The American Rescue Plan Act passed the Senate 50-49 Saturday providing $1400 relief to 147 million and extending unemployment benefits to 19 million. It now goes back to the House of Representatives Tuesday where differences in the House-passed measure will be resolved before going to the President this week for his signature. It’s pretty much a done deal.
Per last week’s Morning Consult Poll, this stimulus relief bill has widespread support: 77% of all voters and 59 % of Republican voters said they “strongly/somewhat” support the measure. But getting money in the hands of the hardest hit comes with a cost: it adds $1.9 trillion to the $27 trillion national debt at a precarious time for the economy and particularly hospitals and other providers. Here’s why:
According to the Congressional Budget Office, final passage of the American Rescue Plan Act of 2021 sets in motion the PAYGO statute requiring reductions in Medicare spending of 4% next year, totaling $36 billion. That means lower reimbursement by Medicare to hospitals, physicians, and other providers on the heels of pandemic-derived operating losses projected to be $373-$442 billion for 2020-2021.
And last week, Fed Chair Jerome Powell said the central bank was committed to keeping interest rates low while guarding against inflation–a monetary policy that’s advantageous to investors in healthcare who have $1.8 trillion to invest and new instruments like Special Purpose Acquisition Funds (SPACS) to accelerate IPOs for private companies targeting healthcare. Already, the yield on the benchmark 10-year Treasury note, which influences borrowing costs across the economy, has risen to levels not seen since the start of the pandemic. And many investors look to the recently passed $1.9T COVID Relief Package as the catalyst which could drive the Fed to raise rates quicker than expected to keep a lid on inflation. Thursday, The CBO projected that yields on 10-year Treasury’s will average 1.6% from 2021 to 2025 and 3% from 2026 to 2031, before rising steadily to 4.9% by 2051. That means higher interest costs for borrowers across the board including providers.
And to complicate matters, debate will begin next week about “Medicare-X”, the public insurance option likely to be included in a future reconciliation bill also including higher reimbursement rates for rural providers and allowing prescription drug negotiation through Medicare Part D. Democratic Sens. Tim Kaine of Virginia and Michael Bennet of Colorado are promoting this legislation noting that 60% of voters including 33% of Republicans think adding a public option should be a priority in the Biden administration. Notably, the price tag for this legislation will add even more to the national debt and be particularly difficult for traditional providers.
The stimulus package serves an important social purpose: 37% of households are behind on their household bills and 12.7% skipped a medical appointment due to cost last year. The extension of unemployment benefits and $1400 checks will help. Assistance to rural health, state and local government and vaccinations is necessary. But it sets in motion two unintended consequences especially relevant to healthcare providers:
Private Investors will Gain Momentum
The likelihood of PAYGO Medicare cuts ($39 billion reduction in 2021) in tandem with pressure from payers to lower provider payments to Medicare rates ($352 billion reduction in 2021) is chilling for providers. The full impact is unlikely this year, but dramatic cuts are inevitable. That opens the door for private capital (i.e., private equity, SPACS, hedge funds) and strategic investors (i.e., Optum, Amazon, Best Buy, Walmart et al) to do more deals especially in healthcare sectors where traditional hospital and physicians are vulnerable. Last week’s announcements illustrate how ‘juiced’ private investment in healthcare is today: Orange County CA based Alignment Healthcare registered its IPO plan with the SEC following recent IPOs by Oscar and Clover Health; Optum announced it will acquire 715-physician group New England-based Atrius Health adding to its stable of 50,000 clinicians, Amazon announced it is expanding its Amazon Care model 17 new markets and so on.
The American Rescue Plan will rescue small businesses and hard-hit households but accelerate disruption in the delivery of healthcare services as private capital flows into business models that promise better service and lower costs. Looking ahead, these deals will be bigger and even more disruptive to traditional providers and payers.
Interest in Medicare for All (M4A) will Increase
In Campaign 2020, the Biden team countered progressives’ support for “Medicare for All” with policies to increase health insurance coverage for the uninsured and under-insured building on the Affordable Care Act. In 2019 (latest available), before the pandemic, 9.2% of the population was uninsured; 35.4% were insured through government programs (i.e., Medicare, Medicaid, CHIP, TriCare, Indian Health Service, Veterans Health) and 55.4% had private coverage. Of those with private coverage: one in four had experienced difficulty paying their premiums and co-pays. That was pre-pandemic. As a result of the pandemic, 3 to 6 million have lost their private coverage, and 4 in 10 with private coverage face hardships with premiums, co-pays, and other health obligations.
