April 29, 2019

'Medicare for All' is roiling the health industry. Could Biden bring it to a halt?

Daily Briefing

    By Ashley Fuoco Antonelli, Contributing Editor

    There are a slew of so-called "Medicare-for-All" proposals and public option health plans floating around the 116th Congress. While the plans vary in scope, two competing Medicare-for-All bills from Sen. Bernie Sanders (I-Vt.) and Rep. Pramila Jayapal (D-Wash.) have gained a lot of Democratic support—and raised alarms for some industry stakeholders.

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    Why some industry stakeholders don't like 'Medicare for All'

    Sanders' and Jayapal's Medicare-for-All proposals are the most far-reaching health reform proposals touted by Democrats. The plans would implement a single-payer health system in the United States that would mostly phase out private health plans and instead enroll most U.S. residents into one government-run health plan. The proposals also would change how the federal government pays providers when compared with current payment policies and rates under Medicare.

    Proponents of Medicare-for-All proposals say they'd help lower U.S. residents' out-of-pocket health care costs and ensure all U.S. residents have access to health care. But the prospect of—and growing support for—such a large shift in U.S. health care system unsurprisingly has sparked concerns among various stakeholders in the health care industry, particularly among health care providers and insurers.

    Providers have long argued that, if a Medicare-for-All plan did not match private payer rates or at least pay higher rates than what Medicare currently does, hospitals could be forced to lay off workers or cut health care services that don't generate significant profits, such as mental health care.

    The Massachusetts Hospital Association, the American Hospital Association (AHA), the Federation of American Hospitals (FAH), and the American Medical Association all have come out against Medicare for All. According to CNN's Tami Luhby, AHA CEO Rick Pollack has said, "Hospitals are already paid far less than the cost of caring for Medicare patients, and more patients with Medicare would strain hospitals even more, and could threaten hospitals' survival."

    A study published this month in JAMA added some hard figures to the debate. It estimated that, if the federal government were to pay providers at current Medicare rates under a single-payer health plan, the United States' community hospitals would see total revenue decline by 15.9%, or about $151 billion. Further, the study notes, "Given a current average profit margin of 7% including nonoperating income, hospitals could quickly face the prospect of margins as negative as 9%, equal to an $85.6 billion annual loss, unless they could rapidly reduce waste and become more efficient."

    Private health insurers have raised similar concerns. David Wichmann—CEO of UnitedHealth Group, which owns UnitedHealthcare, the nation's largest health insurer—during a call with investors last week said Medicare-for-All would "surely jeopardize the relationship people have with their doctors, destabilize the nation's health system, and limit the ability of clinicians to practice medicine at their best." (The Daily Briefing is published by Advisory Board, a division of Optum, which is a wholly owned subsidiary of UnitedHealth Group. UnitedHealth Group separately owns UnitedHealthcare.)

    America's Health Insurance Plans also has come out against Medicare for All, saying it would "eliminate choice, undermine quality, put a chill on medical innovation, and place an even heavier burden on hardworking taxpayers." The group said, "The most effective way to ensure affordable care and coverage is to strengthen the private market's ability to serve the American people, whether it's building upon private plans serving nearly 180 million people who get their coverage through their employer or the tens of millions who depend on private plans that partner with public programs."

    Medicare-for-All uncertainty has hit health care stocks hard

    And it seems like investors are heeding providers and payers' concerns. Axios' Caitlin Owens writes that health care stocks, and particularly health insurance stocks, were "batter[ed]" on Wall Street last week amid mounting investor concerns over Medicare for All. According to Bloomberg's Tatiana Darie, "About $150 billion of market value was erased from companies in the S&P 500 Health Care Index" from April 15 to April 18, just days after Sanders released his revised Medicare-for-All bill.

    The Wall Street Journal's Jessica Menton notes that health care, which was the best-performing S&P 500 sector in 2018, is the lowest-performing sector so far this year. Brock Moseley, founder of Miracle Mile Advisors, told Menton, "Investors are scared about the massive amount of uncertainty in terms of regulation."

    Some say investors shouldn't be too worried, partly because of Biden

    But some industry observers are saying investors and health care stakeholders should stop fretting about Medicare for All, arguing that such a proposal isn't likely to become law. Politico's Dan Diamond reports that Capital Alpha Partners in a note to investors gave "'10% or less odds that [Medicare for All] could be enacted, even in the event of a Democratic sweep,'" and Raymond James analysts told clients "the odds are less than 1% that Medicare for All will be a reality."

    And some investors have said Biden's entrance into the presidential race could cool Medicare-for-All hype. For instance, Owens on Monday reported that "Gary Taylor of J.P. Morgan wrote to investors that insurance stocks likely will fall even further as part of a broader market correction, but they could improve a lot if "'Biden wins the Democratic nomination without changing his current view against single-payer.'"

    Vox's Sarah Kliff writes that Taylor might have "overstate[d] Biden's position a bit," noting that we haven't yet "seen [Biden] come out as anti-single payer." However, she writes that Taylor's "general view seems to be right: When you look out at the field of Democratic contenders, Biden right now is positioning himself as the candidate who isn't jonesing to go big on health care."

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