Health Policy Report

The Week in Review

In Washington and abroad, last week brought unprecedented action that caught most political analysts by surprise. On Thursday, the United Kingdom (UK) shocked the world by voting to leave the European Union (EU) in a highly anticipated public referendum. The move brought turmoil to global financial markets, forced British Prime Minister David Cameron to announce his resignation, and has induced renewed calls in Scotland for independence from the UK. Although negotiations for the UK to formally leave the world’s largest economic and political union will take years, the referendum’s result is likely to have cascading effects on both sides of the Atlantic and could play a role in November’s general elections in the United States.

Earlier in the week, House Democrats made their own historical move by staging a sit-in in the well of the House floor over the chamber’s inaction on gun control in the wake of the mass shooting in Orlando, Florida. The protesting lawmakers held the floor for 25 hours in an attempt to force votes on two bills: H.R. 1217, which would establish background-check requirements for gun show purchases, and H.R. 1076, which would prohibit individuals on the FBI’s terrorist watch list from being able to purchase guns. In response, House Republicans elected to recess for the July 4 holiday early, but not before holding votes around the sit-in on a handful of measures. Namely, the chamber approved a conference report to the Military Construction-VA spending bill (H.R. 2577) – which includes a Zika funding package – and failed to override President Obama’s veto of a resolution (H.J.Res. 88) that would nullify a recent Labor Department rule requiring financial advisers to act in their client’s best interest.

The Senate struggled with its own gun control proposal as a compromise solution pushed by Sen. Susan Collins (R-ME) was considered as an amendment to Commerce-Justice-Science spending legislation (H.R. 2578). An initial motion to table – a procedure which is meant to gauge support for a measure – was approved by a slim majority of senators, but remained well short of the 60-vote threshold necessary for a provision to be included in the underlying legislation.   

The Week Ahead 

With the House already in recess for the July 4 holiday, the Senate is set up for a busy week. On tap is consideration of the Commerce-Science-Justice spending bill, a Military Construction-VA appropriations bill that includes Zika funding, a House-passed measure addressing Puerto Rico’s debt crisis, and a compromise bill that would create the first nationwide standard for labeling foods containing genetically modified organisms (GMO). Senators will be hoping to finish consideration of the C-J-S bill quickly, with Democrats and moderate Republican Sen. Susan Collins (R-ME) poised to fail in their efforts to include a compromise solution on gun control in the underlying bill (H.R. 2578).

Senate Majority Leader Mitch McConnell (R-KY) has already scheduled a cloture vote for tomorrow on the Military Construction-VA spending bill (H.R. 2577) that includes a Zika funding package. The Zika funding plan includes $1.1 billion of the $1.9 billion President Obama requested to fight the mosquito-borne virus, with about half of that total paid for by budgetary offsets. Senate Democrats have signaled they may oppose the bill over funding levels and contentious policy riders, and the White House has already issued a veto threat over the use of Ebola cleanup funds as an offset.

With Puerto Rico due to make a $2 billion debt payment on July 1, Senate lawmakers will be hurrying to consider a House-passed measure (H.R. 5278) that would provide relief to the island territory. The bill, which would set up a financial control board and allow Puerto Rico to restructure its debt, passed with significant bipartisan support in the House, but faces skeptical Democrats in the Senate led by Sen. Robert Menendez (D-NJ). The New Jersey senator has pledged to do everything procedurally possible to ensure that Democrats can offer amendments to the bill.

Finally, the Senate may get to a compromise bill (bill text) that would set a standard for identifying GMOs in grocery items, but exclude labeling requirements for beef, pork, poultry, and eggs. 

House GOP Reveals ACA Alternative

Last Wednesday, House Republicans outlined their vision for repealing and replacing the Affordable Care Act (ACA)— a package of proposals that they said would slow the growth of health spending and relax federal rules for health insurance.  The 37-page proposal from House Speaker Paul Ryan and GOP committee chairmen erase the 2010 health law’s insurance mandates and government-run exchanges in favor of incentives for joining private market plans. It also embraces longtime Republican policy goals, such as allowing insurance companies to sell policies across state lines, and calls for high-risk pools to provide coverage for sick Americans who are priced-out of the private market. The GOP health care plan proposes an age-adjusted tax credit to help offset the costs of buying insurance for those who don’t receive coverage through their employers or government programs, in place of the ACA’s income-based approach. It also rolls back Medicaid expansion under the ACA and restructures Medicare to permit seniors to buy private insurance plans with subsidies or vouchers.

