By Ann Hogan, Class of 2018

In July of 2016, the Department of Justice brought suit to block the $54 billion merger of Anthem and Cigna. In the complaint, the DOJ alleged, “Anthem’s purchase would eliminate it as a competitive threat and substantially lessen competition in numerous markets around the country. The harm to competition in any one of these markets is sufficient to enjoin the transaction.” If the DOJ is unsuccessful and Anthem and Cigna are allowed to merge, it would become the largest health care provider in the nation. “Anthem has argued that the deal would save health insurance customers over $2 billion in medical costs because Cigna customers will be able to access discounts that Anthem is able to offer its customers.”

However, on February 8, 2017, Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia ruled in favor of the DOJ stating, “it would violate antitrust law for the second- and third-largest health insurers in the U.S. to combine.” The company made a statement that it, “promptly intends to file a notice of appeal and request an expedited hearing.”

Two weeks prior to Judge Jacksons’ ruling blocking the Anthem-Cigna merger, Judge John D. Bates of the United States District Court for the District of Columbia blocked the Aetna and Humana merger on antitrust grounds. Judge Bates wrote, “the court is unpersuaded that the efficiencies generated by the merger will be sufficient to mitigate the anticompetitive effects for consumers in the challenged markets.” It seems that the judges side with the DOJ’s view that the merger of the top two companies would not be beneficial to consumers.

By Kim Macdonald, Class of 2018

Selling Health Insurance Across State Lines—A Summary

Currently, health insurers are restricted to each state for purposes of regulation. One primary health reform proposal is to allow insurers to sell health insurance to out-of-state markets. Proponents argue that removing the state line restrictions will encourage competition, increase consumer choice, and, therefore, offer national plans with much lower premiums as determined by the market. By providing people with more options, in theory, consumers can choose the plans that provide only the benefits they need without paying for superfluous benefits.  Critics argue that allowing interstate sales of insurance will instead provide a mechanism for insurers to choose their regulator, sparking a “race to the bottom” for the states with the least restrictive regulations. In turn, removing the barriers to selling health insurance across state lines may encourage states to have less restrictive regulations to attract health insurance companies.  Removing these restrictions would likely benefit the young, healthy policy holders, resulting in lower premiums because they do not rely on regulations to cover their needs. By contrast, fewer regulations could harm older and sicker policy holders who depend on the coverage restrictions to qualify for sufficiently robust policies.

Additionally, critics argue interstate sales of health insurance would decrease the availability of policies per state, since insurers have to compete on a national market rather than a regional or state-wide market. Some critics are concerned the proposal undercuts states’ role in regulating insurance, which, counterintuitively, may increase the necessity of the federal government to further regulate the market to ensure basic minimum standards.

Insurers would also have to grapple with the difficulty of setting up a network of providers and entities without being in-state.  Insurance costs reflect the general health of an area’s population. Therefore, while one policy may be affordable in one state due to its robust network of providers, lower cost of living, and overall health of the population, the exact same policy may not translate financially across state borders. Insurers face difficulties with selling “healthy state” plans to sicker populations in other states.

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.

 

By Ann Hogan, Class of 2018

It is no secret that repealing the Affordable Care Act (ACA) is a top priority on the Trump Administration’s agenda. It is predicted that the use of Health Savings Accounts (HSAs) will increase and may be used as a replacement for the ACA. The Republicans favor competition among the insurance companies rather than a government-mandated program. Thus, HSAs will rise in popularity as it gives the individual more flexibility and control over their healthcare.

 

Enacted by Congress in 2003, Health Savings Accounts are usually paired with a high deductible insurance policy and allow both the policyholder and their employer to contribute money into the account for medical expenses without being taxed. Simply put, HSAs are a tax-free savings account to be used specifically for medical expenses. HSAs limit the amount of money that can be contributed to the account each year. In 2017, the policyholder and their employer may contribute up to $3,400 to an HSA for individuals and $6,750 for families. Policyholders age 55 and older can contribute an extra $1,000 each year. However, unlike the “use it or lose it” function of Flexible Spending Accounts (FSAs), HSAs allow the policyholder to keep their balance and continue saving from year to year. Another attractive feature of the HSA is that the policyholder can take their HSA with them if they were to switch jobs or insurance providers.

The Trump Administration believes that the increase of HSAs will give individuals more control over their health care decisions and costs resulting in better quality outcomes in care and cost. According to the 2015 Census of Health Savings Account – High Deductible Health Plans, AHIP Center for Policy and Research, Nov. 2015, “nearly 20 million Americans have an HSA.” The Report from the Health Care Reform Task Force states that House Republicans have proposed HR 5324: Health Savings Account Expansion Act of 2016 by Rep. Dave Brat. While the healthcare reform process will be slow to change, the utilization of HSAs are predicted to increase.

By Kim Macdonald, Class of 2018

A block grant is a proposed strategy used for managing Medicaid, which provides control of the program in state hands by placing a flat cap on federal funding. Proponents argue these locked lump sum payments would provide states greater freedom in regulating health insurance. As a result, less federal funding would be available for state Medicaid programs, which proponents argue would incentivize states to manage their finances more responsibly. However, critics counter that it is inherently challenging to “manage fiscal responsibility” for a program based on providing health care for the needy.

By turning Medicaid into a block grant-based program, states themselves would have the increased ability to decide who qualifies for coverage, rather than having to largely meet federal coverage requirements as a prerequisite for receiving federal funding. Currently, states have to meet federal requirements for coverage, such as covering children and low-income pregnant women, as a condition of receiving federal funding. Therefore, because the federal government and states share in the funding of Medicaid programs, states are restricted with how to spend federal money and what benefits to cover. Transforming Medicaid into a block grant-funded program results in loosening these state coverage requirements.

A block grant is different from a “per capita cap,” which provides fixed federal funding based on the number of enrollees in the state. By contrast, block grants do not account for this variability; if the number of enrollees shifts dramatically from year to year, federal funding through a block grant cannot account for this increased or decreased expense.

Proponents of the block grant structure for Medicaid argue it will encourage innovation by forcing states to spend their money more efficiently. However, critics argue the structure harms people in the guise of “experimentation,” by forcing states to take drastic measures to cut costs in the short term—perhaps by cutting benefits or increasing cost sharing obligations. One criticism is that these fixed federal grants would be based on national inflation, not medical inflation, which accounts for epidemics, new and expensive drugs, and an aging population. In order to account for the sudden loss of federal funding, many states may cut benefits entirely for current enrollees eligible for Medicaid in expansion states. In fact, block grant proposals likely would cut off all federal funds allocated for Medicaid expansion entirely. Given that thirty-one states and the District of Columbia have adopted Medicaid expansion, including about one hundred Republican House members and about twenty Republican senators, this drop in coverage would be problematic.  Alternatively, states may decide to cap enrollment to save costs, leaving many qualified enrollees without health care coverage. The Congressional Budget Office estimates block grant proposals to cut Medicaid by as much as a third over the next ten years. This drastic of a cut would primarily affect the elderly and the disabled, who are the recipients of the clear majority of the existing Medicaid budget.