California Governor Gavin Newsom signed a bill directing the state’s Health and Human Services Agency to work with the federal government to create a waiver allowing Medicare and Medicaid funding to be reallocated toward a universal health insurance system for its residents.
The established timeline sets California on track to submit its final waiver for federal approval in 2026. The law does not specify whether universal coverage would be via a single-payer system, which is what Newsom favored in 2018. The California Nurses Association opposed the bill on the grounds that it does not commit to a single-payer outcome, while the California Association of Health Plans protested against its threat to end private coverage in the state.
The Gist: This is California’s 10th attempt at universal care, with all previous attempts having ended in failure because, despite both popular and political support in the state, there has not been consensus on how to pay for it.
This most recent bill only passed because it was separated from a funding bill, since shelved, addressing the over $300B in tax revenue needed to pay for it. This process-first approach may be seen as a calculated appeasement of the Democratic Party’s left wing, as Governor Newsom clearly holds aspirations for higher office—but so far,
healthcare has not ranked among the top issues for the current roster of candidates targeting the White House in 2024.
This week, all eyes will be on the U.S. Congress as the clock ticks toward a potential government shutdown. Whether lawmakers reach agreement on a continuing resolution to extend funding for30 to 60 days or the government shuts down at midnight this Saturday, it will have direct negative impact on consumer activities and spending in healthcare.
Background:
A shutdown alone is not apocalyptic for consumers: they’ve weathered 20 shutdowns averaging 8 days each since 1976 and recovered productivity shortfalls within 3-6 months. What’s complicating and most problematic for healthcare is its concurrence with equally threatening events and trends inside and outside healthcare:
The resumption of Student Loan debt payments starting in October 1 impacting 900,000 Americans– 90% say they can’t!
The probability the Federal Reserve will increase its federal borrowing rate by 25 basis points to 5.50 thus increasing interest costs and consumer prices.
The slowdown in GDP growth and increase in fuel costs projected by economists and regulators.
Increased workforce-management tension resulting in strikes, walkouts and slowdowns in labor-intense settings like auto manufacturing, nursing homes and hospitals.
Medical inflation: technological advancements, increased demand, rising drug prices, expensive medical equipment, and increased administrative costs are contributors. According to the U.S. Bureau of Labor Statistics, prices for medical care are 5,274.47% higher in 2023 vs. 1935 (a $52,744.67 difference in value). Between 1935 and 2023, medical care experienced an average inflation rate of 4.63% per year, but in that period, working-age consumers who are privately insured paid a disproportionate and growing share projected to exceed 10% in 2023.
The health system’s economics are partially protected from shutdowns since funding for the Medicare and Medicaid is somewhat protected. That’s the status quo.
But the confluence of growing bipartisan Congressional antipathy toward the industry vis a vis regulatory reforms (i.e. price transparency, site neutral payments, DOJ-FTC consolidation constraints et al), high profile congressional investigations (i.e. PBMs and drug prices, role of private equity ownership), administrative orders from the White House and Governors (i.e.medical debt, value initiatives, organ procurement et al) and negative publicity challenging community benefits, CEO compensation and fraudulent activities erode the industry’s good will and expose it to unprecedented consumer risks.
Evidence in support of this assessment is substantial as illustrated in the sections that follow. There are no easy solutions. The U.S. health industry status quo is a B2B2P2C (business to business to physician to consumer) industry in which most decisions impacting what consumers ultimately spend for healthcare products and services are made for them, not by them. The direct costs associated with supply chain, technologies, facilities and R&D are closely guarded secrets. Indirect costs, administrative overhead, off balance sheet activities, partnerships and alliances even more.
What’s clear is that every sector in healthcare will be subject to scrutiny through an uncomfortable lens—the consumer. Prices matter. Service matters. Integrity matters. Transparency matters. Ownership matters. Purpose matters. And whether accurate or not, fair or not, comfortable or not, information accessible to consumers is readily accessible.
The shutdown over the debt limit might happen or be diverted. What will not be diverted is growing discontent with the medical system that the majority of consumers believe wasteful, expensive and self-serving. How the status quo is impacted is anyone’s guess, but it’s a good bet its future is not a cut-and-paste version of its past.
Saturday, Congress voted overwhelming (House 335-91, Senate 88-9) to keep the government funded until Nov. 17 at 2023 levels. No surprise. Congress is supposed to pass all 12 appropriations bills before the start of each fiscal year but has done that 4 times since 1970—the last in 1997. So, while this chess game plays out, the health system will soldier on against growing recognition it needs fixing.
In Wednesday night’s debate, GOP Presidential aspirant Nicki Haley was asked what she would do to address the spike in personal bankruptcies due to medical debt. Her reply:
“We will break all of it [down], from the insurance company, to the hospitals, to the doctors’ offices, to the PBMs [pharmacy benefit managers], to the pharmaceutical companies. We will make it all transparent because when you do that, you will realize that’s what the problem is…we need to bring competition back into the healthcare space by eliminating certificate of need systems… Once we give the patient the ability to decide their healthcare, deciding which plan they want, that is when we will see magic happen, but we’re going to have to make every part of the industry open up and show us where their warts are because they all have them”
It’s a sentiment widely held across partisan aisles and in varied degrees among taxpayers, employers and beyond. It’s a system flaw and each sector is complicit.
What seems improbable is a solution that rises above the politics of healthcare where who wins and loses is more important than the solutions themselves.
Perhaps as improbable as the European team’s dominating performance in the 44th Ryder Cup Championship played in Rome last week especially given pre-tournament hype about the US team.
While in Rome last week, I queried hotel employees, restaurant and coffee shop owners, taxi drivers and locals at the tournament about the Italian health system. I saw no outdoor signage for hospitals and clinics nor TV ads for prescriptions and OTC remedies. Its pharmacies, clinics and hospitals are non-descript, modest and understated. Yet groups like the World Health Organization (WHO) and the Organization for Economic Cooperation Development (OECD) rank Servizio Sanitario Nazionale (SSN), the national system authorized in December 1978, in the top 10 in the world (The WHO ranks it second overall behind France).
“It covers all Italian citizens and legal foreign residents providing a full range of healthcare services with a free choice of providers. The service is free of charge at the point of service and is guided by the principles of universal coverage, solidarity, human dignity, and health. In principle, it serves as Italy’s public healthcare system.” Like U.S. ratings for hospitals, rankings for the Italian system vary but consistently place it in the top 15 based on methodologies comparing access, quality, and affordability.
