An Open Letter to the Trump Administration

As your transition team morphs into your operations group, I thought I would take a moment to give my thoughts on ACA as a seasoned consultant to this industry. While I hear the blustering about repeal and replace, it is my strong belief that any successful bi-partisan remake of healthcare will need to build from the success of President Obama’s signature legislation. In building consensus, President-elect Trump may wish to throw a bone and acknowledge that reducing the ranks of the uninsured was a win and it was not the only one. Here is my scorecard of ACA.

High marks:

Facilitating the shift from fee-for-service to fee-for-value healthcare by supporting the Accountable Care model is an important dynamic shift. Comparative effectiveness research, which creates national models for best practices in care delivery, has moved the cost of care, albeit too slowly, in the right direction. For example, a recent study in the Annals of Internal Medicine establishes that reimbursement penalties for hospital readmissions have reduced these by 77 out of 10,000 admissions.

Eliminating pre-existing conditions, benefit maximums and coverage rescissions is a critical change effected by ACA which must be retained. If coverage is purchased under the rules as developed, it is unconscionable that an insurance policy can simply no longer respond. Insurance should spread the risk of these claims which would otherwise be devastating to the claimant and this would be obviated if these safety values for insurance carriers are allowed.

Average grades:

Coverage for all children to age 26 added coverage for millions of our healthiest population. Uniform coverage for children who have yet to be established as adults is important. But to what extent? Should employers also have to cover the non-dependent adult children of their workers? This is a generally good idea, but a small tweak would move it to the high marks section: require that the child be a tax-qualified dependent no older than 26.

We should have a coverage mandate; however, to make this effective it should have teeth. In Australia, the penalty for not having coverage is significant enough that younger adults wouldn’t consider the risk/reward tradeoff of “rolling the dice” to be a viable option. We should do the same and also provide age-banded rates which are not as punitive to the younger insured. Everyone has to be in the system because opting out has a backstop too. Even prior to ACA, Americans had a coverage stopgap. If one was sick enough and needed care, pre-ACA, it would have been dispensed in the hospital.

Medicaid expansion is an excellent way to bring Americans who simply can’t afford healthcare basic benefits. However, any new healthcare initiative has to find a way to mandate national standards for providing care for the indigent. 18% of the federal poverty level (which is a standard in two states for eligibility) is absurd. That individual can’t even afford food – there is no way they would pay into a healthcare system. This care should be basic and should have individual accountability built in – even the poor need to help control healthcare expenditures.

Employers should have to provide coverage meeting minimum standards, but the convoluted state-mandated benefits should be simplified and national standards be established. This would also facilitate selling coverage across state lines and increase competition.

Failing grades:

Community rating makes sense in the small group marketplace. Standardized plans and rates simplify this market. But eligibility leakage such as association plans and PEOs (Professional Employer Organizations), which are allowed to underwrite risk, “cherry-pick” the risk pool which ultimately creates an insurance death-spiral.

The Cadillac Tax is a stupid way to finance healthcare change. Instead, the plans should have an actuarial value threshold which sets deductibility limits. If a business wishes to provide a higher level of benefits they should be able to, however, the deduction would be disallowed. There is no reason an employer should be taxed for older demographics or a sicker work force which might increase premiums above the “Cadillac” premium limit.

The administrative complexity of ACA has to go. The exchanges are a bureaucratic nightmare. The reporting structure consumes needless resources for very little benefit. Policing the new system would be simple. The states would determine Medicaid eligibility and the tax reporting system would capture those individuals without coverage.

Other suggestions:

Establish price controls on brand name drugs which take into account financial incentives for inventiveness. A single drug available to treat a medical condition is like a monopoly and it is against public policy for a monopoly to set rates (for example water or electric rates), so why should a drug company set an unconscionable price for a drug which cures hepatitis C or cancer? If one has that condition, they will pay anything to cure it. But it is the employer or the insurance carrier that bears the bigger financial burden. Perhaps there should be a separate award for that inventiveness not paid by the direct users – instead, a drug and medical innovation tax on insurance policies.

Drug price transparency should be immediately introduced. Drug rebates which obfuscate the true cost of medicine and either hide pharma profits or shift money back to the employer or plan administrator are ridiculous. Get rid of them.

It is an incredible time to be in healthcare!

I write weekly about healthcare in America and employee benefits in Frenkel Benefits' blog. If you're looking for more insight about post-election healthcare, subscribe to receive our weekly blog posts.