17 winners and losers under the ACA and 10 more thoughts and observations on the ACA so far

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As we look at the evolution of the Affordable Care Act there are clearly some positives and some negatives. By and large, we believe the ACA is not going away after the next election or for a long time. Thus, we thought we would take a moment to reflect on a few observations on the ACA. Some of the observations are new, some are not.

For instance, in an Oct. 30 article, Aimee Picchi wrote in The Fiscal Times, “Not surprisingly, Americans are split along partisan lines on the issue, with liberal Democrats more likely to support the law and conservative Republicans most likely to disapprove, according to the Pew Research Center.” 

17 winners and losers

Winners and losers; thriving and not thriving; getting rich and getting poor. The ACA, as much as any law in the modern era, has winners and losers. We group this into winners (6), losers (7) and neutral (4) so far. Winners, for example, include big health systems, certain types of managed care companies, big pharmaceutical companies, investment bankers who earn money from mergers of hospitals and companies and the large health IT companies. Losers, to name a few include smaller community hospitals, safety net hospitals (a mixed bag and perhaps more neutral than a loser as of now), independent practices and perhaps the working or relatively poor, who don't yet seem to be getting better coverage. Another net loser under the ACA is arguably the U.S. taxpayer and the U.S. investor who relies in part on investment income — these parties largely pay the added ACA taxes. 

In looking at who are winners and losers, it is not at all clear that those deemed winners and losers today will be the winner and losers five years or fifty years from now. Thus, these categorizations are subject to change. 

Six winners

Some of the big winners under the ACA are as follows:

1. President Barack Obama. We think it is hard not to think of President Obama ultimately as a winner at the time under the Obamacare mandates. While the law won't have the far reaching implications that the Social Security Act had, which was passed under Franklin D. Roosevelt, or the Medicare program that was passed under Lyndon B. Johnson, it seems as though the ACA will have a significant impact. As a signature piece of legislation that often — for good or bad — is called Obamacare, we think we have to overall deem President Obama a winner thus far. Given that the longevity of the act is not yet clear, and the polarization it has caused, the jury remains out on this. 

The near-term flipside to calling President Obama a winner is to point out that under the Obama presidency, the Democrats have lost 69 house seats, 12 governorships and 13 senate seats. Further, as costs add up for the ACA and healthcare costs do not come down, the long-term prognosis is not yet clear.

2. Large health systems. As the government moves more toward plans that favor those that are large enough and complex enough to handle large amounts of risk, the large health systems, which are consolidating significantly, are winners under the ACA. Further, regional systems that have dominance in their market also seem to be winners under the ACA.

3. Large pharmaceutical companies and device companies. Notwithstanding the device tax and all the pressure on pharmaceutical companies, the profits of the device companies and the pharmaceutical companies seem to be holding up fine. Further, the increase in people being added to the insurance rolls seems so far to offset the additional costs and taxes paid by such companies as well as the efforts to reduce costs.

4. Investment bankers. The onslaught of the ACA has led to a huge wave of consolidation amongst healthcare companies, hospitals and health systems and payers. In each one of these deals, there are investment bankers and consultants that are earning huge fees. Thus, net-net we view them as winners under the ACA.

5. Large health IT companies. The companies that have been the leaders in the EMR effort, such as Epic and Cerner, are huge winners under the ACA. Everybody needs an EMR and the amount spent on these systems is enormous with the biggest companies are receiving the lion's share of these dollars. 

6. Large insurance companies. It is unclear whether to put the large insurance companies in the winner or neutral category. On one hand, consolidation has made the remaining companies more powerful. At the same time, as large health systems have consolidated their own position of strength, the payer’s power has somewhat declined as some of those providers have become stronger and the balance of power has shifted to some of the larger provider chains.

Seven Losers

Some of the big losers under the ACA are as follows:

7. Smaller community hospitals.  Here, we consistently see both small community hospitals and rural hospitals being bought up by larger hospitals and health systems. Such smaller hospitals don't seem to have the clout or finances to compete for physicians, technology or to provide a plan or a needed element that is critical for larger payers and larger risk-sharing efforts. This does not mean that some small or innovative companies won't thrive.

8. Smaller practices. As the complexity of the business of medicine has changed, it is harder and harder for smaller practices to remain independent (and needed by payers) in the new world order under the ACA.