The U.S., by contrast, ranks only first in certain high-end specialties and last among developed systems in access and affordability.
Like many systems of the world, SSN is governed by a national authority that sets operating principles and objectives administered thru 19 regions and two provinces that deliver health services under an appointed general manager. Each has significant independence and the flexibility to determine its own priorities and goals, and each is capitated based on a federal formula reflecting the unique needs and expected costs for that population’s health.
It is funded throughnational and regional taxes, supplemented by private expenditure and insurance plans and regions are allowed to generate their own additional revenue to meet their needs. 74% of funding is public; 26% is private composed primarily of consumer out-of-pocket costs. By contrast, the U.S. system’s funding is 49% public (Medicare, Medicaid et al), 24% private (employer-based, misc.) and 27% OOP by consumers.
Italians enjoy the 6th highest life expectancy in the world, as well as very low levels of infant mortality. It’s not a perfect system: 10% of the population choose private insurance coverage to get access to care quicker along with dental care and other benefits. Its facilities are older, pharmacies small with limited hours and hospitals non-descript.
But Italians seem satisfied with their system reasoning it a right, not a privilege, and its absence from daily news critiques a non-concern.
Issues confronting its system—like caring for its elderly population in tandem with declining population growth, modernizing its emergency services and improving its preventive health programs are understood but not debilitating in a country one-fifth the size of the U.S. population.
My take:
Italy spends 9% of its overall GDP on its health system; the $4.6 trillion U.S spends 18% in its GDP on healthcare, and outcomes are comparable. Our’s is better known but their’s appears functional and in many ways better.
Should the U.S.copy and paste the Italian system as its own? No. Our societies, social determinants and expectations vary widely. Might the U.S. health system learn from countries like Italy? Yes.
Questions like these merit consideration:
Might the U.S. system perform better if states had more authority and accountability for Medicare, CMS, Veterans’ health et al?
Might global budgets for states be an answer?
Might more spending on public health and social services be the answer to reduced costs and demand?
Might strict primary care gatekeeping be an answer to specialty and hospital care?
Might private insurance be unnecessary to a majority satisfied with a public system?
Might prices for prescription drugs, hospital services and insurance premiums be regulated or advertising limited?
Might employers play an expanded role in the system’s accountability?
Can we afford the system long-term, given other social needs in a changing global market?
Comparisons are constructive for insights to be learned. It’s true in healthcare and professional golf. The European team was better prepared for the Ryder Cup competition. From changes to the format of the matches, to pin placements and second shot distances requiring precision from 180-200 yards out on approach shots: advantage Europe. Still, it was execution as a team that made the difference in its dominating 16 1/2- 11 1/2 win —not the celebrity of any member.
The time to ask and answer tough questions about the sustainability of the U.S. system and chart a path forward. A prepared, selfless effort by a cross-sector Team Healthcare USA is our system’s most urgent need. No single sector has all the answers, and all are at risk of losing.
Team USA lost the Ryder Cup because it was out-performed by Team Europe: its data, preparation and teamwork made the difference.
Today, there is no Team Healthcare USA: each sector has its stars but winning the competition for the health and wellbeing of the U.S. populations requires more.
It feels as though November 5, 2024 is far away, but for both Democrats and Republicans, the election is now. On the issue of healthcare, the two parties’ approaches differ sharply.
Think back to the behemoth effort by Republicans to “repeal and replace” the Affordable Care Act six years ago, an effort that left them floundering for a replacement, basically empty-handed. Recall the 2022 midterms, when their candidates in 10 of the tightest House and Senate races uttered hardly a peep about healthcare.
That reticence stood in sharp contrast to Democrats who weren’t shy about reiterating their support for abortion rights, simultaneously trying hard to ensure that Americans understood and applauded healthcare tenets in the Inflation Reduction Act.
As The Hill noted in early August, sounds like the same thing is happening this time around as America barrels toward November 2024. The publication said it reached to 10 of the leading Republican candidates about their plans to reduce healthcare costs and make healthcare more affordable, and only one responded: Rep. Will Hurd (R-Texas).
Healthcare ‘A Very Big Problem’
Maybe the party thinks its supporters don’t care. But, a Pew Research poll from June showed 64% of us think healthcare affordability is a “very big problem,” superseded only by inflation. In that research, 73% of Democrats and 54% of Republicans thought so.
Chuck Coughlin, president and CEO of HighGround, an Arizona-based public affairs firm, told The Hill that the results aren’t surprising.
“If you’re a Republican, what are you going to talk about on healthcare?” he said.
Observers note that the party has homed in on COVID-lockdowns, transgender medical rights, and yes, abortion.
Plans won’t offer coverage for preexisting conditions, maternity care, or prescription drugs, and they can set limits on coverage. The plans will make it easier for small employers to self-insure, so they don’t have to adhere to ACA or state insurance rules.
CHOICE would let large groups come together to buy Association Health Plans, said NPR, which noted that in the past, there have been “issues” with these types of plans.
Insurance experts say that the act takes a swing at the very foundation of the ACA. As one analyst described it, the act intends to improve America’s healthcare “through increased reliance on the free market and decreased reliance on the federal government.”
Democrats Tout Reduce-Price Prescriptions
Meanwhile, on Aug. 29, President Joe Biden spoke proudly in The White House: “Folks, there’s a lot of really great Republicans out there. And I mean that sincerely…But we’ll stand up to the MAGA Republicans who have been trying for years to get rid of the Affordable Care Act and deny tens of millions of Americans access to quality, affordable healthcare.” Current ACA enrollment is higher than 16 million.
He said that Big Pharma charges Americans more than three times what other countries charge for medications. And on that date, he announced that “the (Inflation Reduction Act) law finally gave Medicare the power to negotiate lower prescription drug prices.” He wasn’t shy about saying that this happened without help from “the other team.”
The New York Times said it feels this push for lower healthcare costs will be the centerpiece of his re-election campaign. The announcement confirmed that his administration will negotiate to lower prices on 10 popular—and expensive drugs—that treat common chronic illnesses.
It said previous research shows that as many as 80% of Americans want the government to have the power to negotiate.
