What does withdrawal of the AHCA mean for providers?

The drama over the future of the Affordable Care Act continues. A little over a week ago, on the objections from both conservative and moderate Republicans, GOP leadership pulled the proposed American Health Care Act from the floor of the House of Representatives hours before a vote, dealing a major setback to proponents of the "repeal and replace" strategy.

While some pundits are declaring further health care reform dead, others—including House Speaker Paul Ryan—maintain that reform is still on the agenda even if it doesn't take the form of the AHCA. For its part, the administration has pledged to use its authority to address elements of ACA implementation it sees as burdensome. Despite the continually evolving nature of health reform discussions, Republicans' withdrawal of the AHCA does offer meaningful insights to help guide provider strategy.

Discussion and speculation will persist, but chances for major legislative overhaul dropped significantly

Reports about continuing negotiations and public statements from various Republicans across the last week indicate that legislating changes to the ACA remains a top priority for the GOP. In addition, congressional Democrats have suggested they might propose their own changes. So it's too early to conclude that congressional ACA-reform efforts are finished.

However, the near-vote on the AHCA exposed intra-party disagreement among Republicans in the House. And Republicans likely face an even bigger hurdle in the Senate, where they can only afford to lose two votes to pass legislation under arcane budget reconciliation rules. Thus, while we are likely to see continued discussions and possibly smaller pieces of ACA-related legislation potentially as part of tax reform or if Democrats start working with Republicans, the near-term prospects for large-scale legislative reforms to the ACA seem dim.

That said, the administration does have significant flexibility to take administrative action related to many of the issues that Republicans hoped to address in the AHCA. Certainly, they must comply with statute and in most cases would need to use traditional rule-making and waiver processes in such actions. Nevertheless, regulatory efforts may play a bigger role in the fate of the individual insurance market and the direction of Medicaid policy moving forward.

Fate of public exchanges in 2018 now likely hinges on cost sharing reduction subsidies and credible individual mandate enforcement

Given the reduced likelihood of a major overhaul, the most important areas of uncertainty for 2018 are the fate of individual mandate enforcement and subsidies for cost sharing reductions.

While some individual markets are facing dire public exchange challenges, on the whole the public exchanges are not necessarily displaying the tell-tale signs of a "death spiral" in 2017. And HHS has already proposed changes including tightening enrollment periods and adjusting actuarial value bands for plans. Health plans generally believe the changes will increase stability of the market in 2018, but even still the changes might not be sufficient for some health plans to stay in.

Looming even larger, market stability could be significantly eroded if the administration stops making payments to insurers for required cost sharing reductions to low-income consumers or decides to dial back enforcement of the individual mandate penalty. Continuation of the cost sharing subsidies is particularly tenuous given an ongoing lawsuit filed by House Republicans in 2014 that challenges the executive branch's authority to make the payments.

The administration has yet to comment on its plans for the two policies, but either move might significantly reduce insurer participation and premiums in 2018, leading to a jump in the number of uninsured. We anticipate better visibility into the future of the cost-sharing reductions within the next month.

Beyond 2018, potential congressional, administrative actions loom large

One of the reasons Republicans tried to pass the AHCA so quickly is because insurers need to begin making rate filings for 2018 relatively soon. At this point, any new legislative efforts would face timeline challenges in making further changes for 2018.

But beyond 2018, there are even more levers that Congress and the administration could use to dramatically impact the individual insurance market. Congress could consider legislation such as allowing subsidies to be used for coverage off-exchanges, allowing businesses to collaborate on "association" health plans and/or allowing insurance to be sold across state lines. As mentioned, the administration also has some flexibility to make changes via regulation, including adjusting rules around essential health benefits, risk adjustment, and grandfathered plans.

Inherent to these policy decisions is the question of what posture and political risks Republicans will take with regard to ACA implementation if they are not able to repeal the law. Their approach will become clearer in coming weeks and months, but has the potential to dramatically impact individual market enrollment and coverage levels.

Near-term outlook for Medicaid expansion funding improved significantly

Despite the persistent uncertainty in the individual market, the AHCA's withdrawal suggests high likelihood that federal funding for Medicaid expansion will continue for the near-term. For providers, the AHCA's proposed reduction in the federal match in state spending for new Medicaid enrollees would likely have produced the biggest financial hit to hospital margins. But the proposed reduction proved to be one of the sticking points for many moderate Republicans and it seems unlikely that Republicans would be able to get the votes to end the Medicaid expansion in the near-term.