Polls by Pew, Gallup, Deloitte, and others have consistently shown that majorities think a private system is better than a government run system, but the issue of affordability has the potential to sway voters toward M4A or a single-payer alternative. And it’s certain to be a central theme in Campaign 2024.
In its long-term forecast for the U.S. economy released last week, the Congressional Budget Office projects the federal debt at 102% of the gross domestic product in 2021—the highest in modern history, exceeding that level only once in 1945- 1946 as post-war federal spending surged. It projects debt at 107% by 2031 and 202% by 2051 requiring that 47% of all federal revenues be used to pay interest on the debt unless government spending is lower, economic growth stronger and funding larger than economists predict.
Federal debt, how much is too much, what it costs and how it contributes to economic growth hits home for healthcare. Pre-pandemic, healthcare spending by the federal government representing a third of its total government outlays—second only to social security. The pandemic slowed economic growth (-3.5% GDP in 2020) and added debt including the American Rescue Plan Act to four prior relief packages.
What’s clear is this: this relief package will provide immediate help to many, but its unintended consequences are likely to set in motion fundamental changes the health system must address. Stay tuned.
P.S. Today is International Women’s Day. The representation of women in the ranks of healthcare C-suites and Boardrooms has improved in recent years but has a way to go. Per McKinsey research, 30% of our C suite leaders are female vs. 20% in corporate America, but that’s too low. And regrettably, women are disproportionately among workers laid off and financially harmed as a result of the pandemic. We can do better.
Also, just wanted to remind everyone that a recording of my webinar with Angela Humphreys of Bass, Berry & Sims where we discussed the anticipated healthcare policy changes under the Biden Administration and what impact these will have on the industry is now available here
Blendon et al “The Future of Health Policy in a Partisan United States: Insights From Public Opinion Polls”; March 5, 2021; JAMA Network
“Americans Say They’ve Struggled to Pay Living Expenses Since December; 6 in 10 Families Hit by COVID Have Lost A Job or Income”; March 3, 2021; KFF Health Tracking Poll
“Americas Health Rankings 2020 Annual Report”; United Health Foundation
National Health Expenditure (NHE) Summary including share of GDP, CY 1960-2018- CMS
“What Does the National Debt Mean for America’s Future?”; Peter G. Peterson Foundation
“2021 Long-Term Budget Forecast”; March 4, 2021; Congressional Budget Office
“U.S. National Debt Is Likely to Nearly Double to 202% of GDP by 2051, CBO Projects”; March 4, 2021; Wall Street Journal
“Mounting federal debt puts the U.S. at risk of a fiscal crisis, Congressional Budget Office warns”; March 4,2021; New York Times
“Findings from the 2020 Biennial Health Insurance Survey”; August 2020; Commonwealth Fund
“Katie Keith Tracking The Uninsured Rate In 2019 And 2020”; October 7, 2020; Health Affairs
Covid Relief Package Likely to Pass with Targeted Healthcare Support Included in Final Version
Unemployment benefits expire this Saturday for XX million Americans who will benefit from a provision in the $1.9 trillion American Rescue Plan that’s likely to pass the Senate on a party line vote. According to a recent Morning Consult poll, the likely provision will include extension of $300 weekly jobless benefits through September. For healthcare, a number of other provisions are in the bill:
Temporary increase in financial subsidies for COBRA premiums through September: Under the House bill, the government would pay 85% of the COBRA premium, and in the Senate version, the federal government would pay the entire amount. (Cost: $8 billion)
Financial assistance for ACA exchange premiums through 2022: Provisions include an increase in the amount of refundable advance premium tax credits that people could get to help them pay for insurance plans bought through the ACA’s marketplaces i.e., the bill reduces the premium obligation for enrollees earning up to 150% of the federal poverty level from 2% to zero. It also eliminates the subsidy cliff for earnings above 400% of the FPL and limits the percentage of income those higher earners pay toward their premium to 8.5%, resulting in a gradual decrease in the subsidy as income rises.
Medicaid maternity benefits extension: Under current law, pregnant women eligible for Medicaid as a result of their pregnancy lose their eligibility 60 days postpartum. The bill would extend that 60-day period to 1 year.