The president also said that “Next year, Medicare will select more drugs for negotiation.” He added that his administration “is cracking down on junk health insurance plans that look like they’re inexpensive but too often stick consumers with big hidden fees.” And it’s tackling the extensive problem of surprise medical bills.
Earlier, on August 11, Biden and fellow Democrats celebrated the first anniversary of the PACT Act, legislation that provides healthcare to veterans exposed to toxic burn pits while serving. He said more than 300,000 veterans and families have received these services, with more than 4 million screened for toxic exposure conditions.
Push for High-Deductible Plans
Republicans want to reduce risk of high-deductible plans and make them more desirable—that responsibility is on insurers. According to Politico, these plans count more than 60 million people as members, and feature low premiums and tax advantages. The party said plans will also help lower inflation when people think twice about seeking unneeded care.
The plans’ low monthly premiums offer comprehensive preventive care coverage: physicals, vaccinations, mammograms, and colonoscopies, and have no co-payments, Politico said. The “but” in all this is that members will pay their insurers’ negotiated rate when they’re sick, and for medicines and surgeries. Minimum deductible is $1,500 or $3,000 for families—and can be even higher.
Members can fund health savings accounts but can’t fund flexible spending accounts. Proponents cite more access to care, and reduced costs due to promotion of preventive care. Nay-sayers worry about lower-income members facing costly bills due to insufficient coverage.
Republican Candidates Diverge on Medicaid
The American Hospital Association (AHA) doesn’t love these high deductible plans. It explained that members “find they can’t manage the gap between what their insurance pays and what they themselves owe as a result,” and that, AHA said, contributes to medical debt—something the association wants to change.
An Aug. 3 Opinion in JAMA Health Forum pointed out other ways the two parties diverge on healthcare. For example, the piece cited Biden’s incentives for Medicaid expansion. In contrast, Florida Governor Ron DeSantis, a Republican presidential candidate, has not worked to offer Medicaid to all lower-income residents under the ACA. Former Governor Nikki Haley of South Carolina feels the same, doing nothing. However, former New Jersey Governor Chris Christie has expanded it, as did former Vice President Mike Pence, when he governed Indiana.
Undoubtedly, as in presidential elections past, healthcare will be at least a talking point, with Democrats likely continuing to make it a central focus, as before.
The GOP Presidential debate marked the unofficial start of the 2024 Presidential campaign. With the exception of continued funding for Ukraine, style points won over issue distinctions as each of the 8 White House aspirants sought to make the cut to the next debate September 27 at the Reagan Library in Simi Valley, CA.
For the candidates in Milwaukee, it’s about “Stayin’ Alive” per the BeeGee’s hit song: that means avoiding self-inflicted harm while privately raising money to keep their campaigns afloat. And, based on Debate One, with the exception of abortion, that means they’ll not face questions about their positions on the litany of issues that dominate healthcare these days i.e., drug prices, hospital consolidation, price transparency, workforce burnout and many others. In Milwaukee, healthcare was essentially ‘out of sight our of mind’ to the moderators and debaters despite being 18% of the U.S. economy and its biggest employer.
For now, each will enlist ghostwriters to produce position papers for their websites, and, on occasion, reporters will press for specifics to test their grasp on a topic but that’s about it. Based on last Wednesday’s 2-hour event, it’s unlikely general media outlets like Fox News (which also hosts Debate Two) will explore healthcare issues except for abortion.
That means healthcare will be subordinated to the economy, inflation, immigration and crime—the top issues to GOP voters—for most of the Presidential primary season.
Next November, voters will also elect 34 US Senators, 435 members of the House of Representatives, 11 Governors and their representatives in 85 state legislative bodies. This will be the first election cycle after reapportionment of votes in the United States Electoral College following the 2020 United States census. Swing states (WI, MI, PA, NV, AZ, GA, FL, OH, CO, VA) will again be keys to the Presidential results since demographics and population shifts have increased the concentrations of each party’s core voters in so-called Blue States and Red States:
The Democratic voter core is diverse, educated and culturally liberal with its strongest appeal to African-Americans, Latinos, women, educated professionals and urban voters. Blue States are predominantly in the Northeast, Upper Midwest and West Coast regions.
The Republican voter core consists of rural white voters, evangelicals, the elderly, and non-college educated adults. Red States are predominantly in the South and Southwest.
The increased concentrations of Blue or Red voters in certain states and regions has contributed to political polarization in the U.S. electorate and presents an unusual challenge to healthcare. Per Gallup: “Political polarization since 2003 has increased most significantly on issues related to federal government power, global warming and the environment, education, abortion, foreign trade, immigration, gun laws, the government’s role in providing healthcare, and income tax fairness. Increased polarization has been less evident on certain moral issues and satisfaction with the state of race relations.”
Thus, healthcare issues are increasingly subject to hyper partisanship and often misinformation.
Given the limited knowledge voters have on most health issues and growing prevalence of social media fueled misinformation, political polarization creates echo chambers in healthcare—one that thinks the system works for those who can afford it and another that thinks that’s wrong.
It’s dicey for politicians: it’s political malpractice to offer specific solutions on anything, especially healthcare. It’s safer to attack its biggest vulnerabilities—affordability and equitable access—even though they mean something different in every echo chamber.
My take:
Barring a second Covid pandemic or global conflict with Russia/China, it’s unlikely healthcare issues will be prominent in Campaign 2024 at the national level except for abortion. At least through the May primary season, here’s the political landscape for healthcare:
Affordability and inequitable access will be the focus of candidate rhetoric at the national level: Trust and confidence in the U.S. health system has eroded. That’s fertile political turf for critics.
In Congress, the fiercest defenders of the status quo have joined efforts to impose restrictions on consolidation and price transparency for hospitals and price controls for prescription drugs. There’s Bipartisan acknowledgement that inequities in accessing care are significant and increasing, especially in minority and low income populations. They differ over the remedy. Employers expect their health costs to increase at least 8% next year and blame hospitals and drug companies for price gauging and want Congress to do more. 85% of Democrats think “the government should insure everyone” vs. 33% of Republican voters which calcifies inaction in a divided Congress though. Opposition to the Affordable Care Act (2010) has softened and Medicaid expansion has passed in 40 Blue and Red states.
In the 2024 election cycle, remedies for increased access and more affordability will pit Republicans calling for more competition, consumerism and transparency and Democrats calling for more government funding, regulation and fairness.