Given the likelihood that Medicaid expansion will continue, we expect some non-expansion states to reconsider and possibly expand. Already, a number of states (including the Kansas legislature last week) are actively looking for ways to participate in the expansion. But expansion is by no means guaranteed: many governors maintain ideological barriers to expansion and some states might be hesitant to expand Medicaid with repeal discussions still swirling in D.C. and knowing that it would be politically challenging to ever roll it back should federal funding dwindle or fiscal problems emerge.

Notably, the Trump administration is likely to be far more open to the use of waivers for alternative approaches to Medicaid expansion that give states more flexibility in benefit design and reduce spending growth. Such approaches also often limit benefits and can indirectly reduce the number of beneficiaries.

One example of an alternative model is the Healthy Indiana Plan—designed partly by Vice President Mike Pence and CMS Administrator Seema Verma—which requires certain Medicaid enrollees to make small monthly contributions to an HSA-like account (currently 90% of enrollees continue to make contributions). Other approaches could include work requirements akin to the 1996 welfare reform legislation (as Arizona is already considering), partial expansion to 100% of the federal poverty level, or the adoption of block grants or per capita spending allotments that were central to the AHCA's Medicaid changes.

State-level policy will take on even new importance

In addition to waivers for Medicaid, the administration also has authority to issue waivers for states to customize their implementation of the ACA as long as the states can show that the changes would maintain comparable coverage levels and be budget neutral. Under these "1332 waivers," HHS could pursue efforts to modify ACA implementation even without congressional action by allowing states to make changes such as waiving the mandates, shifting subsidies to lower out-of-pocket costs, modifying reinsurance regulations, instituting high-risk pools, and adjusting to a degree essential health benefits.

Alaska has already applied for such a waiver to help stabilize its individual market and just last week the Republican-led Minnesota legislature voted to authorize the state to seek a waiver to bolster reinsurance funds for the state's individual market. Secretary Price recently encouraged states to consider such waivers. The potential for state-specific changes to the nongroup market and to Medicaid programs increases the importance to providers of engaging in state-level policy discussions.

Focus of federal policy will now shift somewhat toward reducing cost of care delivery

Finally, the withdrawal of the AHCA is likely to open the door to renewed policy discussions around reducing the cost of care. Moving beyond the ACA will allow these conversations—which were largely paused given the intense focus on the ACA—to restart. In particular, there is some level of bipartisan interest in addressing high prescription drug costs, increasing cost and quality transparency, and continuing implementation of new payment models and the Quality Payment Program under MACRA.

In addition, the looming Republican efforts around tax reform raise the threat of cuts to provider payments as an offset for tax cuts. For providers, the likely renewed focus on delivery system costs makes further cost efficiency an imperative.

Provider implications in the wake of the withdrawal of the AHCA

As we outlined following the election, we continue to recommend that providers focus on a few essential no-regrets strategies that will serve them well as policy continues to develop in coming months:

  • Be prepared to live under further cuts to public reimbursement. With the exception of increased possibility for Medicaid expansion in some holdout states, downward pressure on public reimbursement remains. Providers should double-down on cost-cutting strategies including reducing care variation and rationalizing footprint.

  • Develop an internal Medicare risk strategy. Payment reform in general would have been unscathed even had the AHCA passed. As MACRA implementation ramps up, providers need to have a deliberate strategy around Medicare risk.

  • Renew and revisit your physician alignment strategy. Given continued interest for alignment options among physicians, health systems will need to know with whom they want to work, in what capacity, and with which performance goals in mind.

  • Accelerate your investment in consumer-oriented care delivery. Although the AHCA might have accelerated the shift to a consumer-driven market, the industry already was experiencing a seismic shift toward these new market dynamics. Consumers increasingly demand easier and more-affordable access to care, and greater flexibility in payment options.

Your next steps to learn more

As the shape of further discussions and changes takes form in both Congress and the administration, we will continue to provide analysis about potential impacts on providers' financial health and clinical practice patterns.

Join Eric Cragun, Advisory Board's senior director for health policy, for a webconference on April 10 at 1 p.m. ET to learn more about what's next from Congress and the regulatory state.

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For guidance on how health system strategy should evolve in response to these changes, I encourage Health Care Advisory Board members to register for our upcoming 2017 CEO Roundtable Meetings, where we'll discuss the latest on the Republican health care agenda and the future of the ACA.

Please note that attendance at these sessions is limited to presidents, chief executive officers, and other C-suite executives.

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I look forward to working with our members as we seek to provide clarity amid the many uncertainties our ever-dynamic industry is likely to face over the next several months.

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