Health Policy Report

February 21, 2017

The Week in Review

The Senate worked to continue filling President Trump’s Cabinet last week, with successful confirmations including David Shulkin for Veterans’ Affairs Secretary, Linda McMahon for Small Business Administrator, Mick Mulvaney for Director of the Office of Management and Budget, and Scott Pruitt for Administrator of the Environmental Protection Agency. Both Mulvaney and Pruitt faced sharp opposition from Democrats, who have been keeping the Senate in session overnight in order to protest particularly contentious nominees, but neither nominee was ever in real danger of being blocked. The Senate also moved to approve a few House-passed resolutions rolling back Obama-era rules, including a measure (H.J. Res. 40) that blocks a rule mandating the Social Security Administration provide information on those receiving disability benefits due to mental health issues to the national background check system for firearm purchases.

Meanwhile the House continued its assault on the previous administration’s regulations per the procedures of the Congressional Review Act (CRA). Five measures were passed by the lower chamber last week, namely to walk back rules to drug testing of certain unemployment compensation applicants (H.J. Res. 42); (2) a predator hunting rule from the U.S. Fish and Wildlife Service (H.J. Res. 69); (3) federal funding of family planning services (H.J. Res. 43); (4) auto-enrolling employees in state-run retirement plans (H.J. Res. 66); and (5) allowing large cities and counties to set up auto-enrollment retirement savings programs (H.J. Res. 67).

The health policy action took place off the chamber floors as the Senate Finance Committee heard from Centers for Medicare and Medicaid Services (CMS) Administrator nominee Seema Verma and Republican leaders released a new plan to serve as a blueprint for repealing and replacing the Affordable Care Act (ACA). Both of those developments occurred on Thursday, and are broken down further in our roundup below.

Finally, the White House suffered its first casualty in the Cabinet confirmation process last week after Labor Secretary nominee Andy Puzder withdrew his name for consideration due to mounting opposition within the Republican caucus.  Puzder was the only Cabinet-level official who had yet to appear in front of a Senate panel and was always considered a troublesome pick given past controversies in his personal and professional life. President Trump named his replacement the next day, tapping former National Labor Relations Board (NLRB) member Alexander Acosta for the Labor Department post. In a longer-than-usual press conference following the announcement, the President touched on Republican plans to overhaul both the health care and the tax code, saying that he aimed for an ACA repeal bill to hit Congress next month.

The Week Ahead

Congress will be on a weeklong recess for President’s Day this week, with Commerce Secretary nominee Wilbur Ross first up in the queue to be confirmed when the Senate returns on Feb. 27. With Congress out and the Trump Administration still filling key agency roles, there will only be a smattering of events in Washington. Watch for lawmakers’ in-district town halls across the country to generate the headlines as liberal activists try to flood the events in an effort to preserve the Affordable Care Act and speak out against some of President Trump’s more controversial executive orders.

House Leaders Provide New Details About ACA ‘Repeal Plus’ 

In a meeting last Thursday, House Republican leaders laid out their most detailed snapshot to date of their plans to repeal and replace the Affordable Care Act (ACA) in a policy brief distributed to members The plan offers a stark contrast to the ACA, with provisions that include a major restructuring of Medicaid to cap federal payments, an expansion of both health savings accounts and high-risk pools, as well as the immediate repeal of penalties for violation of ACA’s individual and employer mandates. House Speaker Paul Ryan noted that Republicans plan to begin  legislative work on the plan after the President’s Day recess. However, Speaker Ryan also acknowledge that the GOP plan is neither in legislative text, nor has it been scored by the Congressional Budget Office (CBO).

The policy brief says the GOP will repeal all of the ACA’s taxes, including the tax on health insurance premiums, as well as prescription drug and medical device fees.  The plan would also reverse the “medicine cabinet tax,” a provision that prohibits people from using flexible spending or health savings accounts to purchase over-the-counter medication, as well as the ACA's reductions in the threshold for deducting medical expenses taxes. The GOP-backed plan would also repeal cuts to disproportionate share hospitals (DSH) – a key demand for hospital groups.

The ACA reconciliation bill also seeks to scale back the ACA’s subsidies and replace them with a universal, portable refundable and advanceable tax credit.  The credit would be age-adjusted and grow over time; the policy brief does not, however, offer any specific figures. During the transition period, the penalty taxes for the individual and employer mandates would be zeroed out, and individuals eligible for the ACA subsidy would be able to use their credit for catastrophic plans – which is currently prohibited under the ACA.

Absent from the plan is a mention of Medicare – a precarious issue given President Donald Trump’s campaign promise not to touch the program. Additionally, details on how this plan would be funded remain scarce. House Ways and Means Chairman Kevin Brady (R-TX) noted that one option would be to cap the tax exclusion on employer-sponsored insurance, meaning more generous employer-based insurance plans would be subject to taxation. Additional dollar figures – as well as buy-in from weary members of the conference – are crucial for the GOP-sponsored plan to become law.

House Conservatives Push for ACA 'Repeal' Before 'Replace' 

As House leadership crafts a plan to include key provisions of an ACA replacement in a repeal bill, House Conservatives – led by both the House Freedom Caucus and the Republican Study Committee (RSC) – rolled out a new tack last week that threatens to splinter the fragile House Republican Caucus. At a meeting last Monday, the roughly 40 members of the Freedom Caucus voted to “support only an Obamacare repeal that is at least as aggressive as a bill the House and Senate passed in 2015.” Freedom Caucus Chair Mark Meadows (R-NC) detailed the Caucus’s position in an interview on C-SPAN, saying that “there is no reason for Republicans to send anything less on repeal to President Trump’s desk than we did President Obama’s desk.”

