Reading the Tea Leaves: The Six Core Principles that Shape U.S. Health Policy in the Trump Era

In 99 days, the country will reset its lawmaking apparatus. Races for all 435 U.S. House of Representatives and 35 U.S. Senate seats will be decided along with 87 of our 99 state legislative bodies and 36 Governor’s offices.

Matters related to healthcare might change as a result of the November 6 vote. After all, healthcare is 29% of the federal budget and up to 38% of state budgets, so it’s central to lawmaker fiscal concerns. And it matters to voters: among Democrats, it’s a top-tier issue and among Republicans, it ranks behind the economy and immigration.

In the 18 months that Team Trump has served to date, a new direction to U.S. health policy has been set. Rules and regulations have changed, courts have rendered judgements on key issues, leaders for key federal health agencies have been replaced and top officials in HHS, CMS and the FDA have been forthright about their plans. Reading these tea leaves, six core principles surface as the basis for current U.S. health policy:

1. The strength of the U.S. economy is the key to winning elections for Team Trump. Healthcare is secondary.
The administration believes the vibrance of the economy, low unemployment, and wage increases are its keys to re-election. They subscribe to the view that voters vote with their pocketbooks.  For some voters, healthcare is a major pocketbook issue; for most, rising out of pocket costs are a concern so Team Trump’s focal issues are prices and insurance premiums. If the economy is stable and wages increase, they posit, healthcare will not be the issue that spells election success. Key data points:

  • Most economic indicators are positive continuing a 10-year economic recovery: According to the U.S. Department of Commerce, GDP growth was 4.1% for the second quarter, 2018. Unemployment is at a 10-year low of 4.1% per the U.S. Department of Labor. The Conference Board’s Leading Economic Index that signals swings in the economy was steady at 109.8 The only negative: Friday, the University of Michigan said its index of consumer sentiment was 97.9 in July, down from June’s final reading of 98.2 and March high of 101.4 as “concerns about tariffs greatly accelerated in the July survey,” said Richard Curtin, the survey’s chief economist.

2. Cutting healthcare spending across the board is necessary.
Team Trump believes healthcare spending is unsustainable: its 6% annual forecast growth is higher than wage growth, national economic growth (GDP) and inflation. Team Trump believes Improvements in the business climate might be offset by health cost inflation so its spending cuts for purchasers are its focus. Trump promised to beef up defense spending and leave entitlements (Social Security, Medicare) intact, so cuts in other areas are needed to reduce growing deficits. Spending on healthcare programs is a logical target for deficit hawks. Key data points:

  • The profitability of key players in healthcare has been impressive: since January, healthcare stock performance (+12%) has outperformed the overall the Standard and Poor’s’ 500 increase (+5%) by more than 2:1. Physician incomes increased 3-7% well above average household wages and larger not-for-profit hospitals saw their margins stabilize. So, per Team Trump, healthcare can afford belt tightening.

3. Private-sector solutions in healthcare work better than government solutions.  
Polls dating to 2009 indicate the public believes private-sector solutions work better than government-sponsored programs. The debates about the Affordable Care Act (2009-2010), vouchers for Medicare (2011-2012) and ‘Medicare for All’ (2016) have consistently revealed a dichotomy: the majority of Americans believe healthcare is a fundamental right and the government should insure its access, but push back from higher taxes or additional funding believing the system is wasteful and profitable.  As a result, private sector initiatives in healthcare—buoyed by a favorable economic climate and lower taxes—are Team Trump’s focus. Key data points:

  • Key leaders in federal healthcare oversight are veterans of the private sector: HHS Secretary Alex Azar served as Eli Lilly’s domestic President. CMS Administrator Seema Verma led SVC Inc. as the CEO of the boutique consulting firm. FDA Commissioner Scott Gottlieb, M.D., served as a consultant to several drug manufacturers and a stint with Alex Brown and Sons, a prominent healthcare investment bank. And newly named Chief Principal Deputy Administrator and CMS Chief of Staff Paul Mango just retired from a 20-year career at McKinsey Consulting. Thus, deals proposed by CVS-Aetna, Cigna-Express Scripts, Amazon-JPMorgan and Berkshire Hathaway and private equity-led consolidation in key sectors of the industry have a favorable climate supported by friendly policies and without U.S. Department of Justice pushback.

