3 steps organizations should take now because of tax reform
Tax reform dominated the news this past week, as Congress passed a tax reform bill that will bring about change in the U.S. tax code for the first time in more than three decades.
The plan, and healthcare provisions that have been included, heighten the need for providers to craft strategies now, some of which will involve using information technologies to support new initiatives.
However, the impact isn’t only limited to tax issues. The GOP's tax bill effectively repeals the Affordable Care Act's (ACA) individual mandate—a move that the Congressional Budget Office (CBO) projects will lead to 13 million fewer U.S. residents having health coverage in 2027. In addition, health insurance premiums purchased on insurance exchanges would rise by approximately 10 percent, CBO estimated, primarily as a result of having a less healthy risk pool.
The $1.5 trillion measure also could trigger automatic offsetting spending cuts under the Statutory Pay-As-You-Go Act of 2010, commonly known as "PAYGO." Specifically, it could lead to $136 billion in automatic spending cuts in Fiscal Year 2018, including $25 billion in cuts to Medicare spending, $900 million to the Prevention and Public Health Fund, and $715 million to the Federal Hospital Insurance Trust Fund.
The repeal of the individual mandate will almost certainly have a negative effect on provider margins. While estimates of magnitude vary widely, the fact that repealing the mandate will increase the uninsured rate is undisputed. This would reverse some of the declines in uncompensated care that health systems experienced under coverage expansion.
While the individual market represents only a small portion of the typical health system's patient base, provider organizations are already grappling with a range of margin pressures—increases in bad debt, declines in utilization growth and downward pressure on reimbursement—that make weathering even small increases in uncompensated care extremely challenging.
It's also important for providers to recognize that the impact of this legislation is not limited to the individual market. In fact, CBO estimates that by 2025, less than 40 percent of the coverage losses from repealing the individual mandate will come from the non-group market (on- and off-exchange)—the agency estimates that 5 million fewer people will have non-group coverage, 5 million fewer people will have Medicaid coverage, and 3 million fewer people will have employer-sponsored coverage.
In addition, the sheer cost of the measure means that Congress will continue to face immense pressure to decrease spending in other areas, including healthcare. In the end, the downstream effect on the healthcare industry may be even more substantive than the impact of provisions actually included in the bill itself.
These potential effects of the legislation only heighten the importance of several strategic objectives for providers:
- Make patient financial navigation a growing priority. While the individual mandate will be repealed, the overall structure of the insurance exchanges and the individual market will remain intact. Providers can play an important role in increasing awareness and maximizing enrollment among eligible individuals.
- Establish a proactive strategy for managing underinsured and uninsured patients. As a growing number of patients are covered by Medicaid, high-deductible health plans or lack insurance altogether, providers find themselves grappling with delays in necessary care and avoidable use of high-cost care sites like emergency departments. Developing a strategy to encourage appropriate utilization and manage population health is increasingly important—whether providers are formally taking on risk or not.
- Contain cost growth, which will be a critical component to providers' future success. This bill is likely to create additional margin pressures for providers. Enterprise cost control must be at the top of any organization's priority list for the next five years.
There is a little breathing room before the healthcare impacts will be directly felt. Repealing the individual mandate won't affect exchange premiums for 2018, since open enrollment has concluded in most states and rates are otherwise set. Exchange premiums are likely to rise in 2019, as healthier plan members are anticipated to forgo insurance or purchase cheaper products off-exchange, leading to riskier exchange pools comprised of a higher proportion of less-healthy individuals.
However, individuals who receive premium subsidies—the majority of exchange purchasers—won't be directly affected by premium increases; the government will just pay higher subsidies. Those with incomes above 400 percent of the federal poverty level who do not receive subsidies will bear the full brunt of premium increases. However, Congress could pass legislation to provide funding for federal reinsurance or cost-sharing reduction payments, which could reduce premium increases to some degree.
While some health plans may choose to leave the exchanges for plan year 2019, the remaining plans will have the opportunity to command a market. It will be crucial for plans to identify high-cost members fast using any data available to influence a member's care in a single year.