Incentives to expand Medicaid: the federal government paid states who agreed to expand their Medicaid programs 100% of the cost for the first 3 years then decreasing to amount then tailed off to 90%. Under the bill, the federal government’s contribution would still be capped at 90%, but newly expanded states would get an increase in the “matching fund” (FMAP) percentage for their entire Medicaid enrollment population.
Study: in Pandemic, Televisits Offset Two-Thirds of In-Person Visits Reduction
Researchers examined telemedicine and in-person outpatient visits in 2020 among a national sample of 16.7 million individuals with commercial or Medicare Advantage insurance. Highlights:
Among 16,740,365 enrollees, the weekly rate of telemedicine visits increased during the pandemic period before declining by the week of June 10, 2020. From the weeks of January 1 to June 10, the rates for telemedicine visits increased from 0.8 to 17.8 visits per 1000 enrollees; in-person visits dropped from 102.7 to 76.3; total visits (telemedicine and in-person visits combined) decreased from 103.5 to 94.1 (−9.1% change).
Patel et al “Trends in Outpatient Care Delivery and Telemedicine During the COVID-19 Pandemic in the US”; November 16, 2020; JAMA Network
KFF study: Total Spending for Healthcare would be $352 Billion Less if Providers Paid at Medicare rates
KFF analysts used data from MarketScan and FAIR Health to estimate the total annual reduction in health care spending by employers and privately insured individuals that would result from having private insurers reimburse hospitals and other health care providers at Medicare rates. Highlights:
Total health care spending for the privately insured population would be an estimated $352 billion lower in 2021 if employers and other insurers reimbursed health care providers at Medicare rates. This represents a 41% decrease from the $859 billion that is projected to be spent in 2021.
Aggregate employer contributions toward employee premiums would decrease by about $194 billion, assuming employers’ share of premiums stays constant after private rates drop to Medicare levels.
Employees and their dependents would spend at least $116 billion less for health care, through a combination of lower premiums and out-of-pocket spending. The reduction in federal and individual spending on health care for an estimated 19 million people in the non-group market would total $42 billion.
Nearly half of the total reduction in spending (45%) would be for outpatient hospital services, due in part to high private rates relative to Medicare rates for outpatient care, compared to most other services. Inpatient services account for 27% of the decrease in spending, and physician office visits account for 14% of the decrease.
“Limiting Private Insurance Reimbursement to Medicare Rates Would Reduce Health Spending by About $350 Billion in 2021”; March 1, 2021; KFF
Study: Medicare Payment Policies Drive Primary Care, Medical Specialists to Hospital Employment
Researchers analyzed Medicare claims between 2010and 2016 comparing Medicare reimbursement under hospital ownership and under physician ownership. Highlights:
Medicare reimbursement for physician services would have been $114 000 higher per physician per year if a physician were integrated compared to being non‐integrated. Primary care physicians faced a 78% increase, medical specialists 74%, and surgeons 224%.
An increase in this outpatient payment differential equivalent to moving from the 25th to 75th percentile was associated with a 20% increase in the probability of integrating with a hospital. This effect was slightly larger among primary care physicians (27%) and medical specialists (26%), while not significantly different among surgeons (-2%).
Post et al “Hospital‐physician integration and Medicare’s site‐based outpatient payments“; January 27, 2021; Health Services Research
KFF Tracking Poll: 1 in 3 Unable to Pay Bills
As Congress considers an additional $1.9 trillion COVID-19 relief plan, more than a third (37%) of Americans say that someone in their household has had trouble paying basic living expenses over the past three months and nearly 1 in 4 (23%) who say they have fallen behind on their credit card bills, and 1 in 6 who say they have had trouble paying for food. Other findings:
After one month in office, a majority of the public (62%) approve of the way President Biden is handling the coronavirus pandemic – including nine in ten Democrats (92%).
In the past three months, a majority of lower-income adults say they have experienced these financial difficulties, as do about half of Black and Hispanic compared to 31% of White adults.