But more important, voter and employer frustration with partisan bickering sans solutions will set the stage for the vigorous debate about a single payer system in 2026 and after,
State elections will give more attention to healthcare issues than the Presidential race: That’s because Governors and state legislators set direction on issues like abortion rights, drug price controls, Medicaid funding, scope of practice allowances and others.
Increasingly, state Attorney’s General and Treasurers are weighing in on consolidation and spending. States referee workforce issues like nurse staffing requirements and others. And ballot referenda on healthcare issues trail only public education as a focus of grassroots voter activity. At the top of that list is abortion rights:
In 25 states and DC, there are no restrictions on access; in 14 states, abortion is banned and in 11 abortions—both procedures and medication—are legal, but with gestational limits from 6 weeks (GA), to between 12 and 22 weeks (AZ, UT, NE, KS, IA, IN, OH, NC, SC, FL). It’s an issue that divides legislators and increasingly delineates Blue and Red states and in many states remains unsettled.
Other healthcare issues, like ageism, will surface in Campaign 2024 in the context of other topics: Finally, healthcare will factor into other issues: Example: The leading Presidential candidates are seniors: President Biden was the oldest person to assume the office at age 78 and would be would be 86 at the end of his second term. Former President Trump was 70 when elected in 2016 and would be 81 if elected when his second term ends.
The majority of Americans are concerned about the impact of age on fitness to serve among aspirants for high office: cognitive impairment, dementia, physical limitations et al. will be necessary talking points in campaigns and media coverage. Similarly, cybersecurity looms as a focus where healthcare’s data-rich dependence is directly impacted. Growing concern about climate and the food supply, sourcing of raw good and materials from China used in drug manufacturing and many other headlines will infer healthcare context.
Summary:
Healthcare will be on the ballot in 2024 and might very well make the difference in who wins and loses in many state and local elections.
It will make a difference in the Presidential campaign as part of the economy and a major focus of government spending. Beyond abortion, the lack of attention to other aspects of the health system in the Milwaukee debate last week should in no way be interpreted as a pass for healthcare insiders.
Voters are restless and healthcare is contributing. Healthcare is far from ‘out of sight, out of mind’ in Campaign 2024.
Studies show healthcare affordability is an issue to voters as medical debt soars (KFF) and public disaffection for the “medical system” (per Gallup, Pew) plummets. But does it really matter to the hospitals, insurers, physicians, drug and device manufacturers and army of advisors and trade groups that control the health system?
Each sector talks about affordability blaming inflation, growing demand, oppressive regulation and each other for higher costs and unwanted attention to the issue.
Each play their victim cards in well-orchestrated ad campaigns targeted to state and federal lawmakers whose votes they hope to buy.
Each considers aggregate health spending—projected to increase at 5.4%/year through 2031 vs. 4.6% GDP growth—a value relative to the health and wellbeing of the population. And each thinks its strategies to address affordability are adequate and the public’s concern understandable but ill-informed.
As the House reconvenes this week joining the Senate in negotiating a resolution to the potential federal budget default October 1, the question facing national and state lawmakers is simple: is the juice worth the squeeze?
Is the US health system deserving of its significance as the fastest-growing component of the total US economy (18.3% of total GDP today projected to be 19.6% in 2031), its largest private sector employer and mainstay for private investors?
Does it deserve the legal concessions made to its incumbents vis a vis patent approvals, tax exemptions for hospitals and employers, authorized monopolies and oligopolies that enable its strongest to survive and weaker to disappear?
Does it merit its oversized role, given competing priorities emerging in our society—AI and technology, climate changes, income, public health erosion, education system failure, racial inequity, crime and global tension with China, Russia and others.
In the last 2 weeks, influential Republicans leaders (Burgess, Cassidy) announced plans to tackle health costs and the role AI will play in the future of the system. Last Tuesday, CMS announced its latest pilot program to tackle spending: the States Advancing All-Payer Health Equity Approaches and Development Model (AHEAD Model) is a total cost of care budgeting program to roll out in 8 states starting in 2026. The Presidential campaigns are voicing frustration with the system and the spotlight on its business practices intensifying.
So, is affordability to the federal government likely to get more attention?
Yes. Is affordability on state radars as legislatures juggle funding for Medicaid, public health and other programs?
Yes, but on a program by program, non-system basis.
Is affordability front and center in CMS value agenda including the new models like its AHEAD model announced last week? Not really.
CMS has focused more on pushing hospitals and physicians to participate than engaging consumers. Is affordability for those most threatened—low and middle income households with high deductible insurance, the uninsured and under-insured, those with an expensive medical condition—front of mind? Every minute of every day.
Per CMS, out-of-pocket spending increased 4.3% in 2022 (down from 10.4% in 2021) and “is expected to accelerate to 5.2%, in part related to faster health care price growth. During 2025–31, average out-of-pocket spending growth is projected to be 4.1% per year.” But these data are misleading. It’s dramatically higher for certain populations and even those with attractive employer-sponsored health benefits worry about unexpected household medical bills.
So, affordability is a tricky issue that’s front of mind to 40% of the population today and more tomorrow.
Legislation that limits surprise medical bills, requires drug, hospital and insurer price transparency, expands scope of practice opportunities for mid-level professionals, avails consumers of telehealth services, restricts aggressive patient debt collection policies and others has done little to assuage affordability issues for consumers.
Ditto CMS’ value agenda which is more about reducing Medicare spending through shared savings programs with hospitals and physicians than improving affordability for consumers. That’s why outsiders like Walmart, Best Buy and others see opportunity: they think patients (aka members, enrollees, end users) deserve affordability solutions more than lip service.
Affordability to consumers is the most formidable challenge facing the US healthcare industry–more than burnout, operating margins, reimbursement or alternative payment models. Today, it is not taken seriously by insiders. If it was, evidence would be readily available and compelling. But it’s not.
Last week Johnson & Johnson followed Merck, Bristol Myers Squibb, and Astellas Pharma by filing a lawsuit against the Biden administration in federal court over the Medicare Drug Price Negotiation Program, established through the 2022 Inflation Reduction Act. PhRMA, the industry trade group, and the US Chamber of Commerce have also filed suits.