This development comes as GOP leaders play a careful balancing act, and are been contemplating the framework of an ACA replacement package – dubbed ‘repeal plus’ – which could be passed using reconciliation procedures to appease moderate Republicans (including many in the Senate) who may not vote for a straight repeal. The 2015 repeal bill also gets rid of the Medicaid expansion, which Republicans from expansion states are unlikely to support without a replacement. If ‘repeal plus’ doesn’t fly with a significant majority of the House Republicans – as it appears might be the case here – the repeal effort as a whole could be jeopardized.

Despite the consternation on tactics, Republicans across the ideological spectrum remain committed to repealing and replacing the ACA. This key point alone makes it much more likely than not that the GOP will eventually be able to push a repeal bill through Congress. But if the Freedom Caucus remains steadfast in their commitment to bifurcate ‘repeal’ from ‘replace,’ significant procedural and practical hurdles could complicate their legislative efforts, and could sow legitimate seeds of doubt in the path forward for healthcare reform.

Trump Administration Proposes ‘Market Stabilization’ Rule

Last Wednesday, the Trump administration proposed regulation aimed at stabilizing the ACA Exchanges by making changes favorable to insurers to help prevent them from leaving the marketplaces or hiking premiums. This move comes as the administration positions itself to temporarily shore up ACA’s marketplaces while Congress develops and debates repeal and replace plans.

The regulation, which could be finalized over the next several weeks, offers several changes that insurers have long pushed for, including: (1) require pre-enrollment verification for all people using a special enrollment period (SEP); (2) require anyone re-enrolling through a SEP after previously dropping an exchange plan to choose the same metal tier; (3) shorten the open enrollment time-frame; (4) loosen the minimum actuarial value by allowing plans to vary by 4 percent, rather than 2 percent; (5) ensure consumers pay old debt prior to re-enrolling in the same plan; and  (6) eliminate federal review for network adequacy.

News of the proposed regulation was applauded by key insurance-industry stakeholders, including America’s Health Insurance Plans (AHIP) and the Council for Affordable Health Coverage (CACH). Congressional reactions, meanwhile, were strongly partisan. Democrats criticized the proposed rule as further proof that the administration is aiming to sabotage the existing market, whereas Republican praised the Trump administration for taking steps to shore up the marketplace.

Insurers Cast Doubt on Exchange Viability Beyond 2017

As lawmakers continue to debate ACA “repeal and replace,” numerous health insurance companies are taking stock of their role in the exchange beyond 2017. With uncertainty looming as Congress and the Trump Administration work to coalesce around a concrete replacement plan, Humana announced that it would become the first major insurance company to pull out of the Exchanges for 2018, citing unbalanced risk pool as its reason for the departure. The announcement was coupled by fresh criticism from two other health insurance titans within the exchange: Aetna and Molina.

Aetna CEO Mark Bertolini classified the ACA as being in a “death spiral,” noting that “it’s not going to get any better; it’s getting worse.” This criticism falls on the heels of Aetna's failed acquisition of Humana. The two companies announced Tuesday they would abandon the deal instead of appealing a federal judge's decision to block the merger. Aetna’s resistance to the ACA is not new, as the company scaled back its participation in the ACA Exchange market last year.

Molina Healthcare – a company that has offered support for the ACA in the past – also cast doubt on its future participation in the program. CEO Mario Molina cited “too many unknowns with the marketplace program” to commit his company’s participation in the program beyond 2017. Molina reported a $110 million loss on its exchange business after it was expected to net a profit in the ballpark of $60 million. The company noted that it wants to see changes to marketplace rules before it decides whether to continue competing next year.

CMS Administrator Nominee Talks Medicare, Medicaid, Drug Pricing at Confirmation Hearing

Senators from both sides of the aisle of grilled Seema Verma, a health consultant from Indiana, during her confirmation hearing to become President Donald Trump’s Administrator of the Centers for Medicare and Medicaid Services (CMS). The hearing provided keen insight into the nominee’s plans for Medicare and Medicaid reform, as well as drug pricing. However, Ms. Verma offered few specifics on the types of reform she will pursue as the head of CMS.

Ms. Verma told the Senate Finance Committee that one of her first priorities will be re-assessing a rule issued under the Obama administration that required states to more vigorously supervise the adequacy of plans' provider networks and encouraged states to establish quality rating systems for health plans. Ms. Verma noted that she wants to determine whether the rule would burden states. She twice stated that she does not support a proposal favored by HHS Secretary Tom Price to covert Medicare to a voucher program as a way of ensuring the program's financial solvency – a likely signal that the Trump team has approved of her position. Additionally, Ms. Verma seemed open to GOP-backed proposals that would convert Medicaid into a block grand or per capita system, noting that the current system does not ensure greater access or improved health outcomes.

Democrats on the panel grew weary of Ms. Verma’s lack of specificity on key health policies, specifically with respect to Medicare. Ms. Verma has little experience with the Medicare program, which led to a point of contention during her hearing last week. Senate Democrats honed in on her lack of knowledge on “Medicare extenders” – a set of policies and tax preferences need to be renewed by Congress regularly – as well as her stances on drug pricing issues. Despite headwinds from the minority party, Ms. Verma is largely expected to be confirmed by the full Senate.