“Trumpcare” and Health Insurance Markets: A Tale of Two Timelines for Repeal and Replace

President-elect Trump and the GOP-controlled Congress have the opportunity – and fully intend – to reshape the healthcare landscape by unraveling certain aspects of the ACA. For insurers, the critical question is how quickly some of these changes will be enacted and how changes to individual mandates, underwriting requirements, and government funding will impact products, membership, and profit levers. 

Key provisions of the law (federal subsidies, individual and employer mandates) have long been in the sights of the GOP and were campaign targets for President-elect Trump. The campaign rhetoric focused on the repeal of Obamacare and that continues to be the mantra for the GOP in the days post-election, with some GOP leadership indicating that they will move as quickly as inauguration day to pass a bill to repeal.

However, the timing for a replacement and how the changes will be staged remain far from certain; and that is driving significant trepidation across the healthcare market. Here, we consider two scenarios for how these changes might unfold: an accelerated timeline, in which the GOP moves swiftly and broadly in their actions, and a more moderate timeline, where key elements of the law are amended over time.

Fast path to Trumpcare

Operating on the belief that they have been given a mandate by the American people, with a finite window for sweeping changes (the 2018 mid-term elections are right around the corner), the GOP could attempt to drive swift action across the individual markets, as well as Medicare and Medicaid.

An accelerated repeal and replace approach might play out along these lines:

• Obamacare is “repealed” in early 2017
  • Medicaid expansion is rolled back by cutting off federal government funding for the additional members and benefits covered within ACA Funding
  • Support for subsidies are withdrawn in 2017 via the Trump Administration simply dropping the Obama Administration’s opposition to a GOP-backed lawsuit alleging that ACA subsidies were not appropriated correctly by Congress when the legislation originally passed
  • The individual mandate is removed and the administration signals that it will not apply tax penalties starting as early as 2017
    • Presumably, this would need to be partnered with a relaxation of the restrictions on health plan underwriting rules, such as pre-existing conditions and product coverage mandates
  • If the repeal doesn’t address both of these issues (subsidies and individual mandate) together, it could collapse the individual market entirely
• A Medicare overhaul is attempted.
  • This would potentially drive toward a premium-support model, as laid out in Speaker Paul Ryan’s “A Better Way” plan

In our accelerated scenario, key issues for insurers to consider include:

Responding to worried consumers. Plans may need to prepare for high customer-service call volumes, as customers who bought ACA insurance will likely be questioning what a repeal means for their near-term coverage.

ACA population shifts and subsequent impact on revenue. A repeal of the individual mandate and the possibility of no subsidies could cause ACA enrollees to drop coverage at a rate even higher than previously seen (member attrition rates for ACA products over the course of a year are already high at about 30 percent). In this case, insurers will need to find ways to flex their operations over the course of 2017 in order to cut administration costs in response to reduced membership volumes.

Strategic planning for the Individual book of business. The first 2018 ACA exchange market price and product-filing deadlines are in April, less than 90 days after President-elect Trump takes office. The decision to participate in the exchanges (or not) could occur amidst continued uncertainty about the future of public exchanges – particularly if the administration announces a repeal plan in January without simultaneously clarifying and defining a replacement plan.

If this is the case, plans may need to consider how to maintain their Individual book of business, potentially via off-exchange products that (presumably) would look very different than the current ACA product and underwriting guidelines require. In order to retain profitability, plans may need to consider pivoting back to product structures that were common in the pre-ACA market (limited-benefit plans, for example) and target a different block of Individual consumers than they did under the ACA.

Medicare moves and opportunities. If passed, a premium-support system could lead to lower Medicare payments for insurers and higher out-of-pocket costs for beneficiaries. Generally, the discussed changes to Medicare could mean a material difference in how health plans will go-to-market in the future, and they may face greater price competition among MA plans. Organizations will face even greater pressure to be efficient in managing the Medicare population.

Medicaid MCO impact. Managed Medicaid organizations that have experienced substantial growth will likely experience significant loss of membership if Medicaid expansion is stopped or repealed. Coupled with disruption of the individual exchanges (where some Medicaid plans are doing very well), Medicaid MCOs should be considering how to prepare for a decrease in membership revenues, as well as a potentially sicker population, as healthier members who were part of the expansion population may no longer have coverage.

Slow-and-steady shift to Trumpcare

While the “fast” scenario is a possibility, many believe it is more likely that the administration will take a measured approach and establish a timeframe of staged changes over the next several years.