“Americans Say They’ve Struggled to Pay Living Expenses Since December; 6 in 10 Families Hit by COVID Have Lost A Job or Income”; March 3,2021; KFF
MedPAC: Simplify Alternative Payment Models, Change Medicare Advantage Benchmark Methodology
Two notable topics were a focus in Medicare Payment Advisory Commission’s meeting Thursday:
Simplification of alternative payment models: The commission’s research found that CMMI’s 54 alternative payment models have had a limited impact on healthcare spending and quality; only 4 met criteria for expansion. While some approaches like accountable care organizations have had more success than others, even the most successful models have produced relatively small savings. CMS will likely offer 13 alternative payment models in 2021, including more than 30 tracks for providers.
Medicare Advantage benchmarking: Likely changes would adjust how CMS ties Medicare Advantage payments to fee-for-service spending, increase the rebate to at least 75% and adopt a discount rate of at least 2%. payment areas and ending the pre-ACA cap on benchmarks. A notable focus in the MedPAC consideration is the mechanism whereby MA savings are shared with enrollees vis a vis supplemental benefits instead of savings to the Medicare program. About 14% of payments to Medicare Advantage plans go to additional benefits.
MedPAC is likely to recommend changes to both at its April 1-2 meeting.
MedPAC Public Meetings March 4-5,2021
Study: Marketplace Subsidies Associated with Lower Out of Pocket Spending in Low-Income Populations
Researchers analyzed household health care spending among low-income adults eligible for both Marketplace premium subsidies and cost-sharing reductions national survey data from the period 2008–17. Finding:
Among low-income adults, ACA Marketplace subsidy implementation was associated with 17% lower out-of-pocket spending and 30% lower probability of catastrophic health expenditures.
In contrast, middle-income adults did not experience reduced financial burden by either measure.
Liu et al “The Affordable Care Act’s Insurance Marketplace Subsidies Were Associated With Reduced Financial Burden For US Adults”; March 2021; Health Affairs
Study: Use of Primary Care by Undocumented Population Decreased Significantly After 2016 Presidential Campaign
Researchers analyzed primary care utilization by undocumented children and adults before and after the 2016 Presidential campaign in which illegal immigration was a key issue. In this cohort study based on health care use among 20, 211 adults and children, there was a 34.5% decrease in completed primary care visits among undocumented children and 43.3% decrease in completed primary care visits among undocumented adults between June 16, 2015 (the start of the Trump campaign for presidency, associated with an increase in anti-immigrant rhetoric), and May 31, 2018, which was significantly greater than patients in the Medicaid group. Note: there are approximately 11 million undocumented immigrants living in the US.
Nwadiuko et al “Changes in Health Care Use Among Undocumented Patients, 2014-2018”; March 5, 2021; JAMA Network
Study: Medication Non-Adherence in Medicare Population
Researchers analyzed cost-related medication nonadherence (CRN) among Medicare beneficiaries at high risk of hospitalization (those with a life expectancy of less than 12 months) from 2012 to 2018. Highlights:
The population-adjusted prevalence of CRN was 53.6%, and 28.4% of those who reported CRN at least once had persistent CRN during the 15-month study period. Younger age, worse self-reported health, and depression were associated with greater likelihood of persistent CRN.
Background: 1 in 4 adults in the US has a difficult time affording their medications and among Medicare beneficiaries in 2006 11.5% reported medication nonadherence owing to financial barriers. In the US, patients with high-need, high-cost resource utilization (approximately 5% of the population) disproportionately account for 50% of all healthcare spending.
De Avila et al “Prevalence and Persistence of Cost-Related Medication Nonadherence Among Medicare Beneficiaries at High Risk of Hospitalization”; March 3, 2021; JAMA Network
February Jobs report: Healthcare Rebounds from January but Nursing Homes Hard Hit
Preliminary federal jobs data released Friday by the Bureau of Labor indicate the healthcare industry added 19,900 jobs last month vs. a loss in January of 84,700 jobs. Highlights:
• Physicians’ offices added 8,700 jobs in February.
• Home health added 5,700 new jobs.
• Dentists’ offices made 5,200 new hires.
• Medical and diagnostic labs added just 1,100 jobs.
• Hospitals shed an estimated 2,200 jobs in February vs. a loss of 37,500 jobs in January.
• Nursing homes lost 11,600 jobs vs. a loss of 18,500 jobs in January.
Overall, total nonfarm payroll employment grew by an estimated 379,000 in February, and the unemployment rate fell to 6.2% from 6.3% in January.
Tara Bannow “Hospital, nursing home losses dampen February’s healthcare hiring“; March 5,2021; Modern Healthcare