With yesterday’s decision by the Republicans to abandon their effort to repeal and replace the Affordable Care Act and perhaps shift to a strategy of repeal now and replace later, it is a good time to consider where we are and where we might have been in healthcare reform.
As President Trump famously said, “Healthcare is very complex.” So it’s no surprise that the Republican proposed legislation to repeal and replace Obamacare is also very complex. Politicians and the media have reduced their analysis to a few salient points: On the top tier, according to the Congressional Budget Office (CBO), Medicaid funding will decrease by about $800 billion and around 22 million people will lose insurance over 10 years, starting with about 14 million in 2018 who recently acquired health insurance. That includes about 4 million who receive their coverage through Medicaid. On the second tier are all the other important but less sound-bite oriented consequences: removal of protections for pre-existing conditions, new structures for risk pools that negate Obamacare’s approach of blending the benefits of a larger pool of people to lower average cost, instead lowering the cost for younger, healthier people while increasing the cost for older, less healthy people, and the removal of certain coverage from minimum requirements, notably including services for mental health and addiction. There are others, but that’s enough.
Add to this, the further reductions in the draft budget for 2018 that include another $600 billion reduction in Medicaid over 10 years, and it is hard, at least for me, to comprehend the enormity of the devastation to individuals, communities and the nation as a whole. (For this discussion, I am not considering the effect of the deficit reduction or income redistribution.)
Since the answers to my questions aren’t well presented by either politicians or the media, I thought I’d see if I could make sense of it myself.
Here’s a chart showing how health costs are paid now, in 2017. (The first number shows the number of people in millions, and the second shows the percentage of the population covered.)
Disclaimer: Throughout this discussion, I’ve cobbled together numbers from a variety of sources, mostly CMS and the CBO. There are some variations between sources in the specifics, but the overall values are consistent.
Notice that the presently uninsured population is 28 million, or about 9% of the total population, the lowest it has ever been.
The CBO report estimates that about 14 million people would lose insurance in 2018. Without going through the gymnastics of showing how the health reform proposals would affect each wedge in this pie, it is easy to visualize for yourself the impact of increasing the uninsured from 28 million to about 42 million, from 9% to about 13.5% of the population.
But in some ways, this is a bit misleading. It shows coverage by type of insurance or payment but it doesn’t reflect who is actually paying or how much is being paid either directly through out-of-pocket or indirectly through insurance. Here’s a look at a summary of healthcare expenditures by source of payer, from 2015.
Disclaimer: Here I’m comparing 2015 expenditures by source with 2017 coverage. Again, not perfect alignment, but still informative.
This offers some interesting insights. Comparing the two charts, we see that employers contribute 20% of the total healthcare covering almost half of the population. Of course, this doesn’t include the employee share of insurance payments or deductibles and co-pay which are included in the households wedge. Nor does this take into consideration the tax benefits to employers of employer-sponsored health insurance. It reflects a gross insurance cost to employers, not the net cost.
Compare this to the combined federal and state percentage of expenditures, which account for 46% of the total healthcare cost, applicable to only 36% of the people who benefit through Medicare, Medicaid and CHIP, the Children’s Health Insurance Program. (Again, this is imperfect. We could include the VA and other segments of the population which is paid by the federal and state governments, and we could adjust for individual insurance payments and co-pays, such as those for Medicare Part B, but these would not have a material effect on the conclusions.)
At least one obvious and well recognized inference is that people covered by employer-based plans are much healthier than are those covered by programs funded by the state and federal governments. This is something we all know, but it helps to see it graphically.
What is one implication? Reducing federal funding will shift funding onto states and individuals, with the resulting huge increase in uninsured with all of its direct and indirect consequences.
Let’s look specifically at Medicaid. Medicaid today costs about $550 billion per year. Of that, about 65%, around $350 billion is paid by the federal government. The proposed repeal and replace legislation, combined with the draft budget, would reduce the federal Medicaid budget by about 45%, an average reduction of about $140 billion per year. According to the CBO report on the Senate proposal, about 4 million people would lose their Medicaid insurance in 2018 and 14 million would lose it in the tenth year.
Here’s what Medicaid funding would look like on average:
It is easy to see how even with states picking up an increased share of Medicaid funding, a 20% reduction in total Medicaid funding would have devastating effect on people, communities and the nation.
Now that the present round of repeal and replace is dead, this little analysis provides context for what to expect next as we anticipate first an effort to completely repeal the Affordable Care Act and follow that with some new proposal yet to be defined.
In the meantime, it is clear that the markets will struggle to find equilibrium as the Trump administration and the Republican-led congress continue this period of uncertainty, particularly over insurance subsidies for individual insurance markets.
Yet despite these terribly difficult burdens, there are a few good signs. Nowhere in the proposed legislation do we see the Trump administration or the Republicans in congress stepping away from the present shift away from fee-for-service to value-based payment models. Further, we see continued funding for initiatives to promote patient engagement and community care collaboration along with new alternative payment models. These have the potential to drive real improvements in healthcare outcomes and lower cost.
The Trump administration has continued to award grants and provide funding under the Obama initiated 2017 budget. Given the proposed cuts, it is hard to imagine that these initiatives will be continued in the 2018 budget and beyond. In the meantime, it is critical that the industry make the most of the present opportunities in order to demonstrate improvements in health outcomes and lower cost that both Democrats and Republicans can support.
In my next post, I’ll go into a bit of detail about some of the most promising programs in effect in 2017 and 2018.