4. Consumers are capable of managing their own healthcare.
Consumers want access to their own medical records, information about their treatment options and expected costs, price transparency across the board and the ability to use digital and online tools in lieu of unnecessary visits and tests. Thus, transparency in every phase of healthcare is a high priority to Team Trump. Though skeptics argue that the majority of consumers are not inclined to be informed or proactive in managing their own health, employers and investors are promoting consumer activism. Key data points:

  • To offset rising employee benefits costs, virtually every employer has increased co-payments and deductibles, and one in four offers only a high-deductible plan option. Per the Employee Benefits Research Institute, almost 24 million workers and their families have Health Savings accounts and employers are hosting on-site primary care clinics and a wide range of wellness options to drive consumer engagement. In tandem, investors have launched direct-to-employee transparency platforms intended to offset annual premium increases estimated at 5-9% depending on the industry. Medicare enrollees are gravitating in larger numbers (currently one in three) to Medicare Advantage plans sponsored by private insurers which feature customized education for seniors and self-selection by consumers is a burgeoning sector: the brands 23&Me, Cancer Treatment Centers of America, Laser Treatment Centers of America among the most advertised.

5. States are better equipped to handle healthcare regulation.
The rationale is this: states should resolve issues like medical liability, licensing of healthcare professionals, insurance solvency and plan design requirements, access to abortion and family planning services, and other sticky issues. The industrial logic is clear: governors and state legislators are closer to the health needs of their citizens and the circumstances in each state vary widely. Each has a unique tax structure (43 have income taxes), all are required to balance their budgets, and restrictions posed by federal regulators are counterproductive. Just as education is deemed a state-local policy domain, so should be healthcare. Thus, Team Trump prefers to play a lesser role, opting to use its funding muscle thru Medicaid, Supplemental Nutrition Assistance and other programs to drive state activities and priorities. Key data points:

  • Medicaid is arguably the biggest state health issue in most states: 32 states elected to expand their program per the ACA.18 have applied to CMS for substantive changes to their program and 6 want to require a work requirement for eligibility though a court challenge to Kentucky’s poses a roadblock. In 39 states, private Medicaid managed care companies provide services to enrollees, so outsourcing Medicaid to third parties provides state legislators political cover. The issue for states is health costs: Medicaid is appropriated through a complicated formula and looms as the budget-buster in states lacking a growing population and strong economy. It pits budget hawks vs. providers who see opportunity to reduce long-term costs in vulnerable, under-served populations by offering accessible physical and behavioral health services. It’s an issue in every election year whether a state is blue or red.

  • The stability of the individual insurance market is another hot-button state issue: State oversight of insurance is a longstanding role. The National Association of State Insurance Commissioners is deemed responsible for determining the duties and responsibilities of licensed sponsors. In the Affordable Care Act, provision was made to expand access to qualified coverage through Medicaid expansion and the creation of “healthcare marketplaces” whereby subsidized coverage was available to qualified, low income individuals. From 2014-2016, premiums were volatile and insurance company participation variable due to adverse risk: last week, to stabilize their risks, the administration restored risk adjustment funds to encourage marketplace stability.

6. The U.S. Supreme Court can be counted on to constrain overreach by the federal government in healthcare.
The current composition of the court, assuming Brett Kavanaugh’s confirmation, assures a conservative bent in its decisions. To Team Trump, the court can be counted on to support interpretation of the Constitution that reinforces Federalism and limits central government control. Healthcare decisions will likely be a major focus of the Supreme Court docket next year. Key data points:

  • The docket for SCOTUS in its 2018-2019 and years beyond is not set but likely to include challenges to the constitutionality of the Affordable Care Act’s by Republicans, challenges to the Medicaid work requirement by Democrats, the requirement that insurers cover enrollees regardless of pre-existing conditions, Roe v. Wade, administration cuts to risk-corridor, risk-adjustment, and cost-sharing reduction payments to insurers and others. In addition, several circuit court cases might find their way to the high court including questions about network adequacy by health insurance enrollees or the culpability of drug manufacturers, distributors, retailers and prescribers in the opioid addiction epidemic.  And industry tension around removal of Stark Law limitations, establishment of site-neutrality payments by Medicare, cessation of 340B drug discounts and Disproportionate Share Payments funding to hospitals might be settled in the courts.  

For the foreseeable future, these six principles will guide Team Trump health policy. Taken together, they pose good news/bad news scenarios for each incumbent in the industry.

For all, price transparency and cost reduction are givens. The business climate will reward efficiency and scale affording business partnerships with access to capital and innovative business acumen strategic advantage. Suppliers to the incumbents will be caught in a squeeze play:  pharmacy benefits managers, group purchasing organizations, consultants, advisors, recruiters, lawyers, accounting services, outsourced services and others will compete for bigger clients who demand lower fees, better performance or the prospect of taking outsourced services inside. And new entrants encouraged by less regulation and pro-private sector policies will gain momentum.

Reading the tea leaves about U.S. health policy is challenging but essential to planning for our future. The course set by Team Trump appears clear at least until any changes that might result from elections in November.

Paul