Health reform 3.0

Thriving in a permanent state of policy disruption

The death of health reform has been greatly exaggerated. Though Congress was unable to pass a comprehensive national health reform bill in 2017, many other reforms are playing out in Congress, regulatory agencies and state capitals that could profoundly impact the healthcare landscape over the next year and beyond.

These changes include efforts by Congress to reform the federal tax code, by HHS to reshape how the Affordable Care Act (ACA) is administered and how government pays for value over volume and by states to control Medicaid and drug spending. These efforts make it clear that this is no time for companies to take a relaxed or reactive posture. On the contrary, they should act now to anticipate which changes are most likely to occur and how those changes might affect their business operations, then decide what they’re going to do about it.

Payers, providers, life sciences companies and employers no longer have just one high-profile reform effort to monitor, but dozens. There are several that require their immediate attention. 

What are consumers looking for in their health plans?

As the ACA open enrollment period begins, consumers will be looking to lower their costs. The same pricing pressures may lead consumers to purchase association health plans offering lower costs, but skinnier benefits. 

States are pursuing Medicaid waivers as a way to lower costs

Multiple states are pursuing proposals to reduce benefits, tighten eligibility criteria or implement work requirements.

Tax reform may have a significant impact on life sciences companies

An increasing number of companies have qualified for the orphan drug tax credit in recent years, which the House tax plan would eliminate. 

Industry highlights


Medicaid waivers could decrease enrollment

As of Oct. 29, 29 states had at least one application pending with CMS for a Section 1115 demonstration waiver. If approved, these waivers could grant flexibility in administering Medicaid within the states’ borders under the Social Security Act. At least six states are seeking to establish a work requirement for some residents to receive benefits.

HHS slows drive toward value-based care

Over the last nine months, HHS has made decisions to delay and revise some key government value-based care initiatives, often with the aim of giving providers more time to adjust. Data from a recent HRI survey of provider executives found that 35% of healthcare organizations have slowed implementation of their value-based care strategies because of regulatory uncertainty.

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The federal government stops cost-sharing reduction payments

President Donald Trump’s decision to cancel cost-sharing reduction (CSR) payments to insurance companies just weeks before open enrollment started forced state regulators and payers to scramble to execute contingency plans. Though insurers were legally permitted to withdraw from the market after payments were cut, months of uncertainty leading up to the decision meant that many insurers had already made that decision. Insurers remaining on the market will see less competition: 29% of enrollees will participate in a single-issuer market, compared with 20% in 2017.

A potential proliferation of non-ACA-compliant plans

President Trump’s directive to federal agencies to expand access to association health plans (AHPs) and short-term, limited-duration insurance—both of which are exempt from some ACA provisions—is intended to expand consumers’ choices of plans, and especially to increase their access to plans with lower premiums. These offer skinnier benefits for lower costs and have the potential to be profitable for insurers. They may also be attractive to a customers who are young and healthy, without extensive healthcare requirements. An HRI survey found premium expense and out-of-pocket costs were the most pressing issues for consumers.

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Life sciences

Drug pricing reform

While federal health reform efforts remain in limbo, the pharmaceutical industry is still likely to be affected by states’ efforts to rein in or control drug spending. Since 2016, six states have passed legislation that would require pharmaceutical companies to disclose information related to their drugs’ pricing, reveal the cost of producing their drugs or when they plan to raise a particular drug’s price, or impose civil penalties if a price increase is determined to be unreasonable. The industry also may face additional pricing pressure from government programs. Already, Massachusetts has petitioned the federal government to allow them to exclude certain drugs from its Medicaid formulary lists

Tax reform

The pharmaceutical industry could gain from federal tax reform. House Republicans introduced tax legislation in November that would reduce the corporate tax rate to 20% from 35%, shift to a territorial tax system and allow a repatriation of unremitted foreign earnings at a special rate. But it’s likely that not all changes will be beneficial. The same proposal calls for eliminating the orphan drug tax credit, an incentive to spur the development of drugs for rare diseases. The tax is worth 50% of the “qualified clinical testing expenses” incurred by a company in a given taxable year. 

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Worries about “job lock” return

The ACA created speculation about the end of “job lock,” which refers to employees remaining in a job for the health insurance alone. The CBO’s 2014 estimate of the labor market concurred that the law could provide some easement. The need to keep employer-sponsored health insurance was the reason a quarter of people surveyed passed up an opportunity to change jobs according to a 2008 survey. Should ACA reforms occur, employers could see workers staying in jobs they no longer want, which could contribute to payroll costs and affect productivity.

Non-ACA compliant plans come with risks and benefits

The Trump administration’s executive order expanding access to association health plans (AHPs) could allow small employers to join together to offer plans across state lines with lower premiums that forego some ACA protections, such as mandatory coverage of essential health benefits. AHPs could form as large group health plans, which are exempt from both the ACA’s essential health benefits requirements and the prohibition against underwriting based on member health. This allows employers to obtain lower-cost insurance plans, albeit ones that may prohibit older employees and staff in poorer health from joining. When similar plans were explored in the past, they proved to be at higher risk for insolvency and fraud. They can create an uneven playing field with traditional insurance markets, raising the risk of adverse selection in traditional plans. 

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What are the next steps for my business?

Anticipate states’ actions and reactions: As the health reform debate continues, states are unlikely to sit still. Companies should anticipate that states may work to reform their Medicaid programs, re-examine their insurance regulations, attempt to stabilize insurance markets, work on lowering prescription medication costs, pass transparency legislation and more. In many cases these changes will have a more immediate and substantial impact on companies than any broader health reform legislation.

Build resilience and prepare for disruption: The passage of state legislation, regulatory reforms or tax reform could cause disruption across the healthcare industry. It could also have the opposite effect, helping stabilize otherwise turbulent exchange markets or creating flexibility with which to innovate. Health organizations should determine their abilities to recognize specific changes, their agility to quickly make and act on decisions, their capacity to deliver results and leverage relationships and their ability to act in concert as an entire organization.

Plan for uncertainty and plot an offense: Knowing in detail how a plan will affect a company will make it more able to place strategic and potentially lucrative bets on growth. Companies also can make offensive bets on things unlikely to change: value-based care, consumer-oriented care, limiting costs, increasing efficiencies and stable markets like Medicare Advantage. Such investments can encourage long-term growth amid growing levels of uncertainty. 

Contact us

Karen Young

Karen Young

US Health Industries Leader, PwC US

Sundar Subramanian

Sundar Subramanian

Principal, PwC US

Benjamin Isgur

Benjamin Isgur

Health Research Institute Leader, PwC US

Trine K. Tsouderos

Trine K. Tsouderos

HRI Regulatory Center Leader, PwC US

Tel: +1 (312) 241 3824

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