The lawsuits claim that the program violates the First and Fifth Amendments by compelling speech, and taking private property for public use without just compensation. The US Chamber of Commerce also filed a motion earlier this month requesting a preliminary injunction.
This flurry of legal activity comes just a month before the Centers for Medicare & Medicaid Services is due to publish its list of the first ten drugs selected for negotiations. The makers of those drugs will then have a month to decide if they will participate in negotiations, risking significant financial penalties if they do not. Any negotiated prices would take effect in 2026.
The Gist:Theability for Medicare to negotiate drug prices is a key pillar of the Biden administration’s healthcare agenda, one the President plans to tout in his upcoming reelection campaign. But the pharmaceutical industry’s legal challenges—multiple, separate suits in different federal courts nationwide—are destined for the Supreme Court if these cases generate conflicting rulings, which is likely. A protracted legal fight will delay or potentially alter the program before it is fully implemented.
Forget “repeal and replace,” an oft-repeated Republican rallying cry against the Affordable Care Act.
House Republicans have advanced a package of bills that could reduce health insurance costs for certain businesses and consumers, partly by rolling back some consumer protections. Rather than outright repeal, however, the subtler effort could allow more employers to bypass the landmark health insurance overhaul’s basic benefits requirements and most state standards.
At the same time, the Biden administration seeks to undo some of the previous administration’s health insurance rules, proposing to retighten regulations for short-term plans.
Health policy experts aren’t surprised. Most of the GOP policy ideas have long drawn Republican support, have raised concern from Democrats about reduced consumer protections, and could fall under the theme: Everything old is new again.
Association Health Plans. Self-insurance. Giving workers money to buy their own individual coverage instead of offering a group plan. These are the buzzwords and, ultimately, revolve around one issue, said Joseph Antos, a senior fellow at the American Enterprise Institute, a Washington, D.C.-based think tank.
“The real problem is the rising cost of health care. Always has been,” he said. And that problem, he added, is larger than the proposed solutions.
“It’s not clear that this kind of an approach would substantially help very many people,” Antos said.
The latest round of rules and legislation comes as the ACA — passed in 2010 — is now cemented in the system. More than 16 million people enrolled in their own plans this year, and millions more are getting coverage through expanded Medicaid in all but 10 states, leading to an all-time-low uninsured rate.
But even with enhanced subsidies for ACA health plans, initially approved in the American Rescue Plan and extended through 2025 by the Inflation Reduction Act, some people still struggle to afford deductibles or other costs, and employers — especially small ones — have long wrestled with rising insurance costs and the ability to offer coverage at all.
So, what is on the table in Washington? First, a caveat: Little is likely to happen in an election year.
While the Biden administration’s proposed regulations on short-term plans are likely to go into effect, either this year or early next, the GOP’s House-passed legislation — dubbed the CHOICE Arrangement Act, for Custom Health Option and Individual Care Expense — is unlikely to win favor in the Democratic-controlled Senate. If Republicans were to retake the Senate and White House, though, it illustrates the health policy direction they could take.
Here are the broad issues on the radar:
From the President’s Desk: Limits on Short-Term Policies
These types of plans have been sold for decades, often as a stopgap measure for people between jobs.
They can be far less expensive than more traditional coverage because short-term plans vary widely and “run the gamut from comprehensive policies to fairly minimal policies,” said Louise Norris, an insurance broker who regularly writes about health policy.
The plans don’t have to cover all the benefits required of ACA plans, for example, and can bar coverage for preexisting medical conditions, can set annual or lifetime limits, and often don’t include maternity care or prescription drugs. Despite notices warning of such policies’ limitations, consumers may not realize what isn’t covered until they try to use the plan.
Concerned that people would choose this option instead of more comprehensive and more expensive insurance offered through the ACA, President Barack Obama’s administration set rules limiting the policy terms to three months.
President Donald Trump’s administration loosened those rules, allowing plans to again be sold as 364-day policies, and adding the ability for insurers to renew them for up to three years. Now President Joe Biden, whose representatives have called such plans “junk insurance,” proposes reining those in again, restricting policies to four months, at most.
The Biden proposal cites estimates from the Congressional Budget Office and the Joint Committee on Taxation that about 1.5 million people are enrolled in such plans.
Michael Cannon, director of health policy studies at the Cato Institute, a Washington, D.C.-based libertarian think tank, decried the proposed rule in an opinion piece published by The Hill. He wrote that the Biden proposal removes an important lower-cost alternative and could leave some consumers facing “sky-high medical bills for up to one year” if their policies expire between open enrollment periods for ACA plans.
The real fight comes down to defining “short-term,” said John McDonough, a professor of public health practice at the Harvard T.H. Chan School of Public Health in Boston, who worked on the original ACA legislation.
Progressives and Democrats support the view that “short-term” should end after four months and “then people go into an ACA plan or Medicaid,” he said. “Republicans and conservatives would like this to be an alternative permanent coverage model for folks, some of whom legitimately know what they are getting and are willing to roll the dice.”
Association Health Plans, Self-Insurance, and Other Workplace Issues
Meanwhile, the House-passed CHOICE Arrangement Act, among other things, would allow more self-employed people and businesses to band together to buy Association Health Plans, which are essentially large group plans purchased by multiple employers.
These can be less expensive because they don’t have to meet all ACA requirements, such as covering a specified set of benefits that includes hospitalization, prescription drugs, and mental health care. Historically, some also have had solvency issues and state regulators have investigated claims of false advertising by certain association plans.
Another piece of the legislation would help more small employers self-insure, which also allows them to bypass many ACA requirements and most state insurance rules.
Both proposals represent a “chipping away at the foundation edges of the ACA structure,” said McDonough.
The package also codifies Trump-era regulations allowing employers to provide workers with tax-free contributions to shop for their own insurance, so long as it is an ACA-qualified plan, a benefit known as an individual coverage Health Reimbursement Account.
The CHOICE Arrangement Act “will go a long way toward reducing insurance costs for employers, ensuring that workers continue to have access to high-quality, affordable health care,” said Rep. Tom Cole (R-Okla.) in prepared remarks as the bill went before the House Committee on Rules in June.
Giving workers a set amount of money to buy their own coverage allows employees to choose what works best for them, supporters say. Critics warn that many workers may be unprepared to shop and that the effort by some employers might prove discriminatory.
