More policy uncertainty ahead in 2018, but larger market shifts and business trends continue to redefine the health plan sector
Health Care Current | December 5, 2017
This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.
2018 health plans outlook: More policy uncertainty likely ahead, but larger market shifts and business trends continue to redefine the sector
By Greg Scott, Vice Chairman, US Health Plans Leader, Deloitte LLP
Looking back on health plan sector developments in 2017, much media attention focused on efforts to repeal and replace the Affordable Care Act (ACA). While the continuing ACA political drama is certainly newsworthy, it’s important to stay focused on larger, abiding trends that are reshaping the health plan sector – and the US health care industry overall.
Here are five trends that I expect will likely have major implications for health plans in 2018 and beyond:
Trend 1. The influence of public policy grows
Each year, the implications of federal and state policy proposals and changes become more important to the strategies and business performance of health plans. This influence extends well beyond the ACA debates. From an industry perspective, the role of the ACA individual insurance market — including issues related to the individual mandate and cost-sharing reduction subsidies (CSRs) – can seem overstated. Individual health insurance products sold on and off the public insurance exchanges account for just 6 percent of enrollment and 10 percent of the sector’s fully-insured revenue, as noted in our new Center for Health Solutions research on health plan financial trends. Much more critical to the fortunes of the sector in 2018 account for an expanding share of the industry’s revenue and margins. For many health plans, the implications of the US Centers for Medicare and Medicaid Services’ (CMS) MA payment-rate updates, risk-adjustment changes and Star ratings are far more consequential than CSR policies. The same can be said for state Medicaid payment and coverage policies. That said, I anticipate that 2018 (with federal mid-term elections on November 6) seems likely to bring another round of ACA political battles and accompanying health plan business uncertainties.
Trend 2. Insurance margins stabilize
The US health insurance market has experienced financial turbulence since the 2010 enactment of the ACA. The sector has seen high growth in both revenue and enrollment from fully insured products – but it also has experienced dramatic decreases in underwriting gains and margins. These trends are displayed in the figure below, from our recently published Health Plans Financial Trends 2011-2016 research. We see the 2016 margin stabilization depicted below continuing in 2017 – and prognosticate continued sector progress in remediating post-ACA unfavorable margin trends in 2018.
Trend 3. Affordability crisis drives incremental business model and operational efficiencies
Cost pressures on employers, families, consumers, and governments will likely continue to mount as the affordability crisis remains the preeminent challenge in the health care industry. Health plans are apt to continue to pull every lever within their reach to address the affordability challenge. Some levers that have been exercised aggressively in recent years – such as raising member out-of-pocket costs – don’t offer as much leverage moving forward. How much higher can deductibles be set when family income growth remains sluggish? Health plans will likely focus greater attention on escalating drug costs – particularly high-cost specialty drugs. Health plans are likely to pull available levers including pharmacy network design, formularies, benefit tiers, and mail order programs. Some health plans will do more pioneering work in the area of value-based contracting with pharmaceutical manufacturers. But the great promise and positive impact of paying for how well a drug works, rather than by the number of doses, will likely not be fully realized in 2018. Similarly, 2018 should see steady progress in the number and impact of health plan value-based contracts and payment models with delivery systems. The tipping point toward value-based care – and away from volume-driven medicine – will hopefully occur in the next several years. But 2018 will likely shape up to be a year of incremental and fragmented progress.
Trend 4. Exponential technologies enable health plan innovation
Compared to many other industries, health plans have a digital deficit. But cloud-based applications, cognitive analytics, robotic process automation, the Internet of Things, digital finance, and other emerging solutions are poised to disrupt and transform the health plan business in 2018, as they have in other industries. Other emerging technologies – such as blockchain and virtual/augmented reality – will likely follow over the next couple of years. The promise of exponential technologies extends across the full breadth and depth of the enterprise (front office, middle office, and back office). Some health plans will, for the first time, have the opportunity to leverage new technologies to leap frog traditional competitors and gain competitive advantage by jettisoning inflexible, inefficient legacy systems in favor of next-generation solutions.