9. Smaller companies that sell into health systems. As there is greater consolidation amongst large companies and hospitals and health systems, smaller companies have a harder time selling into companies that require scale. In contrast, when there were 5,500 to 6,000 different independent hospitals and thousands of independent companies, it was easier for those parties to find customers albeit even if they are not as large of companies and systems. 

10. The FTC. The FTC, which was supposed to police monopolization and providers, can arguably be viewed as a loser under the ACA. It has seen system after system merge together and gain market power while the FTC has had little authority to change or stop them. Here, it has not been essentially brow beaten by the federal government and the Obama administration but it seems close to this.

11. Taxpayers. The costs of the ACA are largely borne by taxpayers in several different ways. The cost of the ACA is currently estimated at a net cost of $1.207 trillion dollars by 2025. Four of the most discussed provisions are increased tax rates, taxes on investment income, the individual mandate and the Cadillac tax.   

12. Physicians and the AMA. We view physicians as net losers as more and more efforts are made to take the everyday physician out of the driver’s seat in healthcare. More and more, many big systems and companies would seemingly like physicians to be a "cog in the machine" and not the driver. Here, the AMA has lost more credibility and power to other lobbying organizations. 

13. People not eligible for subsidies and tax credits. These people i.e., a large group of Americans, have seen higher total insurance and healthcare costs between higher deductibles and insurance.  See Section 6 and 9 below.  They also often bear the taxes added by the ACA.

Four neutral sectors

Some of the neutral parties under the ACA are as follows:

14. Safety-net hospitals. Here, we place in this context safety-net hospitals. Safety net hospitals have benefitted from seeing some of the uninsured move to the insurance rolls.  At the same time, pressure on reimbursement and the fact that not as many people as expected have signed up for the ACA, as well as the fact that disproportionate share payments will be reduced leads us to put safety-net hospitals in the neutral position. This may creep further into the loser category in the next few years.

15. Innovative new companies. We are starting to see the emergence of a great number of innovative new companies that are what everybody wants to refer to as the "Uber" of healthcare. You start to see them on the East and West Coast and in other areas of the country — companies like Oscar Health that are filling gaps in the healthcare system. With this eruption, there have been lots of opportunities for some of these new models to survive and thrive. We say neutral because we believe of the thousands of new companies, it is only a small percentage of them that will really end up thriving and developing a market niche or the critical mass needed to survive.

16. The economy. As discussed below (see Section 5 below), the overall impact on the economy of the ACA is not yet clear.

17. The poor. For the poor (broadly defined) it's a mixed bag. In some places they have coverage they previously did not have. However, with the narrowing of networks and more physicians and hospitals limiting access for governmental patients, the poor's access to care remains limited.  See “Will Narrow Networks Reduce Choice” below.

10 other thoughts and observations

1. Health system consolidation. The costs of the ACA in terms of layoffs and transition and disruption to healthcare systems have been immense. It is far more challenging for a community hospital to stay independent today than it used to be. The No. 1 concern indicated by community hospital leaders — even above healthcare reform and patient safety and quality — is financial challenges, according to a June report from iVantage Health Analytics. Rural hospitals are particularly vulnerable to closure. Out of 2,224 assessed rural hospitals, 283 or 13 percent were facing financial difficulties that could force them to close. Such hospitals in states that have not expanded Medicaid are under more financial pressure. The ACA has moved hospitals toward consolidation and it is not really clear whether this is a net positive in terms of cost or quality.

2. Insurance company consolidation and the impact on insurance costs. The ACA has also spurred a new round of insurance company consolidation that is likely to create more barriers to entry for new insurance companies and, again, unlikely to help further reduce healthcare costs. Here, the big five of Anthem, Aetna, United, Cigna and Humana are set to become three. Further, many of the smaller insurance plans formed or developed under the ACA are struggling financially. For example, citing low payouts from the risk corridor program, nine of the 23 insurance co-ops formed under the ACA have closed or will close by the end of the year, including Health Republic Insurance of New York, the nation's largest co-op.