Republicans began the “repeal and replace” mantra almost as soon as the health law was signed in 2010, and while they have voted dozens of times to repeal the health law, the replacement has been elusive. The White House and other supporters of the law attacked the GOP proposal as insufficient. House Republican leaders didn’t say how they would go about unwinding parts of the law that have already been enacted. That has been a contentious matter for GOP lawmakers, and they have also been divided over how much of the law, if any, to try to retain. But in their new plan, Republicans said they would preserve key elements from the Affordable Care Act, including a guarantee that sons and daughters would be able to stay on their parents’ health plan up until the age of 26. GOP aides acknowledge the plan is missing some details, but they say it's designed to lay the groundwork for legislation that lawmakers would hash out after President Obama leaves office.

Trustees Project Medicare Insolvency in 2028, Two Years Earlier than Last Year; IPAB Not Triggered

Last week, the Medicare Trustees issued their highly anticipated annual Medicare report for 2016. The report projects that Medicare’s Hospital Insurance Trust Fund will remain fully funded until 2028, which is 11 years longer than was projected in 2009 (before the passage of the Affordable Care Act (ACA)), but two years earlier than in last year’s report. In a closely watched section of the report, the Trustees project that the ACA-authorized Independent Payment Advisory Board (IPAB) target has not been exceeded for 2016. The Centers for Medicare and Medicaid Services’ (CMS) Chief Actuary simultaneously today issued the 2016 determination confirming that IPAB has not been triggered in 2016. However, reinforcing last year’s projection, the Trustees note that the “first determination that the Medicare per capita growth rate exceeds the per capita target growth rate is projected to be made in 2017.”

The report notes that per-enrollee Medicare spending has been low, averaging just 1.4 percent over the last five years, which is slower than GDP per capita and overall health expenditures per capita. In contrast, the Medicare Trustees report that Part B and Part D costs have averaged annual growth of 5.6 percent and 7.7 percent respectively over the last five years, which is higher than the growth of GDP and overall health expenditures. Over the next five years, the projected average annual rate of growth for the U.S economy is five percent, which is much slower than the projected growth rate for Part B (6.9 percent) and Part D (10.6 percent). Part D short-range projections are higher than in the past, largely due to a higher projected drug cost trend, particularly for specialty drugs. 

The ACA requires the IPAB to submit proposals for spending reductions if the projected rate of growth in Medicare spending per beneficiary exceeds a target growth rate. Since 2013, the Chief Actuary at CMS has been required to determine these growth rates. Consistent with previous years, the 2016 determination is that the target growth rate has not been exceeded (Medicare: 2.21 percent; target: 2.33 percent). However, in a chart on p. 182 of the Trustees’ report, the Trustees project that 2017 will be the first year in which Medicare’s capita growth rate exceeds the target (Medicare: 2.82 percent; target: 2.62 percent) thus triggering IPAB. This would portend proposals in 2018 and implementation in 2019. According to the table of projected growth rates, IPAB would next be projected to exceed the target in 2022 (Medicare: 4.80 percent; target: 4.78 percent).

Ominously, the Trustees note that Medicare still faces a substantial long-term financial shortfall that will need to be addressed through congressional action. The suggested legislation should address the projected growth in Medicare expenditures and should be enacted “sooner rather than later to minimize the impact on beneficiaries, providers and taxpayers,” the Trustees recommend.

Democratic Senators Urge DOJ to Block Aetna-Humana and Anthem-Cigna Mergers

Last week, seven Senate Democrats sent a letter to the Department of Justice (DOJ) urging officials to block the pending mergers between health insurance giants Aetna and Humana, and Anthem and Cigna. Sen. Richard Blumenthal (D-CT), who led the letter, said such mergers would kill jobs, increase health care costs and lower quality. Blumenthal was joined by Democratic Senators Al Franken (MN), Elizabeth Warren (MA), Sherrod Brown (OH), Edward Markey (MA), Dianne Feinstein (CA) and Mazie Hirono (HI).

