Health Policy Report

The Week in Review

Lawmakers temporarily avoided a government shutdown by passing a two-week continuing resolution (CR) in both chambers last week, setting up Dec. 22 as the new deadline to fund the government. That effort is expected to be a lot more contentious as Democrats will be seeking policy concessions in exchange for their votes, most notably on the deferred action for childhood arrivals (DACA) program. Conservatives have also threatened to sink a possible package over the continued use of CRs and what they see as excessive government spending. The government funding fight will coincide with expected legislative packages addressing the expiration of funding for the Children’s Health Insurance Program (CHIP), the National Flood Insurance Program (NFIP), and a slate of so-called health care “extenders.”

Both chambers also approved motions to go to conference on the Republican tax reform bill. However, the move was not without some drama after House Freedom Caucus members initially withheld support for the vote due to Republican leadership’s continuing resolution strategy for government funding. The conservative group backed down from those threats, clearing the way for the tax bill conference, which is reportedly set to have its first official meeting on Dec. 13.

President Trump made a significant foreign policy decision last week by officially recognizing the contested city of Jerusalem as Israel’s capital and said the U.S. will begin preparations to move the embassy there. Recognizing Jerusalem as Israel’s capital and moving the U.S. embassy has long been a priority of many pro-Israel advocates, but previous presidents have avoided the move over fears that it could spark violent protests in the Middle East, undermine the fragile peace process between Israelis and Palestinians, and jeopardize America’s ability to serve as a neutral arbiter between Palestinian and Israeli negotiators. Some clashes have indeed broken out in the West Bank, the Gaza strip, and elsewhere in the Middle East, although so far they remain relatively minor.

Last week was also marked by a handful of congressional resignations over revelations of sexual misconduct. Sen. Al Franken (D-MN), Rep. John Conyers (D-MI), and Rep. Trent Franks (R-AZ) all announced their impending resignations last week, which will trigger special elections for their replacements in the coming months.

The Week Ahead

Little floor movement is expected on government funding or tax reform this week, although lawmakers are likely to continue their fervent behind-the-scenes negotiations. On tax reform, Republicans have reportedly made some progress on bringing the House and Senate versions closer together, but all eyes have been on Sen. Susan Collins (R-ME) given that her agreement to pass legislation stabilizing the Affordable Care Act (ACA) insurance markets to move in tandem with the tax reform legislation appears to be in jeopardy. House conservatives have opposed bipartisan efforts to stabilize the ACA markets and the White House has failed to commit to the plan. Republicans are aiming to bring the tax bill to the floors both the House and Senate during the week of Dec. 18 and will try to send the bill to the president’s desk before Christmas.

Floor action this week starts with judicial confirmation votes in the Senate. A cloture vote on the nomination of Leonard Grasz to join the Eighth Circuit is expected on Monday, with the nominations of Don Willett and James Ho to join the Fifth Circuit next in the Senate queue. In the House, lawmakers will consider measures (H.R. 1638; H.R. 4324) to target Iran’s interactions with the international financial system and a bill (H.R. 2396) that would make technical clarifications on privacy notices for financial services firms.

On Tuesday, Alabama is set to hold its special election to replace Jeff Sessions, who left the Senate earlier this year to become Attorney General. The contest pits Republican nominee Roy Moore, a controversial former chief justice of the Alabama Supreme Court who has faced allegations of inappropriate sexual relationships with minors, against Democratic nominee Doug Jones, a former U.S. attorney. In light of Moore’s scandals, the race is anticipated to be much closer than what would normally be expected for deep-red Alabama.

CVS Health Buys Insurer Aetna for $66 Billion

CVS Health announced last week that it will acquire health insurer Aetna in a proposed $66 billion buyout – the largest health care merger on record, and one that could have ripple effects across health care industries. If approved, the merger of the nation’s largest pharmacy and third-largest health insurer would effectively create an integrated health system with brick-and-mortar outposts within three miles of about 70 percent of Americans. With that in mind, this new health care giant breeds significant questions about the potential competitive advantages of a vertical merger, trends towards consolidation across the health care industry, the value of an integrated health system, and impacts for the pharmaceutical supply chain.

While leadership from both companies have promised a paradise of integrated health care and lower costs, historical precedence may suggest otherwise. Further amalgamation of the health care industry sparked by the merger could potentially have detrimental impact on competitiveness in the industry and there is little evidence to demonstrate that CVS’ previous commitments to their walk-in clinics have resulted in lower costs. Further, as more insurers look to expand their influence over the pharmaceutical supply chain, the merger isn’t expected to radically disrupt the work of pharmacy benefit managers or bring immediate lower costs to consumers.

The new health care empire would bring in an estimated $240 billion in annual revenue, and only Walmart would be larger in terms of money brought in by U.S. companies. The companies expect the deal to close in the second half of 2018, and Aetna shareholders will own approximately 22 percent of the combined company.