Trend 5. Sectors converge and partnerships multiply
The siloes in the US health care system have been softening in recent years. That is a good thing. No single sector in isolation can materially address the cost, access, and quality challenges we face. Perhaps most importantly, the convergence of the health plan and provider sectors is likely to accelerate in 2018. This willingness to come together reflects the growing recognition across the health care industry that better synchronization between the financing and delivery of health care services and products is likely a necessary condition for systemic change. In many cases, this convergence will be facilitated by various partnership vehicles, including joint ventures, alliances, and a host of contractual arrangements. In other instances, we will see asset mergers and acquisitions. The 2018 appetite for merger and acquisition (M&A) deals across the health plan sector should be strong, particularly after the 2017 failure of major proposed mergers involving four of the nation’s largest health plans due to antitrust concerns. I anticipate an exciting year of M&A and partnership deals (including both horizontal and vertical plays) involving major national brands as well as specialized, smaller-scale players.
My Take: While 2018 appears likely to reprise some of the ACA-driven health policy drama that characterized 2017, I suspect that what plays out beyond the Beltway will have a larger and more meaningful impact on the direction and performance of health plans in the year ahead.
In the news
Senate approves tax reform bill; Congress to send delegates to Conference Committee
On Monday evening, the House and Senate voted to form a Conference Committee to reconcile the House and Senate versions of the Tax Cuts and Jobs Act (TCJA). This action followed the Senate’s passage of their bill very early morning December 2. Both bills provide a general corporate tax rate of 20 percent (although the Senate delays the rate cut until 2019) and include several provisions affecting the health care sector.
Is the R&D and Orphan Drug Credit in jeopardy? In a late addition on Friday evening, the Senate bill retained the Corporate Alternative Minimum Tax at the current 20 percent rate. Given the general corporate tax rate would drop to 20 percent as well, tax credits for research or new rare disease therapies, among other available credits, may produce no benefit to companies performing such research as their tax bills would not otherwise go below 20 percent of taxable income. Some commentators believe that this was an unintended consequence of acting quickly and would be addressed in the Conference Committee.
Repeal the individual mandate: Unlike the House-approved version, the Senate bill would repeal the individual mandate penalty beginning in 2019. The Congressional Budget Office projects that without the individual mandate, many healthy people might opt out of buying insurance, increasing the cost of insurance for sicker populations and increasing the number of uninsured Americans by 13 million (see the November 14, 2017 Health Care Current).
Reduce the threshold of the high health care expenses deduction: Earlier versions of the Senate bill called for a repeal of the deduction for health expenses that exceed 10 percent of a person’s annual income. However, Senator Susan Collins (R-Maine) introduced an amendment, which was ultimately adopted, that reduces the threshold from 10 percent to 7.5 percent of a person’s income for two years.
In exchange for her vote on the tax reform bill, Collins said in a statement that she got Senate Majority Leader Mitch McConnell (R-Ky.) to support:
- The Alexander-Murray bill, which would help stabilize the individual insurance exchanges by restoring funding for the federal cost-sharing subsidies (see the October 31, 2017 Health Care Current)
- A bill to provide $5 billion in reinsurance for high-cost beneficiaries annually for two years
For up to date coverage of Tax Reform developments see Deloitte’s Tax News and Views.
CMS confirms it will pullback Medicare bundled payment programs
In a rule issued November 30, CMS finalized an earlier proposal to end several mandatory bundled payments for cardiac care, and to limit the joint replacement bundled payment program (see the August 22, 2017 Health Care Current). The change is part of the administration’s effort to reduce the regulatory burden on providers.
The final rule ends the four Cardiac Rehabilitation incentive-payment models that had been set to go into effect on January 1, 2018. The models would have combined care for cardiac episodes and rehabilitation into one payment.
Earlier CMS changed participation requirements in the Comprehensive Care for Joint Replacement (CJR) program, which focuses on hip and knee replacements. Hospitals in some areas will now be able to opt out of what had been a mandatory program.
Despite lack of federal funding, plans must reduce cost sharing for low-income enrollees in exchange plans in 2019
While federal funding for the ACA’s cost-sharing reduction program has ended, insurers that sell qualified health plans (QHPs) on the federally facilitated exchanges must continue to offer the subsidies to eligible enrollees in 2019, CMS announced November 27. The 2019 Draft Letter to insurers outlines the QHP certification schedule and areas in which states have flexibility.
