ACA- Benefits and Risks

By Zachary Gureasko, Class of 2017

The future of the health care industry is as uncertain as ever, pending the potential repeal (and hopefully subsequent replacement) of the Patient Protection and Affordable Care Act (“ACA”), colloquially known as “Obamacare.”

On January 20, 2017, President Donald J. Trump signed an executive order titled “Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal.” This particular order directed federal agencies to reduce enforcements of the ACA’s requirements, subject to two limits: any reductions in the enforcement of the ACA’s provisions must be consistent with the law itself, and the change must comply with “notice and comment rule making” requirements (should the law so require). Although these are significant limitations on the order, they indicate a willingness to repeal the ACA as soon as possible and practicable. As of the date of this post, proponents of the repeal of the ACA have not tabled a viable alternative to replace the Act. They have also not designated which provisions of the Act they intend to keep, if any, although President Trump has indicated that he wishes to keep in place the prohibition on denying coverage to individuals with preexisting conditions. There are some notable risks and benefits to this prospective repeal.

One of the notable benefits is for branded pharmaceutical companies due to the bidding processes that may take place in the event of the ACA’s repeal. Although 90% of the prescription drugs in this country are generic, and therefore there is significant market control over the prescription drug industry, pharmaceutical companies have been able to needlessly increase the prices of brand-name prescription drugs. These participants, who have often increased prices for products that do not provide significant value to the consumer, will most likely suffer. Unlike generic drug companies, brand-name drug companies are subject to the industry fees imposed by the ACA. Any cost reduction realized by the elimination of these fees will be counterbalanced by substantial revenue erosion. This will pave the way for other players in the brand-name drug industry to emerge, establishing a more competitive market that will hopefully drive up value while lowering costs. President Trump has stated that it is one of his express goals to remove barriers to entry into free markets for drug providers.

Pharmaceutical and biotech companies could also realize greater revenues if the Branded Prescription Drug Fee that levies taxes on drug-makers in proportion with their market share is eliminated by repealing the ACA. Companies’ bottom lines could be benefitted even further if Trump’s tax plan succeeds, thereby decreasing business tax rates, allowing larger companies to keep more of the money they earn. Deregulation is also integral to President Trump’s long-term plan for the healthcare industry. Stocks have reportedly increased for pharmaceutical and biotech companies since President Trump’s election and inauguration.

In contrast, the risks for providers and payers are significant if the ACA is repealed completely. Without a replacement, repealing the ACA would, in the first year, cause 18 million individuals who are currently insured to lose coverage. An increase in the number of uninsured individuals will have an exceptionally negative impact on providers, as an increase in the number of uninsured correlates with a provider’s inability to collect payments from the uninsured, increasing the provider’s “bad debt.” A greater number of uninsured necessarily implies higher premiums, deductibles, and cost-sharing for those who are still insured, meaning that Medicare and other third-party payers will have to pass these costs on to consumers that are still enrolled. This will lead to a decline in Medicaid enrollment, as the historically poor and categorically needy will be unable to afford these increased costs. Private insurers could potentially benefit, since they have not experienced the increased enrollment that was anticipated under the ACA’s individual mandate. The simple fact is that repealing the ACA without a viable alternative will leave millions uninsured, and the ones losing coverage are not the ones who will feel the first, strongest financial effects. Providers and payers will experience increased costs and bad debts, and this is undesirable in an era where the focus of the industry is moving toward value-based measures.

As time goes on, it appears that the ultimate goal of ACA’s many detractors is truly to replace and reform (or “repair”) the Act rather than repeal it entirely, but the future is uncertain, for better or for worse, for all those involved in the health care industry.

 

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