Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

The ever-shifting debate over the future of U.S. health-care policy took its oddest turn yet last week -- toward something that might actually help the health-care sector. 

Should the Senate's effort to repeal and replace the Affordable Care Act fail, then the only recourse might be a bipartisan fix of Obamacare, Senate Majority Leader Mitch McConnell said on Thursday. Though it's bleeding profusely, the Senate bill isn't dead yet. But the idea of strengthening the ACA now seems slightly less unrealistic than it has in a long time. And it's an outcome many in the health-care sector would welcome. 

Roller Coaster
GOP efforts to repeal and replace the ACA have led to a bumpy ride for health-care providers
Source: Bloomberg

There's a chance McConnell is just using the threat of an ACA fix to pressure conservatives as he fights for 50 votes. And he may still get them with proposed tweaks to the Senate bill, including nixing tax cuts for wealthy Americans, softening Medicaid cuts, and Senator Ted Cruz's proposal to let insurers sell skimpier plans to healthier people as long as they still sell ACA-compliant plans. A new bill may emerge later this week. But the fact that McConnell even nodded at a fix means it's a counterfactual worth evaluating.

First, some cold water: Any bill to stabilize the ACA would have a hard time passing, given how deep health-care divides are within each party, let alone between them.

If a compromise bill is to get any Democrat votes, then it likely must preserve the ACA's Medicaid expansion, along with its protections for vulnerable Americans. That's good news for much of the health-care sector. 

Hospitals are broadly exposed to Medicaid cuts; the program accounts for much of the revenue of the large public hospital groups tracked by Bloomberg Intelligence:

The Threat
Large cuts to Medicaid and insurance subsidies would be a big blow to hospitals
Source: Bloomberg Intelligence
Includes Community Health, HCA, LifePoint, Quorum, Tenet, Universal Health Services

The GOP's repeal-and-replace proposals would foster insurance plans that offer less-generous health coverage than the ACA allows. That in turn would lead people on private insurance to forgo care in some cases, taking potential revenue from providers. And taking health coverage away from 22 million people, as the latest GOP bill would do, according to the Congressional Budget Office, would leave hospitals holding the bag for last-ditch care, crushing their profit margins.

While pharmaceutical firms would have enjoyed the repeal of an ACA tax on drugs, they benefit in other ways if the repeal effort dies. The latest GOP proposal would have led to the return of annual and lifetime insurance spending limits. That's a major concern for the growing subset of drugmakers making rare-disease medicines with price tags in the six figures. The Senate bill would also give states the chance to let insurers sell plans that don't cover prescription drugs, or substantially increase the amount patients pay out-of-pocket for medicines. 

Avoiding the disruption and potential negative effects of the current array of repeal proposals would be a benefit all by itself. Any efforts to further stabilize the health-care market would be gravy. If more people have health insurance, then fewer insurers leave the individual market and premiums come down -- almost everyone wins

As for the actual shape of a possible stabilization effort, a few possibilities stand out as starting points: 

  • If not bolstering the individual insurance mandate, at least enforcing the one that exists. 
  • Funding reinsurance programs, where the government guards insurers against unexpected losses by reinsuring sicker patients. Such a program kept premiums down in the early years of the ACA before being phased out and aren't anethema to the GOP. Reinsurance is a prominent part of Medicare Part D, a GOP-created prescription drug benefit and has worked well in the individual market in Alaska. 
  • Committing to ACA subsidies that help low-income Americans with out-of-pocket costs. The Trump administration has been inconsistent in its messaging about funding for this, and insurers have cited that uncertainty as a reason for leaving ACA markets. 

Outcomes for insurers in this scenario are a bit more varied. There's evidence the ACA is stabilizing on its own; the Kaiser Family Foundation released an analysis Monday showing insurers are regaining profitability in the individual market. Any fixes could amplify that. 

On the other hand, an ACA repeal would have given insurers $144.7 billion in tax cuts over 10 years. GOP bills would also have given insurers more flexibility on the kinds of benefits they offered and what they could charge for them.

The benefits of a stronger ACA would not be equitably distributed. Insurers with a substantial Medicaid presence would benefit. Centene Corp., Molina Healthcare Inc. and other insurers that also have a robust presence in the individual market would benefit even more. But a larger and more stable insurance market would be better for everyone than a smaller and disrupted one. 

Exposure
A few insurers would reap outsize benefit if the GOP effort to repeal and replace the ACA were to fall apart, and even more if stabilizing legislation passes
Source: Bloomberg

This is very much a Goldilocks scenario -- it's the best outcome for a lot of people, and probably a fairy tale. It would require the GOP to effectively acknowledge that its rhetoric about the ACA has been overheated. It makes already delayed tax-reform efforts tougher. And President Donald Trump might not even sign it.

But if the GOP can't pass a repeal-and-replace bill, then pressure will mount to do something to help states where the individual market is struggling. Health-care providers and their investors could add to that pressure.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net