The Senate Judiciary Committee, on which Blumenthal sits as a member, held a hearing on the potential effects of the insurance mergers on the market last year. “These mega mergers have potentially far-reaching and severely harmful effects in Connecticut, but they raise issues of national importance as well,” he told reporters. “The anticompetitive effects are severe, and the harm to consumers would be direct and immediate.” The mergers, or even just one of them, would “make an already concentrated market significantly less competitive,” the Senators wrote. And they pointed to scant evidence of cost-savings if the mergers go through.

Although state insurance regulators cannot stop the deals, their opinions are often considered influential, as the companies try to win antitrust approval from the DOJ. So it was noteworthy that last week, California’s Insurance Commissioner, Dave Jones, urged the DOJ to reject the propose $37B Aetna-Humana merger. As if to exemplify the closeness of this merger approval decision, however, Jones’ decision came on the heels of a “thumbs up” from California’s other insurance bigwig, managed-care regulator, Shelley Rouillard, who serves as director of the state Department of Managed Health Care. She announced earlier in the week that she had reached an agreement with Aetna that would help keep future rate increases to a minimum and improve the quality of patient care in exchange for her support of the merger.

Two weeks ago, Jones also rejected Anthem Inc.’s $54 billion acquisition of Cigna Corp. and asked the Justice Department to stop the deal as anti-competitive. Rouillard said she’s still reviewing the Anthem-Cigna merger but didn’t give any timing for that decision. Indeed, industry analysts have grown more pessimistic about the Anthem-Cigna deal clearing regulatory scrutiny in Washington, D.C., due to antitrust concerns and internal management conflicts, although they remain slightly more upbeat about the prospects for Aetna’s transaction. “There are elements that are similar across mergers, but each one also has unique characteristics,” Roulliard said last Monday.

House Approves Zika Conference Report Funding

Last Thursday, House Republicans approved a spending bill that includes a controversial $1.1 billion plan to fight the Zika virus in a late-night vote over Democratic protests. The 239-171 vote occurred amidst a dramatic sit-in protest by dozens of Democrats demanding votes on gun control bills. The funding package includes $476 million to CDC for mosquito control; $230 million to NIH for vaccines; $165 million to the State Department and USAID to respond to outbreaks overseas, and $86 million for emergency response research through the Biomedical Advanced Research and Development Authority. The package is offset by about $750 million from unspent Ebola and Affordable Care Act funds, in addition to another $100 million from HHS's administrative fund. GOP aides noted that the compromise package included the same level of funding as the Senate’s package, which had earned Democratic support.

But the new plan also covers its costs using the same controversial measures included in the House GOP’s $622 million Zika virus plan, which President Obama has threatened to veto. The conference report now heads to the Senate for a vote, where it's expected to face resistance from Democrats over funding levels and reproductive health language. Senate Minority Leader Harry Reid (D-NV) keyed in on the deal’s language reiterating existing "strong legislative protections" against the use of federal funding for abortions. Reid and other Democrats said Wednesday they would refuse to sign the bicameral conference committee report, which also covers appropriations for the Department of Veterans Affairs and military construction.

Health Spending $2.6 Trillion Less than Expected

According to a new study, the U.S. is on track to spend $2.6 trillion less on healthcare over six years than previous projections indicated— a reduction in projected spending of almost 13%. The analysis from the Urban Institute shows how projections of U.S. healthcare spending growth have come sharply down since the Affordable Care Act's enactment in 2010. The report suggests that the slow recovery from the recession is one reason for the lower-than-expected health spending. But a range of reforms in how Medicare pays for healthcare, set in motion by the ACA, also could be playing a role, the report says, though the causation is not definite. The study points to other reforms stemming from health law, including financial penalties for high rates of hospital readmissions, or “accountable care organizations,” which are groups of doctors that are paid in part based on their ability to save money and achieve healthier outcomes for patients.

The study also suggests other factors not foreseen in 2010 that could have contributed to a growth rate slower than anticipated. Projections for Medicaid spending are down because of the 2012 Supreme Court decision that allowed states not to expand their programs under the ACA, while the 2011 Budget Control Act — which mandated a 2 percent reduction in Medicare payments — may be curbing that program’s spending growth. But the report still suggests that the ACA could be helping to flatten the spending curve in unexpected ways, including the effect certain Medicare regulations have had on other payers, and how premiums in the ACA exchanges were lower in their first few years than predicted.