The deal is preceded by Aetna’s failed attempt to acquire rival insurer Humana for $37 billion, which was blocked by a federal judge after the U.S. Department of Justice challenged the pairing as a threat to competition in the insurance markets. That deal would have created the largest private Medicare insurer in the country. President Trump’s opposition to further consolidation of the healthcare industry, as voiced in an October tweet, could potentially spell trouble for the CVS-Aetna merger and shade the favorability of the agency responsible for conducting potential antitrust review. Additionally, Rep. Frank Pallone (D-NJ) has already asked House Energy and Commerce Committee Chairman Greg Walden (R-OR) to hold a hearing on the merger.

Continuing Resolution Included Short-Term CHIP Fix

Congress voted on a Continuing Resolution last week to extend government funding until December 22^nd and avoid government shutdown. House Republicans released the text (summary) of a two-week continuing resolution (CR) last week which included a single “policy rider” that would allow the federal government to continue directing funds to states for the Children’s Health Insurance Program (CHIP) through the remainder of the year.

The CR waives a proration rule in the current statutory formula to give the Centers for Medicare and Medicaid Services (CMS) flexibility to allocate currently-available redistribution dollars to any state that exhausts its federal CHIP funding. This change means CMS can make states whole with federal dollars through Dec. 31, 2017, even if a state has already received its original share of the redistribution funding under the current proration rule.

This newly-passed CR is just the first step in a series of contentious decisions in the coming weeks. Many of these decisions could come to a head in another CR before Christmas, which could serve as the vehicle for CHIP, health care ‘extenders,’ disaster relief funding, Obamacare market stabilization, a fix of the Deferred Action for Childhood Arrivals (DACA) program for the so-called Dreamers, and more. Many, including Hillary Clinton, argued that the language included in last week’s CR was a temporary fix and insufficient, and demand that real funding be included in the late-December funding bill.

Fate of ACA Mandate Repeal Hangs on Conference Discussion, Stabilization Funding Doubled

Representatives from both chambers of Congress will meet to reconcile the differences between the two GOP-lead tax reform bills, and while the House-passed tax bill did not include a repeal of the ACA’s individual mandate, the Senate version did.  Republican House members believe they have the support necessary to repeal the individual mandate, and the conservative Republican Study Committee (RSC) group is pushing for the final version of the bill to include the necessary language. The RSC recently sent a letter stating their request to House Ways and Means Committee Chairman Kevin Brady (R-TX) and Senate Finance Committee Chairman Orrin Hatch (R-UT) that has over 50 signatures. Rep. Mark Walker (R-NC), chairman of the RSC, previously filed an amendment to the House tax bill to repeal the mandate with more than 60 co-sponsors. House leadership originally avoided including the repeal in the version of the bill for fear that it would doom the success of tax reform in the Senate. President Trump has voiced his support for repealing the individual insurance mandate, as well.

Sen. Susan Collins started last week by doubling the amount of money she is requesting for her ACA stabilization bill in exchange for a guaranteed vote on the final tax-reform bill. Her bill, co-sponsored by Sen. Bill Nelson (D-FL), would supply states with $10 billion over two years to create high-risk pools or reinsurance programs in the effort to lower premiums. She had originally requested $4.5 billion. Senate Majority Leader Mitch McConnell (R-KY) said he would support passage of both bills, which could be added to the end-of-year spending deal. However, experts have said reinsurance would need at least $10 billion per year to effectively mitigate the effects of repealing the mandate.

House Speaker Ryan Promises ‘Entitlement Reform’ in 2018

Last Wednesday, Speaker Paul Ryan announced that House Republicans plan to introduce legislation next year to reduce spending on Medicare, Medicaid, and welfare programs funded by the government in an effort to trim the federal deficit. He claimed that cutting back entitlement spending was how Congress would “tackle the debt and deficit” as Medicare and Medicaid are the “big drivers of debt.” The House Speaker said he had been discussing the issue privately with President Trump, and reported he was warming to the idea of slowing spending growth in entitlements. Speaker Ryan commented Trump understood that “choice and competition” works for Medicare. Critics were quick to remind Republicans that Trump repeatedly promised he would not cut Medicare, Medicaid, or Social Security during his campaign. Ryan is one of a growing number of GOP leaders who have mentioned the need for Congress to cut entitlement spending next year, following support from Rep. Kevin Brady (R-TX), Sen. Marco Rubio (R-FL), Rep. Jeb Hensarling (R-TX), and Sen. Orrin Hatch (R-UT).

U.S. Health Care Spending Tops to $3.3 Trillion in 2016

Spending on health care in the U.S. amounted to $3.3 trillion last year, according to a report recently published by the Centers for Medicare and Medicaid Services (CMS). The report showed overall spending slowed in 2016 to 4.3 percent more spending as compared to 5.1 percent growth in 2014 and 5.8 percent growth in 2015. CMS officials attributed higher spending during those years to the expansion of Medicaid and private health insurance and “rapid” spending growth in retail pharmaceuticals. The report found that healthcare spending represented about 17.9 percent of the U.S. economy in 2016. Officials wrote that private health insurance spending grew by 5.1 percent to $1.1 trillion last year, while Medicare spending grew by 3.6 percent to $672.1 billion. Medicaid spending slowed in 2016, increasing by 3.9 percent to $565.5 billion