”Firms may find strategies to shift sicker workers to HRAs, even with guardrails in the legislation meant to prevent this,” according to a blog post from the Center on Budget and Policy Priorities.
Not so, said Robin Paoli, executive director of the HRA Council, a nonprofit advocacy organization whose members include insurers, employers, and other organizations that support such individual accounts.
Employers have some discretion in choosing which groups of employees are offered such accounts, often based on geography, but cannot create a group made up solely of “people over 65, or a class of sick people,” said Paoli. “The rules absolutely prohibit discrimination based on age or health condition.”
The other two ideas — associations and the self-insured proposal — have drawn opposition from the National Association of Insurance Commissioners, which wrote to House leaders that the package “threatens the authority of states to protect consumers and markets” because it affects the ability of states to regulate such plans.
Current law allows businesses in the same industry to band together to buy coverage, essentially creating a larger pool that then can, theoretically, wield more negotiating clout and get better rates.
The House legislation would make changes to allow more self-employed people and businesses that aren’t in the same industry to do the same.
Some policy experts said expanding access to association plans and self-insurance to smaller businesses might adversely affect some workers by drawing healthier people out of the overall market for small-group insurance and potentially raising premiums for those who remain.
“The big picture of what these bills do is allow [employers and] insurance companies to get out from under the ACA standards and protections and offer cheaper insurance to younger and healthier employee groups,” said Sabrina Corlette, a researcher and the co-director of the Center on Health Insurance Reforms at Georgetown University.
But attorney Christopher Condeluci, who worked with GOP lawmakers in drafting the legislation, takes a different view. The entire GOP package, he said, represents “improvements to the status quo” that are needed because small businesses and individuals are confronting “health costs continuing to rise” and “out-of-pocket costs continuing to increase.”
Physician income has not kept pace with inflation and administrative costs prompting 70% to leave private practice. Half are now employed by hospitals and another 20% by private equity-backed practice managers. Both trends began before the pandemic in response to tougher financial conditions for physicians across all specialties. While hospitals held their own at the sector level, physicians lost ground. Per CMS’ NHE analysis, from 2000 to 2021:
Spending in hospitals increased from 30.4% of total spending to 31.4%
Spending for prescription drugs was essentially unchanged from 8.95% to8.88%
Public health spending. increased slightly from 3.2% of total spending to 4.4%.
But spending for physician services shrank from 21.1% to 15.6%.
In tandem with the erosion of finances for medical practices, investments in medical practices by private equity grew. Per Pitchbook, there have been 874 practice acquisitions by PE/Venture backed sponsors in the last 12 years with 20 in the first half of this year alone. Most of these are small ($7.53 million/transaction) and most involve a tuck-in to an existing PE backed platform (i.e., Privia, Sheridan, et al). Rightfully, physicians point out that while hospitals and drug companies have protected their piece of the health care pie successfully for 20 years while physicians have lost ground.
Physicians are not happy and burnout is pervasive. The employment of physicians in hospital and private equity settings has not made life happier for physicians. Per Medscape’s most recent assessment, burnout increased to 53% in 2022–up from 47% in 2021 and 26% since 2018. More than one in five physicians (22%) reported experiencing depression—up from 15% since 2018. They’re anxious about the future and increasingly sensitive to compensation comparisons with professions that require less training and earn more. They’re suspicious of consultants, lawyers and bankers whose experience is limited but fees inexplicably high They’re incensed by executive compensation in hospitals, drug companies, and health insurer settings they deem overpaid and overhyped. And they resent execs in for-profit and private equity companies who achieve astronomical wealth via their stock-option packages earned on the backs of the physicians they control.
The realities are these:
Physicians lack a strong voice. The American Medical Association’s membership includes less than a third of active-practice physicians. It is increasingly under-fire for under-representing primary and preventive health providers in its government-authorized monopoly on coding, its lobbying efforts against scope of practice expansion for APNs and pharmacists, its opposition to medical training innovations that could significantly improve the readiness and effectiveness of the physician workforce and more. The AMA’s influence is strong on a shrinking number of issues and increasingly resonate out of touch on issues that resonate with voters and lawmakers (expanded scope of practice for nurses and pharmacists, price and outcome transparency, et al).
Physicians operate in a buyers’ market but behave like it’s a sellers’ market. Physicians are trained to think of themselves as the hub of a system in which what they say determines what everyone else does…including patients. They are conditioned in medical school, residency and practice to be self-centered and resist efforts via data, clinical practice redesign or even “value-based incentives” to change their behaviors. They despise the notions of price transparency, cost effectiveness and outcome-based comparisons to their peers while calling for more accountability from hospitals, insurers and drug companies. They discount notions of consumerism and self-care and believe report cards over-rate patient experiences since medical practice is uniquely complicated.
Most live in a buyers’ market mentality unwilling/unable to see the sellers’ market healthcare has become. Otherwise, price transparency would be prevalent, operating hours and support services more conducive to the needs of patients and digital investments to maintain connectivity significant…but most don’t.
My take:
The U.S. economy will be testy for the 12 months: bringing down inflation will require interest rate hikes. Unemployment will increase slightly, wage inflation will slow, and the 2024 election cycle will draw unwelcome attention to healthcare spending and its affordability as root causes of growing financial insecurity in American households.
Given this backdrop, the profession of medicine faces a tipping point: become an integral part of the system’s solution or a vestige of its past. That solution should address medicine’s role in…
Addressing affordability for households and patients and the direct role it plays.
Integrating generative AI into more accurate diagnostics and more accessible, efficient treatment methods.
Embracing transparency about medical services pricing, costs, outcomes, business relationships and conflicts of interest.
Creating care plans around individualized social determinants of health and distinctions in populations.
Streamlining medical training toward competency-based lifelong learning, data-driven technology support, a team-based delivery and ‘whole person’ orientation to individuals.
Accepting full accountability for their effectiveness in reducing unnecessary costs and spending, increasing equitable access and engaging consumers in self-care.
How value-based and alternative payment models figure into this is anyone’s guess. Some physician organizations (AAPG, NAACO, et al) are all-in for expansion of these while others note their lackluster results to date. And physician calls for a replacement to RVU-based conversion-factor will grow louder as Congress revisits MACRA and how Medicare pays physicians.
These are important and require urgent attention, but they do not elevate the profession to its rightful place at the center of system transformation.
