How will the first 100 days of the Trump Administration impact long-term health care costs?

Health Care Current | January 24, 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.

My Take

How will the first 100 days of the Trump Administration impact long-term health care costs?

By Sarah Thomas, Managing Director, Deloitte Center for Health Solutions, Deloitte Services LP

Last Friday, President Trump was sworn into office. As that happened, people involved in health care and health policy began preparing for the many changes President Trump has proposed to make. First and foremost, the president has directed the Congress to confirm new leadership and to repeal and replace the Affordable Care Act (ACA).

As the tides change, one question I’ve been hearing a lot is, “What will the new leadership do to lower health care costs?” I think this is a really interesting and important question. And, before I get started, I think it is a good idea to clarify what we mean by costs. Often policymakers think in terms of costs of the whole system – and the costs that health care payers (employers and governments) pay. But, people mostly think in terms of what health care costs them – through premiums and out-of-pocket payments. Let’s start with the system perspective.

What did the ACA do to control overall health care spending?

A criticism of the ACA has been that it did not do enough to reduce costs – even as it largely delivered on the promise to expand access. But, defenders of the ACA returned that criticism with arguments that several policies could reduce health care cost growth and enhance efficiency:

  • The significant financial support and regulatory flexibility for the Center for Medicare and Medicaid Innovation (CMMI)
  • The Cadillac Tax, a tax on high-cost health plans that was expected to bring in $32 billion in revenue from 2010 to 20191
  • The Independent Payment Advisory Board (IPAB), an independent group to rein in costs if Medicare spending exceeds targets in any particular year

The latter two policies were never given the opportunity to go into effect, but CMMI has succeeded in launching many ambitious programs designed to improve the efficiency of the delivery system, has engaged many health care organizations and leaders, and has touched many parts of the country. Some of the programs have shown savings and others have been more mixed – with some participants succeeding in saving money and others not. Moreover, many stakeholders, including the nominee for the Secretary of the US Department of Health and Human Services (HHS), Tom Price, have said that the mandatory nature of some of the demonstrations overreaches CMMI’s authority.

In addition, the Obama Administration did make progress in the area of transparency, releasing unprecedented detail on health care spending at the physician and provider level. In theory, this would help address costs if individuals or purchasers used the information to avoid inefficient providers. The federal government also continued to pursue fraud through the Health Care Fraud and Abuse Control Program, collecting more than $1.9 billion in fiscal year 2015.2

The rate of growth in overall health care spending per person did slow down during the first few years of the ACA, growing an average of 3.9 percent from 2009 to 2013, but many economists credit the recession with that.3,4 Spending growth is increasing again and so are health care premiums – premiums that employers pay and premiums in the exchanges.5

What policies might control overall health care spending?

Past legislative proposals offered by Republican leaders and conservative think tanks offer a number of clues for the policies we might see under debate. I think some of the more interesting ones are:

  • Health savings accounts paired with transparency tools that give individuals the incentive to shop for lower-cost services and to weigh carefully the value of procedures and therapies.
  • Incentives paired with programs that reward healthy choices, such as quitting smoking, eating right, and exercising.
  • Programs that stimulate more competition among providers and health plans. Premium support, for example, could be structured to give financial incentives to individuals to steer them toward Medicare Advantage plans or to stay in the fee-for-service system, whichever delivers a lower bid to cover the same set of Medicare benefits. Expanded use of biosimilars also has the potential to reduce spending on specialty drugs, even if not to the same degree as we’ve seen with generic medications.

Incentives can be powerful and if paired with good information that allows individuals to act and choose wisely, these can further the goal of reducing overall health care spending. Too much exposure to costs without enough information to support good choices can lead to self-rationing (both needed and unneeded services), however.

Let’s switch to the other perspective.

Most consumers think in terms of what they pay for health care, not what we are spending as a society.

As new proposals surface, it will be important to understand whether a given policy would really save money or if it instead would just shift costs from one stakeholder to another (for example consumers and hospitals). It would also be important to continue making progress in engaging individuals to make good decisions about their health and health care. These include using tools that provide information about lower cost alternatives and that encourage them to make healthy choices. Of course lower cost alternatives and choices need to be available for these ideas to work.

The bottom line is that I do not see the problem of rising health care costs going away immediately. So, the president’s first 100 days might be spent doing a thoughtful assessment of where progress has been made towards reducing health care costs and in accelerating progress towards transparency. These two concepts are essential for some of the ACA replacement policies to work. Moreover, the public is watching: purchasers and individuals alike see health care costs as a critical issue as the administration sets its agenda for the first 100 days. 