The Wall Street Journal article “The Decline of ObamaCare” states:

"MLRs measure the share of premium revenue that flows to reimbursing medical claims. ObamaCare sets an MLR floor for 80 percent for patient care, with one-fifth left over for overhead like administration and profits, and the pre-ObamaCare 2010-13 historical trend for the individual market ranged from 79 percent to 86 percent. The researchers found that in 2014 — the first full year of claims experience in ObamaCare — average MLRs across all health plans sold on 16 state exchanges roamed from 90 percent to 99 percent.  Average MLRs in 11 states climbed to 100 percent or more, reaching as high as 121 percent in Massachusetts. A business can't stay solvent for long spending $1.21 for every $1 that comes in."

The Wall Street Journal reports that health insurers selling individual coverage lost an average of $163 per person in the insurance market in 2014.

3. Preexisting conditions. Most people are pleased that they have the ability to obtain coverage even if they have a preexisting condition. In the pre-ACA days, one with a serious condition could not get coverage unless they went to work for a large company or they were 65 or over or eligible for Medicaid. Previously, insurance companies maintained a long list of conditions that could result in an individual being denied coverage. A Congressional investigation while the ACA was still in debate uncovered more than 400 medical conditions and diagnoses that insurers used to justify a denied application for coverage, according to Wendell Potter's article "Why pre-existing conditions mattered… to millions," on HealthInsurance.org. Now, there is coverage available of some sort and one does not have to take a job that they don't want in order to have coverage. 

4. Impact on jobs and economic growth. The Fiscal Times notes that the impact on jobs is unclear. Here, Aimee Picchi reports:

"The early data doesn't support the fears from critics that employers would cut jobs and reduce hours, according to an October research paper from the Federal Reserve Bank of New York economist Maxim Pinkovskiy. After one year of implementation, 'it appears very unlikely that the ACA substantially reduced employment in the areas that could expect to be most affected by it,' he wrote. Still, he cautioned that the long-term impact 'remains to be seen.'"

Further, one might argue that the very slow recovery of the U.S. economy over the last few years is in part due to increased taxes and increased healthcare costs.

5. The total cost of insurance and healthcare. The total cost of care for a family has not decreased at all over the last few years. In fact, there has been a shifting of costs (and growth) to deductibles. Further, the ultimate cost of insurance has grown marginally and is projected to grow a good deal more. 

Insurance for a family of four might cost $12,000 with deductibles of $4,000 to $6,000. Thus, the total cost of care ends up being about $17,000 versus the $12,000 to $13,000 a few years ago.

It is increasingly apparent that coverage is becoming more costly for people than expected, even with subsidies. See, e.g. “ObamaCare is Lose-Lose for Mississippi; Premiums to soar 60% up the Yazoo While Mandate Tax Explodes," by Jed Graham, Investor’s Business Daily, October 29, 2015.

In an Oct. 26 Wall Street Journal article titled “Health-Care Premiums to Climb in 2016” by Stephanie Armour, she reports:

"The Obama administration said Monday that many consumers will see noticeable premium increases when buying health coverage on insurance exchanges in 2016, acknowledging for the first time what many healthcare experts had predicted. The price of the second lowest-cost midrange 'silver plan' — a key metric for premiums around the country — will rise by 7.5 percent on average across the three-dozen states that rely on Washington to administer the health law for them, federal officials said. And 60 percent of enrollees — across 30 of the largest markets in the U.S. — will see the average rate for that benchmark to rise by 6.3 percent, according to a Health and Human Services report on premium data that hasn't yet been made fully public. The higher premiums are likely to intensify Republican's claims that the health law isn't holding down costs. The Obama administration is urging customers to go back online during open enrollment, which begins November 1, and shop around to limit the impact of the premium hikes."

6. The uninsured. The extent of effort to reduce the number of people without insurance has moved but that movement in the right direction may be eroding. Originally, the CBO estimated that 20 million more people would have health insurance under the ACA. That number is probably closer to a net of 10 million people with coverage.

An Oct. 25 Wall Street Journal article titled "The Decline of ObamaCare" stated:

"This month the Health and Human Services Department dramatically discounted its internal estimate of how many people will join the state insurance exchanges in 2016. There are about 9.1 million enrollees today and the consensus estimate — by the Congressional Budget Office, the Medicare actuary and independent analysis like Rand Corp. — was that participation would surge to some 20 million. But HHS now expects enrollment to grow to between merely 9.4 million and 11.4 million."