The proposed calendar is similar to past years. Insurers must submit 2019 QHP applications between May 9 and June 20. Last year, applications were due between May 10 and June 21. CMS says it will to defer to states with sufficient network adequacy review processes for 2019. Comments must be submitted by December 11.
Medicaid now pays for the largest portion of ED visits
Medicaid paid for about one-third of all emergency department (ED) visits in 2014, according to data from the Agency for Healthcare Research and Quality (AHRQ). The expansion of Medicaid under the ACA contributed to increased visits covered by Medicaid.
In 2006, private insurance paid for the highest percentage of ED visits in the US. However, by 2014, Medicaid has became the predominant payer. The data show that the number of ED visits covered by Medicaid and Medicare increased by 66.4 percent and 28.5 percent, respectively, between 2006 and 2014. During the same period, the number of ED visits covered by private insurance decreased 10.1 percent, and uninsured ED trips declined roughly 9 percent.
Overall, ED visits have outpaced population growth. Between 2006 and 2014, the US population grew 6.9 percent, while ED visits increased 14.8 percent. The share of ED visits resulting in an admission to the same hospital also declined 8.7 percent between 2006 and 2014 from 15.4 percent to 14.1 percent.
(Source: Brian J. Moore, Carol Stocks, and Pamela L. Owens, “Trends in Emergency Department Visits, 2006–2014,” AHRQ, September 2017)
Alex Azar testifies before Senate HELP Committee
On November 29, Alex Azar, the administration’s appointee for HHS secretary, testified before the Senate Health, Education, Labor and Pensions (HELP) Committee. Republican senators praised his experience as Deputy HHS Secretary under President George W. Bush, and as president of Eli Lilly and Company. Democrats expressed concerns over how Azar would handle issues related to the ACA, drug pricing, and women’s health.
Senators on both sides of the aisle were cautious about his ties to the pharmaceutical industry and his ability and willingness to lower drug prices.
Azar outlined the following priorities he would undertake as secretary of HHS:
- Lowering drug prices while still encouraging discovery and innovation
- Making health care more affordable, available, and tailored to individuals
- Harnessing the power of Medicare to place greater emphasis on health and outcomes rather than solely focusing on procedures and sickness
- Leveraging technology and ensuring the patient is the center of decision-making
- Addressing the opioid epidemic through regulations, prevention, and prescribing methods, along with compassionate treatment for those suffering from addiction
The Senate Finance Committee must confirm Azar before he can become HHS secretary. He is expected to be confirmed. However, all Democrats are expected to oppose his nomination, as is Senator Rand Paul (R-Ky.) due to Azar’s opposition to drug re-importation.
FDA Commissioner, NIH Director share progress on 21st Century Cures
On November 30, US Food and Drug Administration (FDA) Commissioner Scott Gottlieb, and National Institutes of Health (NIH) Director Francis Collins, gave updates on the agencies’ efforts to carry out the 21st Century Cures Act (Cures) to the House Energy and Commerce Committee. Cures provides new funding for medical research and approval of new drugs, and funds several other initiatives. Gottlieb pledged to continue to speed the approval process for promising drugs while ensuring patient safety.
During the hearing, Director Collins expressed concern over a potential new tax on graduate students, which is included in the tax-reform bill being considered in Congress. He said that he was concerned that the provision, if enacted, would harm the future science workforce. He noted efforts by NIH to decrease the administrative burdens on scientists.
Most members spoke positively about 21st Century Cures and the programs it funds. Rep. Ben Ray Luján (D-N.M.) also called for additional funding for the opioid epidemic.
House Oversight and Senate HELP committees look for ways to address opioid abuse
On November 28, the House Committee on Oversight and Government Reform convened at Johns Hopkins Hospital in Baltimore, MD to discuss recommendations from the President’s Commission on Combating Drug Addiction and the Opioid Crisis.