I hold the profession of medicine in high regard. I respect and trust my physicians—Ben, Ben and Blake are trusted friends in my personal journey to health. But their profession as a whole appears stuck in the past and unable to play a central role in the health system transformation. Until and unless new physician leaders with fresh thinking about the entire system step up, the profession’s role will continue to erode.
Playing the victim card and blame game against Medicare, hospitals, insurers, drug companies and everyone else they deem unworthy will not solve the health system’s problems.
I believe conditions are right for physicians to seize the moral high ground and lead the needed reset of the health system but most aren’t ready.
Two important reports released last Wednesday point to a disconnect in how policymakers are managing the U.S. economy and how the health economy fits.
Report One: The Federal Reserve Open Market Meeting
At its meeting last week, the Governors of the Federal Open Market Committee (FOMC) voted unanimously to keep the target range for the federal funds rate at 5% to 5.25%–the first time since last March that the Fed has concluded a policy meeting without raising interest rates.
In its statement by Chairman Powell, the central bank left open the possibility of additional rate hikes this year which means interest rates could hit 5.6% before trending slightly lower in 2024.
In conjunction with the (FOMC) meeting, meeting participants submitted projections of the most likely outcomes for each year from 2023 to 2025 and over the longer run:
Median
2023
2024
2025
Longer Run
Longer Run Range
% Change in GDP
1.1
1.1
1.8
1.8
1.6-2.5
Unemployment rate &
4.1
4.5
4.5
4.0
3.6-4.4
PCE Inflation rate
3.2
2.5
2.1
2.0
2.0
Core PCE Inflation
3.9
2.6
2.2
*
*
*Longer-run projections for core PCE inflation are not collected.
Notes re: the Fed’s projections based on these indicators:
The GDP (a measure of economic growth) is expected to increase 1% more this year than anticipated in its March 2023 analysis while estimates for 2024 were lowered just slightly by 0.1%. Economic growth will continue but at a slower pace.
The unemployment rate is expected to increase to 4.1% by the end of 2023, a smaller rise in joblessness than the previous estimate of 4.5%. (As of May, the unemployment rate was 3.7%). Unemployment is returning to normalcy impacting the labor supply and wages.
inflation: as measured by the Personal Consumption Expenditures index, will be 3.2% at the end of 2023 vs. 3.3% they previously projected. By the end of 2024, it expects inflation will be 2.5% reaching 2.1% at the end of 2025. Its 2.0% target is within reach on or after 2025 barring unforeseen circumstances.
Core inflation projections, which excludes energy and food prices, increased: the Fed now anticipates 3.9% by the end of 2023–0.3% above the March estimate. Price concerns will continue among consumers.
Based on these projections, two conclusions about nation’s monetary policy may be deduced the Fed’s report and discussion:
The Fed is cautiously optimistic about the U.S. economy in for the near term (through 2025) while acknowledging uncertainty exists.
Interest rates will continue to increase but at a slower rate than 2022 making borrowing and operating costs higher and creditworthiness might also be under more pressure.
Report Two: CMS
On the same day as the Fed meeting, the actuaries at the Centers for Medicare and Medicaid Services (CMS) released their projections for overall U.S. national healthcare spending for the next several years:
“CMS projects that over 2022-2031, average annual growth in NHE (5.4%) will outpace average annual growth in gross domestic product (GDP) (4.6%), resulting in an increase in the health spending share of GDP from 18.3% in 2021 to 19.6% in 2031. The insured percentage of the population is projected to have reached a historic high of 92.3% in 2022 (due to high Medicaid enrollment and gains in Marketplace coverage). It is expected to remain at that rate through 2023. Given the expiration of the Medicaid continuous enrollment condition on March 31, 2023 and the resumption of Medicaid redeterminations, Medicaid enrollment is projected to fall over 2023-2025, most notably in 2024, with an expected net loss in enrollment of 8 million beneficiaries. If current law provisions in the Affordable Care Act are allowed to expire at the end of 2025, the insured share of the population is projected to be 91.2%. In 2031, the insured share of the population is projected to be 90.5%, similar to pre-pandemic levels.”
The report includes CMS’ assumptions for 4 major payer categories:
Medicare Part D: Several provisions from the Inflation Reduction Act (IRA) are expected to result in out-of-pocket savings for individuals enrolled in Medicare Part D. These provisions have notable effects on the growth rates for total out-of-pocket spending for prescription drugs, which are projected to decline by 5.9% in 2024, 4.2% in 2025, and 0.2% in 2026.
Medicare: Average annual expenditure growth of 7.5% is projected for Medicare over 2022-2031. In 2022, the combination of fee-for-service beneficiaries utilizing emergent hospital care at lower rates and the reinstatement of payment rate cuts associated with the Medicare Sequester Relief Act of 2022 resulted in slower Medicare spending growth of 4.8% (down from 8.4% in 2021).
Medicaid: On average, over 2022-2031, Medicaid expenditures are projected to grow by 5.0%. With the end of the continuous enrollment condition in 2023, Medicaid enrollment is projected to decline over 2023-2025, with most of the net loss in enrollment (8 million) occurring in 2024 as states resume annual Medicaid redeterminations. Medicaid enrollment is expected to increase and average less than 1% through 2031, with average expenditure growth of 5.6% over 2025-2031.
Private Health Insurance: Over 2022-2031, private health insurance spending growth is projected to average 5.4%. Despite faster growth in private health insurance enrollment in 2022 (led by increases in Marketplace enrollment related to the American Rescue Plan Act’s subsidies), private health insurance expenditures are expected to have risen 3.0% (compared to 5.8% in 2021) due to lower utilization growth, especially for hospital services.
And for the 3 major recipient/payee categories:
Hospitals: Over 2022-2031, hospital spending growth is expected to average 5.8% annually. In 2023, faster growth in hospital utilization rates and accelerating growth in hospital prices (related to economy wide inflation and rising labor costs) are expected to lead to faster hospital spending growth of 9.3%. For 2025-2031, hospital spending trends are expected to normalize (with projected average annual growth of 6.1%) as there is a transition away from pandemic public health emergency funding impacts on spending.