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1 CBO, “H.R. 4872, the Reconciliation Act of 2010,” March 20, 2010
2 The Department of Health and Human Services and The Department of Justice, Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2015, February 2016
3 Urban Institute, “The Widespread Slowdown in Health Spending Growth, April 2015
4 Michael Chernew, Health Affairs, “Interpreting New Data On Health Care Spending Growth,” December 2, 2015
5 Bob Herman, Modern Healthcare, “Healthcare spending growth rate rises again in 2015,” July 13, 2016


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Implementation & Adoption

President Trump signs executive order to “minimize the economic burden” of the ACA

On Friday, January 20, President Trump signed an executive order that directs the Secretary of HHS and other applicable federal agencies to:

  • Use their authority to “waive, defer, grant exemptions from, or delay” parts of the ACA that might put financial burden (e.g., fee, tax, or penalty) on states, individuals, families, health plans, health care providers, and more
  • Give states flexibility in implementing health care programs
  • Encourage a “free and open market” for health care and health insurance, especially as it relates to interstate commerce
  • Comply with the Administrative Procedure Act in performing any of the above actions if they require changes to regulations

It is unclear which policies the new Administration might choose to focus on first to address these goals and how quickly changes would take place, given that the new leadership of the agencies is not yet in place. But, one question is whether this executive order directs the HHS Secretary, who has yet to be confirmed by Congress, to loosen requirements around the ACA’s individual mandate and allow for more hardship exemptions. The HHS Secretary has the authority to do this under the ACA.

The executive order acknowledges that changes to regulations requires the HHS Secretary to go through the notice and comment period of the Administrative Procedure Act. Many actions that the Administration might seek could fall under this requirement, such as changing the interpretation of Section 1332 State Innovation Waivers or making changes to Medicaid programs.

The directive is consistent with the president’s stated intention to repeal and replace the ACA, something that the Republican leadership in Congress also is working on.

Study: Health plans with larger market share can negotiate lower prices from physician groups

Health plans that have 15 percent or more of the commercially insured population in a given county can negotiate lower prices with physician groups than health plans that have fewer members, according to a new report published in Health Affairs.

A multi-payer claims database provided researchers with negotiated prices across the US. The key question was how market share impacts prices, analyzed by comparing the prices that different health plans had with the same physician groups.

Generally, health plans with greater market share negotiated lower prices for office visits with the same group compared with health plans with fewer members in that area. The researchers found that the average price of an office visit was highest for health plans with the lowest market share.

However, health plan market share is not the only factor that affects negotiated prices. Other factors can include the quality, specialty mix, and reputation. For health plans, a narrow or tiered provider network might play a larger role in price negotiation. The study suggests that mergers between large health plans could lead to lower negotiated prices with providers.

(Source: Roberts et al., “Market share matters: Evidence of insurer and provider bargaining over prices,” Health Affairs, 2017)

Slavitt: Building a system based on value will depend on clinical data

Andy Slavitt, the outgoing Acting Administrator of the US Centers for Medicare and Medicaid Services (CMS), recently discussed what he viewed as some of the successes and remaining challenges of digitizing health care data, which he says is the “lifeblood” of value-based care (VBC). According to Slavitt, 77 percent of clinician offices reported using a certified electronic health record (EHR) in 2015. This is double the amount reported in 2008. However, Slavitt says that the inability to share data seamlessly still represents a barrier to using these systems in a meaningful way.

Slavitt says that the 21st Century Cures Act’s interoperability provisions and additional conditions of certification by the Office of the National Coordinator for Health Information Technology (ONC) are major steps toward addressing health information technology (IT) implementation barriers. He also says that the Quality Payment Program under the Medicare Access and CHIP Reauthorization Act of 2015 may help to address data collection challenges and reduce administrative burden.

The average clinician practice contracts with 12 health plans in addition to the Medicare program. Having multiple payers can lead to challenges in accessing and sharing data in different sites, across payers, and through various digital systems that may be unable to communicate. This is especially a problem for providers participating in innovative payment methods, Slavitt says.

He recommends the following as priorities for providers and industry stakeholders:

Avoidable hospital stays becoming less common among dual eligibles in long-term care

Dual-eligible beneficiaries who live in long-term care facilities are more likely to have avoidable hospitalizations than dual eligibles who live in the community. According to a new CMS data brief, that rate is improving.

CMS looked at potentially avoidable hospitalizations (PAHs) among dual-eligible beneficiaries with bacterial pneumonia, urinary tract infections, congestive heart failure, dehydration, asthma, or skin ulcers. In 2015, dual eligibles living in long-term care facilities had a total of 270,000 hospitalizations, and approximately one third of them (about 80,000) were due to these potentially avoidable conditions.

The rate of PAHs among this population has decreased from 227 per 1,000 beneficiaries in 2010 to 31 percent to 157 per 1,000 beneficiaries in 2015.

