even higher); increasing Part B and D premiums; increasing deductibles and cost sharing; moving to new payment mechanisms such as reference pricing, and episode-, bundled-, or value-based payments; limiting payments for expensive pharmaceuticals; and raising Medicare HI payroll taxes. The efficacy and political appeal of any of these policies, of course, depends critically on the detail.
Any viable plan for moving Medicare onto a sustainable track for the future would have to include controversial elements. A candidate that put forward such a plan would risk scaring older people and being demonized by the other side. Hence, the candidates in the 2016 election have stuck to generalities about the need to preserve Medicare, and argued for popular but inadequate policies compared to the actual need, such as relaxing limitations on the importation of drugs and allowing the government to negotiate prices with drug manufacturers.
CONCLUSION
There are of course other health policy issues that the next president and the new Congress will have to address. Examples include: the poor health of Americans associated with unhealthful food, drug abuse, violence and other non-medical factors that impact health; the disparities in health between the affluent and low-income populations; new epidemics and drug-resistant pathogens; and how to encourage and share the benefits of biomedical innovation. But the issues we have focused on in this paper—how to improve the Affordable Care Act, how to control rising health spending, and how to preserve Medicare for the growing elderly population—should be the focus of policymakers in 2017.