The commission’s chair, New Jersey governor Chris Christie, often referred back to the 65 recommendations the commission has made so far when answering questions from the Committee (see the November 7, 2017 Health Care Current). He said that the US must prevent the importation of fentanyl and carfentanil – extremely potent and dangerous synthetic opioids – from China, through border security and postal screening.
Christie also called for increased training for medical providers on the dangers of opioids. He mentioned the US Centers for Disease Control and Prevention’s recommendation that clinicians prescribe the lowest effective dose of immediate-release opioids. He discussed the need to provide widespread and sufficient treatment for people suffering from opioid addiction, and stressed that it must be treated like a health problem.
On November 30, the Senate HELP Committee held a hearing focused on actions that states and communities are taking to address the crisis. In addition to educating providers, providing treatment, and monitoring prescribing practices, the senators asked witnesses about reaching rural communities, helping addicted pregnant women, and penalizing doctors who operate “pill mills.”
A few senators – Lisa Murkowski (R-Alaska), Chris Murphy (D-Conn.), and Bernie Sanders (I-Vt.) – brought up Medicaid’s role in the crisis. Forty percent of people addicted to opioids are on Medicaid; they sought information on how proposed cuts to Medicaid would hinder treatment efforts.
Senate HELP Chairman Lamar Alexander said the pervasiveness of this epidemic makes it of interest to every member of Congress.
MA Value-Based Insurance Design model to be available in half of states by 2019
CMS will expand the Medicare Advantage (MA) Value-Based Insurance Design (VBID) model to 10 states next year, and an additional 15 states in 2019. The program allows health plans to customize benefits to different groups of beneficiaries.
Tested this year in seven states, the VBID model allows MA plans to reduce or eliminate copayments for expensive, frequently-utilized services and providers. The goal of the program is to make it easier for enrollees to seek high-value care and adhere to treatment regimens, thereby being healthier.
In 2019, participating MA plans will be able to develop unique benefit designs relating to nine pre-approved conditions: diabetes, chronic obstructive pulmonary disease (COPD), congestive heart failure, hypertension, coronary artery disease, mood disorders, rheumatoid arthritis, dementia, and history of stroke. MA plans can include additional clinical categories at their discretion.
The map below outlines the states where VBID will be available in 2018 and 2019.
Precision Medicine Initiative moves forward
Last month, the NIH announced it has partnered with 14 community groups and provider organizations to help raise awareness of its All of Us research program – part of NIH’s Precision Medicine Initiative. All of Us aims to engage one million American volunteers in a massive genetic research study to build a diverse dataset. The program seeks to collect information on lifestyle, the environment, and biometric data from the volunteers. The ultimate goal of the program is to advance our understanding of the underlying factors that influence health to help improve health outcomes.
The NIH announced the All of Us program more than two years ago. Participants will be asked to share information from biological samples, electronic health records, and data from wearable devices. All information will be de-identified and made available at no cost to researchers upon request. The All of Us Program says in the protocol that it will not share data with any other government agency. The challenge is going to be in gathering this kind of very personal data from individuals from all over the country, and from diverse backgrounds. A study published in Nature last year showed that by 2016, only 20 percent of genome samples were from people of non-European descent.
The 14 national organizations that are partnering with the NIH will receive a combined $1 million to help raise awareness and to recruit participants. Because the NIH wants to build a diverse and representative cohort of volunteers, the partner organizations include health, social, and religious groups representing various minority populations. The partners include physician specialty groups, organizations dedicated to improving health care quality measures, and non-profits.
Analysis: The bipartisan 21st Century Cures Act, passed in December 2016, allocates more than $1 billion for Precision Medicine Initiative (see the Deloitte Center for Health Solutions’ recent paper, 21st Century Cures: The future of product innovation and approval). Success of these kinds of efforts will largely hinge on the public’s willingness to participate, and share both their self-reported data as well as biometric data from blood tests and wearables.
A 2017 report from HIMSS Analytics shows that health care organizations are moving toward adopting precision medicine initiatives. Of the 100 medical organizations and 5,460 hospitals surveyed, nearly 70 percent are making plans to develop precision medicine initiatives during the next two years. They are developing an IT infrastructure and are developing programs to help to collect samples and perform sequence analysis in-house.