Physicians and Clinical Services: Growth in physician and clinical services spending is projected to average 5.3% over 2022-2031. An expected deceleration in growth in 2022, to 2.4% from 5.6% in 2021, reflects slowing growth in the use of services following the pandemic-driven rebound in use in 2021. For 2025-2031, average spending growth for physician and clinical services is projected to be 5.7%, with an expectation that average Medicare spending growth (8.1%) for these services will exceed that of average Private Health Insurance growth (4.6%) partly as a result of comparatively faster growth in Medicare enrollment.
Prescription Drugs: Total expenditures for retail prescription drugs are projected to grow at an average annual rate of 4.6% over 2022-2031. For 2025-2031, total spending growth on prescription drugs is projected to average 4.8%, reflecting the net effects of key IRA provisions: Part D benefit enhancements (putting upward pressure on Medicare spending growth) and price negotiations/inflation rebates (putting downward pressure on Medicare and out-of-pocket spending growth).
Thus, CMS Actuaries believe spending for healthcare will be considerably higher than the growth of the overall economy (GDP) and inflation and become 19.6% of the total US economy in 2031. And it also projects that the economy will absorb annual spending increases for hospitals (5.8%) physician and clinical services (5.3%) and prescription drugs (4.6%).
My take:
Side-by-side, these reports present a curious projection for the U.S. economy through 2031: the overall economy will return to a slightly lower-level pre-pandemic normalcy and the healthcare industry will play a bigger role despite pushback from budget hawks preferring lower government spending and employers and consumers frustrated by high health prices today.
They also point to two obvious near-term problems:
1-The Federal Reserve pays inadequate attention to the healthcare economy. In Chairman Powell’s press conference following release of the FOMC report, there was no comment relating healthcare demand or spending to the broader economy nor a question from any of the 20 press corps relating healthcare to the overall economy. In his opening statement (below), Chairman Powell reiterated the Fed’s focus on prices and called out food, housing and transportation specifically but no mention of healthcare prices and costs which are equivalent or more stressful to household financial security:
“Good afternoon. My colleagues and I remain squarely focused on our dual mandate to promote maximum employment and stable prices for the American people…My colleagues and I are acutely aware that high inflation imposes hardship as it erodes purchasing power, especially for those least able to meet the higher costs of essentials like food, housing, and transportation. We are highly attentive to the risks that high inflation poses to both sides of our mandate, and we are strongly committed to returning inflation to our 2% objective.”
2-Congress is reticent to make substantive changes in Medicare and other healthcare programs despite its significance in the U.S. economy. It’s politically risky. In the June 2 Congressional standoff to lift the $31.4 debt ceiling, cuts to Medicare and Social Security were specifically EXCLUDED. Medicare is 12% of mandated spending in the 2022 federal budget and is expected to grow from a rate of 4.8% in 2022 to 8% in 2023—good news for investors in Medicare Advantage but concerning to consumers and employers facing higher prices as a result.
Even simplifying the Medicare program to replace its complicated Parts A, B, C, and D programs or addressing over-payments to Medicare Advantage plans (in 2022, $25 billion per MedPAC and $75 billion per USC) is politically tricky. It’s safer for elected officials to support price transparency (hospitals, drugs & insurers) and espouse replacing fee for service payments with “value” than step back and address the bigger issue: how should the health system be structured and financed to achieve lower costs and better health…not just for seniors or other groups but everyone.
These two realities contribute to the disconnect between the Fed and CMS. Looking back 20 years across 4 Presidencies, two economic downturns and the pandemic, it’s also clear the health economy’s emergence did not occur overnight as the Fed navigated its monetary policy. Consider:
National health expenditures were $1.366 trillion (13.3% of GDP) in 2000 and $4.255 billion in 2021 (18.3% of the GDP). This represents 210% increase in nominal spending and a 37.5% increase in the relative percentage of the nation’s GDP devoted to healthcare. No other sector in the economy has increased as much.
In the same period, the population increased 17% from 282 million to 334 million while per capita healthcare spending increased 166% from $4,845 to $12,914. This disproportionate disconnect between population and health spending growth is attributed by economists to escalating unit costs increases for the pills, facilities, technologies and specialty-provider services we use—their underlying cost escalation notably higher than other industries.
There were notable changes in where dollars were spent: hospitals were unchanged (from $415 billion/30.4% of total spending to $1.323 trillion/31.4% of total spending), physician services shrank (from $288.2 billion/21.1% of total spending to 664.6 billion/15.6% pf total spending), prescription drugs were unchanged (from $122.3 billion/8.95% to $378 billion/8.88% of total spending) and public health increased slightly (from $43 billion/$3.2% of total spending to $187.6 billion/4.4% of total spending).
And striking differences in sources of funding: out of pocket spending shrank from $193.6/14.2% of payments to $433 billion/10.2% % of payments; private insurance shrank from $441 billion/32.3% of payments to $1.21 trillion/28.4% of total payments; Medicare grew from $224.8 billion/16.5% of payments to $900.8 billion/21.2% of payments; Medicaid + CHIP grew from $203.4 billion/14.9% to $756.2 billion/17.8% of payments; and Veterans Health grew from $19.1 billion/1.4% of payments to $106.0 billion/2.5% of payments.
Thus, if these trends continue…
Aggregate payments to providers from government programs will play a bigger role and payments from privately insured individuals and companies will play a lesser role.
Hospital price increases will exceed price increases for physician services and prescription drugs.
Spending for healthcare will (continue to) exceed overall economic growth requiring additional funding from taxpayers, employers and consumers AND/OR increased dependence on private investments that require shareholder return AND/OR a massive restructure of the entire system to address its structure and financing.
What’s clear from these reports is the enormity of the health economy today and tomorrow, the lack of adequate attention and Congressional Action to address its sustainability and the range of unintended, negative consequences on households and every other industry if left unattended. It’s illustrative of the disconnect between the Fed and CMS: one assumes it controls the money supply while delegating to the other spending and policies independent of broader societal issues and concerns.
The health economy needs fresh attention from inside and outside the industry. Its impact includes not only the wellbeing of its workforce and services provided its users. It includes its direct impact on household financial security, community health and the economic potential of other industries who get less because healthcare gets more.
Securing the long-term sustainability of the U.S. economy and its role in world affairs cannot be appropriately addressed unless its health economy is more directly integrated and scrutinized. That might be uncomfortable for insiders but necessary for the greater good. Recognition of the disconnect between the Fed and CMS is a start!
HENRY KOTULA 