The 2012 Elections and it’s Impact on Healthcare Policy

Last week, in another historic Presidential election, Americans reelected President Barack Obama in a decisive victory that will lead to the continued full implementation of the landmark Patient Protection and Affordable Care Act (PPACA or ACA).  The Senate will remain in the control of Democrats, adding several more seats.  The House, however, will remain in Republican control—making it very difficult to overturn or change any piece of the ACA in the upcoming Congressional session.   

Shares in hospitals and other healthcare companies that will benefit from the health reform law jumped last week, but health insurers fell as the law sets limits on their profits and sets mandates on coverage. 

Big pieces of the ACA will be moving forward—including the Medical Loss Ratio (MLR) for insurance companies; coverage of pre-existing conditions; insurance for 26-year-olds; and bans on lifetime limits for insurance coverage.  It also means that the Patient Centered Outcomes and Research Institute (PCORI), which will carry out and offer grants for comparative effectiveness research will continue.   

Importantly for the Senate, there will be four (4) openings on the Senate Finance Committee, which oversees all of the federal dollars spent on health care; one opening on the Senate Health Education Labor and Pensions (HELP) Committee; and the Special Committee on Aging will be losing its Chairman Herb Kohl (D-WI)—who was co-author of the Physician Payment Sunshine Act—which we are watching closely for the final regulations.   

In addition to these policies and changes, Congress and the Obama administration must also face the Physician Payment Fix, or Sustainable Growth Rate (SGR)—which is scheduled to shrink by 29.5 percent on January 1, 2013—and another debt ceiling fight.   

Many health agencies will be affected by the President’s re-election.  Below is a summary of some of the major shifts in personnel, as well as some analysis and projections for how the ACA will continue to be implemented, including dates and important deadlines.  Analysis comes from several news stories, appropriately references, as well as DC based healthcare lobbying firm Thorn Run Partners and law firm SNR Denton’s 34-page report on what’s ahead for the 113th Congress and the Obama Administration over the next four years.

With many proposed and finalized regulations set to be issued in the next few weeks by many federal health agencies, such as the Centers for Medicare and Medicaid Services (CMS), the Office of the National Coordinator for Health Information Technology (ONCHIT), and the Department of Health and Human Services (HHS), healthcare stakeholders will have their hands full.  Rules and regulations will include and issues affected by the election include: 

Medicare 

• Sequestration – Medicare could be cut by two percent
• 2.3% Medical Device Tax
• Health Plan Provided Tax – The ACA included a health plan tax to fund part of the ACA.  Health plans serving public programs (Medicare, Medicaid and CHIP) are very concerned about the impact of the tax and want to be carved-out from the tax. 
• Medicare Part D Rebates –The Congressional Budget Office (CBO) has scored additional rebates in the Part D program as a savings well over $100 billion to the federal government; Average Sales Price (ASP) – Adjustments in the formula could be made to generate budget savings.
• Independent Advisory Board (IPAB) – with Democrat gains it is unlikely to be repealed.
• Reauthorization of Medicare Advantage Special Needs Plans (SNPs) – authorization for the program expires at the end of 2013.  However, to ensure the 2014 contract year can proceed, Congress must act to extend authorization by early 2013.  MedPAC has recommended changes to the program.
• The Medicare Competitive Bidding Program for durable medical equipment is set to expand drastically in 2013, although some are working to postpone its implementation or replace it entirely.  

The ACA will also include $716 billion in Medicare cuts. That’s a major source of funding for the law’s expanded health coverage, and it comes mainly from trimming Medicare payments to providers and paying less to Medicare Advantage plans in high-spending areas.  The catch is, about 70 percent of the first wave of Medicare Advantage cuts are effectively being masked right now through a separate program giving plans quality bonus payments, according to the Government Accountability Office.  Over the next two years, the bonuses offset less of the law’s cuts. 

Medicaid 

• States making final decisions on Medicaid expansion to all persons with incomes below 133 percent of the federal poverty level.  The ACA provides 100 percent federal funding for 2014, 2015 and 2016.  In 2017 the rate begins to decrease, but never below 90 percent.  However, some are concerned this commitment could be altered.
• Medicaid Per Capita Caps, Block Grants or a Blended Federal Rate – As part of entitlement reform discussions, it is possible Congress could alter the formula used to determine how much funding states receive for their Medicaid programs.
• Medicaid Provider Taxes – Proposals to reduce the cap on provider taxes, thus limiting the amount of funding they can generate, have been advanced by the Simpson-Bowles Commission and others.
• Duals Demonstrations – The Centers for Medicare and Medicaid Services (CMS) is expected to proceed to the roll out of the demonstrations projects in 26 states to integrate Medicare and Medicaid benefits and services for dual-eligible beneficiaries. 

A handful of red-state governors, like Texas Gov. Rick Perry and Florida Gov. Rick Scott, have ruled out expansion. 