Several targeted efforts helped to reduce PAHs within this population, according to the brief. One, started in 2011, was a CMS initiative in seven geographical areas to reduce PAHs among nursing facility residents.

(Source: Niall Brennan and Tim Engelhardt, CMS, “Data Brief: Sharp reduction in avoidable hospitalizations among long-term care facility residents,” January 17, 2017)

On the Hill & In the Courts

HHS Secretary Nominee Tom Price testifies before Senate

Last week, Representative Tom Price, President Trump’s nominee for HHS Secretary, testified before the Senate Health, Education, Labor, and Pensions (HELP) committee. This is a standard part of the nomination and confirmation process, as the Senate committees have the authority to question presidential appointments that are confirmed in that chamber.

Price has served as the Chairman of the House Committee on the Budget and has been a member of the House Committee on Ways and Means. Both of these committees have jurisdiction over the major US health care programs. Price appeared before the HELP committee on Wednesday, January 18. The questioning centered on the following topics:

CBO: Repeal of some parts of the ACA would reduce coverage and increase premiums

Last week, the Congressional Budget Office (CBO) and Joint Committee on Taxation (JCT) released an updated analysis of the projected impacts of repealing several provisions of the ACA:

  • Fines for not having coverage (individual mandate)
  • Requiring employers to meet certain health care standards for their employees (employer mandate)
  • Medicaid expansion
  • Tax subsidies for low-income individuals to purchase coverage through the public health insurance exchanges.

Repealing these provisions would reduce coverage and increase premiums, the report says. Within the first year of repeal, the uninsured population could increase by 18 million, as 10 million people could lose coverage in the non-group market, 5 million could no longer be eligible for Medicaid, and about 3 million could lose employer-based coverage (ESI). 

Moreover, premiums in the individual market, both on and off the exchanges, would increase by 20–25 percent in the first year following repeal. By 2026, they would increase by approximately 50 percent. This increase mostly comes from repealing the penalties associated with the individual mandate. According to the report, without the individual mandate, the individual market would shrink and the people buying coverage in it would be more likely to be older, less healthy, and have higher health care costs, leading to increased premiums to cover the higher costs. This dynamic might also lead health plans to exit the market. Reduced competition in the market could also contribute to higher associated costs for consumers, CBO says.

Analysis: This report updates projections from the CBO and JCT’s report last year, which estimated the budgetary effects of H.R. 3762, the Restoring Americans’ Healthcare Freedom Reconciliation Act of 2015. The bill would have eliminated the individual and employer mandates and the tax subsidy provisions of the ACA. Congress passed H.R. 3762, but President Obama vetoed it.

Senate Minority Leader, Chuck Schumer, Ranking Member of the Senate Committee on Finance, Ron Wyden, and Ranking Member of the Senate HELP Committee, Patty Murray requested the CBO update this analysis. Many Republican lawmakers criticized the report, saying that it fails to incorporate the impact that a replacement to the ACA would have on insurance coverage and costs.

(Source: CBO, “How Repealing Portions of the Affordable Care Act Would Affect Health Insurance Coverage and Premiums,” January 2017)

MedPAC votes to increase Medicare payments to doctors, hospitals

Earlier this month, the Medicare Payment Advisory Commission (MedPAC) unanimously voted to increase Medicare payments for physicians and inpatient and outpatient hospital services in 2018. The Commission, which is tasked with providing non-binding, data-based recommendations to CMS, recommends that CMS increase payments as called for under current law (0.5 percent for physicians, 1.85 percent for hospitals). MedPAC recommends the hospital updates because it found that 2017 hospital margins for many organizations are expected to be negative, even for efficient organizations.

This recommendation comes after the CBO projected that anywhere between 41 and 60 percent of hospitals could have negative margins by 2025. Many health systems are feeling margin and earnings pressure. As more patients seek care, reimbursement rates in government programs and the high cost of out-of-pocket deductibles are leaving many health systems in financial distress. Medicare payment increases could help to offset some of the losses.

MedPAC also voted on several other recommendations:

  • Approved – Adding a modifier to claims for all services provided at off-campus, freestanding emergency departments (EDs): According to the Commission, this will help CMS and Congress collect and analyze data on the facilities and the patients they serve. CMS is currently unable to distinguish between on- and off-campus EDs, which can create barriers in improving care quality and delivery systems.
  • Not approved – Payment increases for ambulatory surgical centers and post-acute care sites, including skilled nursing facilities, home health agencies, and inpatient rehabilitation facilities: According to MedPAC, patient access and use of these sites has steadily increased, and PAC providers’ margins have remained high for the last 10 years. Medicare spending could be decreased by $33 billion over the next decade if CMS forgoes payment increases to these sites.