An HHS survey found among the uninsured population, about half are between the ages of 18 and 34, and approximately two-thirds are in excellent or very good health. The survey shows three-fourths of uninsured people who are eligible for coverage under the ACA believe having coverage is important, but four out of five of those people say they cannot afford their share of the premiums, even with financial assistance, according to WSJ.

Another commentator stated in a July 9 Slate article titled "Obamacare's Bill is Due":

"The problem is simple. As Trudy Lieberman reported this month in Harper's, the ACA made a decent stab at solving the problem of Americans lacking insurance. Unfortunately, the bargain struck to get the bill to a point where lobbyists for the hospital, insurance, and pharmaceutical industries to sign on, or at least not fight it, did not adequately address the issue of overall medical costs."

In a July 25 New York Times article by Paul Krugman titled “Hooray for Obamacare,” he states in contrast:

"The Affordable Care Act is now in its second year of full operation; how's it doing? The answer is, better than even many supporters realize. Start with the act's most basic purpose, to cover the previously uninsured. Opponents of the law insisted that it would actually reduce coverage; in reality, around 15 million Americans have gained insurance.  But isn't that a very partial success, with millions still uncovered? Well, many of those still uninsured are in that position because their state governments have refused to let the federal government enroll them in Medicaid."

Currently, 20 states have not expanded Medicaid. 

7. Democrat versus Republican perspectives. The Democrats may state that if there are problems with the ACA it is due to the fact that the government might not have gone far enough in creating a single payor system. The Republicans might state the growth of the ACA has led to substantially increased costs to taxpayers and for healthcare without concurrent benefit. It is unlikely that the Republican administration of any sort would be able to wholly derail the ACA or repeal it. Further, if things become complex and expensive enough in healthcare, it could also actually create momentum for a dreaded single payor plan, which in some other countries has delivered anecdotally very negative care.

8. High deductible plans. The ACA has led — ironically enough — to significant growth in a long-term Republican tenet of healthcare reform, which is the use of high deductible plans and consumer driven plans. The Internal Revenue Service defines a high deductible plan for calendar year 2015 as a plan with an annual deductible of at least $1,300 for self-coverage only or $2,600 for family coverage. In reality, a great deal more companies use high deductibles and deductibles are often $5,000 plus today.

9. Will narrow networks reduce choice? Certain commentators are noting that the development of narrow networks may be harming poorer consumers the most. See, "How Obamacare Fails the Poor and Middle Class" by Scott W. Atlas. Here he stated:

"Despite the assertion that the law increases insurance choices, the Obamacare exchanges do quite the opposite for those dependent on them and their government’s subsidies. McKinsey reported 68 percent of Obamacare insurance options only cover narrow or very narrow provider networks, double that of the previous year. For cancer care, the majority of America's best hospitals in the National Comprehensive Cancer Network are not covered in most of the states' exchange plans. The 'narrow network' strategy is about to hit even more Americans in 2015, as Obamacare exchanges from California to New Hampshire further restrict access to top doctors and hospitals in an attempt to quell insurance premium increases caused by the law itself, according to an analysis by the Los Angeles Times. And a study in late 2014 commissioned by the prestigious American Heart Association determined that the specialists essential to diagnose and treat stroke, one of the most disabling and lethal diseases in the United States, are in severe shortage under Obamacare insurance exchanges plans. Indeed, unless one has the financial resources or power to skirt the new system, many of America’s top doctors and hospitals are no longer available."

10. Coverage — ability for those not eligible for Medicaid to obtain coverage. If you have a colleague, friend or family member that is out of work, and/or working but not eligible for Medicaid, it seems much easier to get health insurance coverage today under the ACA than it used to be. While the cost of a family plan has gone up significantly and often comes with high deductibles and sometimes mediocre coverage, families purchasing coverage through federal or state-run exchanges can do so at relatively rational rates. 

However, the affordability of the coverage can be challenging for those not eligible to subsidies. In a November 2, 2015 Wall Street Journal article titled "Health Law's Strains Show" by Anna Wilde Mathews, she reports:

"Peter Wainwright, 63 years old, who retired from a tele-communications job, currently has a plan bought on California's ACA marketplace. He and his wife don't get a subsidy and pay about $2,230 a month, and the rate is increasing for 2016.  'Everything has gone up,' said Mr. Wainwright, of Half Moon Bay, California."

The jury is still out on ACA. That said, there are clearly benefits and clearly negatives thus far.

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