Insurance Exchanges 

The insurance exchanges are marketplaces, run either by the state, the federal government, or both, where people can get insurance coverage if they do not have insurance through their employer or a government program like Medicare.  Of course, if an individual does not have health insurance they will be penalized or taxed—unless they fall in one of the several exceptions, which are mostly related to income and poverty levels and the ACA provides grants or subsidizes such persons insurance.  The Congressional Budget Office has already raised its cost estimates for the subsidies by $112 billion — to $574 billion between 2012 and 2019 — before they even start. 

The first year, the penalty for ignoring it is only $95, or 1 percent of income, whichever is greater.  But the health plans have to start covering everyone with pre-existing conditions in 2014.  The penalties rise by 2016, but that makes two years that the insurers have to take in everyone, before the higher penalties help bring more healthy people their way. 

• States must indicate by this Friday November 16, 2013 the type of exchange they plan to operate – state, partnership or federally facilitated.
• Those states that have not chosen their exchange benchmark health plan are expected to do so by November 16, 2012 (the original deadline was October 1).
• The Center for Consumer Information and Insurance Oversight (CCIIO) must certify by January 1, 2013 whether a state is ready to pursue a state exchange.
• Numerous regulations governing state health exchanges are needed to allow states to create or finalize their exchanges.
• Some have suggested federal subsidies for persons receiving coverage inside of the health insurance exchanges could be reduced during deficit negotiations. 

According to POLITICO, 13 states and the District of Columbia have said they’ll definitely set up their own exchanges, and there are “somewhere between 20 and 30” states that could either build them or seek partnerships, citing to Joel Ario, managing director of Manatt Health Solutions and the former director of the HHS Office of Health Insurance Exchanges.  The rest will let the feds do it.  Here’s a map of states from Kaiser.  

There is a lot of risk that comes with the exchanges.  “To be successful, the health exchanges have to attract a mix of healthy and sick people so that the costs balance out.  There’s a risk that some won’t attract enough healthy people.  That means the people who do join will be those with health problems — leading to high premiums and the “rate shock” Holtz-Eakin warned about.”   

How it’s shaping up should be clear when enrollment opens next October. Kaiser’s Altman expects a mixed verdict, because states are so diverse.  “There will be great success stories and there will be failures, and a lot of state exchanges that will fall somewhere in the middle,” he said. 

There is also the numerous surveys and reports showing that many employers will decide its cheaper to stop covering their workers, pay a fine, and let them get coverage through the exchanges instead.   

HHS 

Many speculate that HHS Secretary Kathleen Sebelius will remain in office, particularly because holding another hearing on the Senate to confirm a new Secretary would open the door for Republicans to make continued criticisms of the ACA. 

Food and Drug Administration (FDA) 

Most also speculate that FDA Commissioner Margaret Hamburg is expected to stay at least through the first year of Obama’s second term, which is typical for senior staff.  Some speculate that Hamburg’s continued presence will mean continued scrutiny of manufacturers, and a continued focus on stepping up the pace of drug approvals.   

Several of Hamburg’s senior advisors have already shifted positions.  Jeannie Ireland has changed jobs and David Dorsey, a former Kennedy staffer, has moved out of Director in the Office of Policy—the regulations writing office.  Center for Drug Evaluation and Research (CDER) Director Janet Woodcock, and John Jenkins, head of CDER’s Office of New Drugs, are expected to stay in place, at least for now.  These folks are key to the pipeline for new drugs, which has been operating quite smoothly during the reign of Commissioner Hamburg.  Rachel Behrman, who supervises the Office of Prescription Drug Promotion (OPDP), also is expected to remain, which likely will lead to few changes in the OPDP staff or policies.  

Forbes did a good article on the outlook of the election for pharma and a historical look at FDA during Obama’s first term.  FDA Matters also did a good analysis of what the agency would look like after the election.  

On the Horizon  

There is a good possibility of a “lame duck” session in Congress. Without a deal on the “fiscal cliff,” the sequestration of government staff funds could cause huge layoffs throughout government, including FDA’s CDER—and up to $300 million at FDA.  Assuming that at least a short-term solution is found to avoid the “fiscal cliff,” the larger debate on the reform of the corporate tax code will begin in 2013.  

The Coalition for Healthcare Communications expects pressure on privacy from Senate Democrats and Obama appointees who will continue efforts  to limit the marketing use of data collected online.  Sen. Jay Rockefeller (D-WV), the most aggressive Member seeking limits and explicit op-out rules, will continue as the key chairman of the Senate Commerce Committee. On the other hand, two major industry supporters won re-election to the Senate: New York’s Kirsten Gillibrand and Kansas’ Claire McCaskill.   

Meanwhile, the House Commerce Committee leadership, which largely is supportive of the self-regulatory privacy program, will see few Member or staff shifts.  However, senior staff members who favor privacy rules are expected to remain in control at both the Federal Trade Commission (FTC) and the Department of Commerce. 

In addition to these issues, Liberty University is challenging the constitutionality of the ACA provision that requires most businesses with more than 50 workers to provide health coverage or pay a fine—and has vowed to fight all the way to the Supreme Court.  There are also numerous lawsuits regarding the mandatory requirement that insurance cover contraception.