Around the Country

CMS approves Pennsylvania’s all-payer model with rural hospitals

The CMMI is launching an all-payer model in Pennsylvania. Under the agreement, Medicare, Medicaid, and commercial payers will pay rural hospitals a fixed monthly payment for all of the inpatient and outpatient hospital-based services they provide. The program’s goals are to help participating rural hospitals improve quality and address community health needs without increasing costs.

CMS will provide $25 million in funding over the first four years of the program to help Pennsylvania implement the model. The program is approved to run for seven years from January 12, 2017 to December 31, 2023. During this time, Pennsylvania will set a prospective, all-payer global budget for each participating rural critical access and acute hospital. The amount will be based on historical net revenue for inpatient and outpatient hospital-based services from all participating payers. Each participating payer will then pay participating hospitals for all inpatient and outpatient hospital-based services, based on the payer’s respective portion of this global budget.

In addition, each participating hospital will be required to invest in:

  • Quality and preventive care
  • Continuous feedback from stakeholders
  • Services tailored to the needs of the local community

CMS will work with Pennsylvania to review the payment methodologies, rates, and each hospital’s care delivery transformation plan. Part of the funding will go toward providing technical assistance to rural hospitals. CMS and Pennsylvania anticipate that under the program, care transformation and predictable budgets will help rural hospitals make meaningful improvements in care quality and address the largest health needs in their communities.

Section 1332 state innovation waivers: CMS begins the public notice process for Alaska, California withdraws

Last week, CMS told Alaska and California that their Section 1332 state innovation waiver applications are complete and ready for review. For Alaska, this announcement started the 180-day public comment and federal decision-making period during which officials will decide whether or not to approve the application. A day after the announcement, however, California withdrew its application given President Trump's opposition of undocumented immigrants and state legislators’ concerns that the information would be used against them.

Alaska: Alaska asked CMS to waive sections of the ACA so it may implement the Alaska Reinsurance Program beginning in 2018. In response to decreasing health plan participation and increasing premiums in the individual market, the state says its reinsurance program will help increase enrollment in this market and save the federal government $51.6 million in advanced premium tax credits in 2018. Public comments are due by February 16, 2017.

California: Originally submitted on December 16, 2016, California sought to offer health insurance options – or California Qualified Health Plans – to individuals ineligible to purchase coverage due to their immigration status. California was the first state to explore expanding coverage to undocumented immigrants. The state can resubmit the same or a modified application in the future.

So far, the only Section 1332 state innovation waiver to be approved is Hawaii’s (see the January 10, 2017 Health Care Current).

Breaking Boundaries

Are we getting closer to a universal flu vaccine?

For years, researchers around the world have been working on a universal influenza vaccine. Given the seriousness of the flu and the resources it takes to promote vaccination every year, a universal vaccine would be a major advance in public health. The flu can debilitate even young, healthy people and can be dangerous or even deadly for the very young, older adults, and people with chronic conditions or other risk factors. The US Centers for Disease Control and Prevention (CDC) recommends most everyone six months and older get the annual flu shot to protect themselves and others.

The two major types of seasonal influenza viruses that can infect humans are A and B. Type A viruses are constantly changing and are the ones usually responsible for yearly epidemics. Certain molecules cover the surface of the type A virus. One molecule, called hemagglutinin, has a head and a stem. The head draws key immune system cells that produce antibodies that can neutralize the flu virus. Researchers are exploring how they can anchor the stem and remove the head to be able to study the antibodies that may be a good template for vaccine design.

Another research team has developed an experimental multi-year vaccine based on the genetic sequences of flu strains that have appeared in the past century. By targeting the variants of the past, this group is hoping for a vaccine that works for five or 10 years, which would still be an improvement over an annual shot.

Analysis: As Tom Frieden, MD, reflected on his final days as director of the CDC, he said in a recent interview that the threat of influenza still keeps him up at night. He mentioned the 1918-19 pandemic that killed at least 50 million people and new animal strains that continue to emerge. He continues to remind Americans to get a flu shot. The CDC is reporting that every state has influenza outbreaks at this point, and this year’s season is a little worse than last year’s, which was relatively mild. That means busy hospitals and emergency rooms across the country and many missed days of work and school.

To produce an annual flu shot, scientists must predict as accurately as they can which strains are most likely to infect the population. It takes around six months to generate enough injectable doses to meet demand, and a missed prediction can have serious consequences. In 2009, after the annual vaccine was produced, an unanticipated strain of H1N1 emerged and caused 18,000 confirmed deaths, which is likely only a fraction of the actual deaths. A universal flu vaccine has the potential to save many lives and cut down on the annual costs to coordinate and promote the seasonal flu shot. 

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