Tag: insurance

CVS and Aetna Merger

By Brandon Huber, Class of 2019

According to the Wall Street Journal, CVS and Aetna are reportedly in serious talks over a
potential merger between the two healthcare giants. With the potential buyout price in the
ballpark of $70 billion, the deal would not only set the record for the largest merger of any two
companies in 2017, it would easily be considered the largest health provider merger of all time,
shattering Express Scripts’ $29 billion merger with Medco back in 2012.
The deal would combine CVS, currently the largest pharmacy retail chain, with Aetna, the third
largest health insurer provider in the United States. Although both companies have declined to
comment on the negotiations of the deal, there have been reports that a deal could be reached
by the two companies as soon as December. Despite the growing pressure over the last few
years on healthcare providers to consolidate, due in large part to soaring medical costs, a
merger of this size promises to send a shockwave across the entire healthcare industry.
The merger comes on the heels of news that Amazon, the online retail giant, almost certainly
will enter the prescription-drug market as soon as 2019. Although Amazon has not yet
announced any official plans to enter the pharmacy retail business, there can be little doubt
that even rumors of such plans would be enough to motivate CVS, and other pharmacy retail
chains, to find creative ways to expand and grow.
CVS’ buyout of Aetna, at least from the outset, seems to present the perfect opportunity for
both companies to benefit from the deal. On the other hand, however, whether consumers
stand to gain any benefit from the merger remains to be seen. From Aetna’s perspective, the
merger affords the opportunity to provide better care management. Insurers have long
believed that the best way to control rising healthcare costs is to ensure they have more access
into the lives of their beneficiaries. The deal would help Aetna ensure its beneficiaries were
staying on their medicines, getting the care they need at more cost-effective locations—like a
CVS health clinic—as opposed to a more expensive and perhaps unnecessary hospital visit.
Conversely, not only would CVS be able to expand its reach within the healthcare market, the
deal would drive more traffic to its stores as more of Aetna’s insured beneficiaries would seek
preventive care and treatment for less serious medical issues at the clinics located within CVS
stores. Additionally, CVS could expect an influx of customers because Aetna’s beneficiaries
would likely use CVS to get their prescriptions filled.
With that said, however, despite the near guarantee that both parties would benefit
significantly from such a deal, there are some who remain skeptical as to whether the deal will
benefit consumers. According to Amanda Starc, associate professor of strategy at
Northwestern's Kellogg School of Management, CVS’ position as a pharmacy benefit manager would allow the merged companies to negotiate lower drug prices with pharmaceutical
manufacturers. It is unlikely, however, that these newly acquired drug-rates, now available to
Aetna as a result of its newly acquired market power, would translate into lower prices for
customers and not into profits for the company.

The Trump Administration Shores Up Health Insurance Marketplace Pending Possible ACA Repeal

By Will Blackford, Class of 2017

Recently, the Trump administration put forth two key initiatives to ease the burden of the Affordable Care Act (“ACA”) and to stabilize the Obamacare marketplace.

First, the Internal Revenue Service (“IRS”) quietly updated its website with a statement indicating that the agency will not reject 2016 tax filings that fail to indicate whether a taxpayer complied with the ACA’s individual mandate. Second, the Centers for Medicare & Medicaid Services (“CMS”), now overseen by Tom Price, the new Secretary of the Department of Health and Human Services, submitted a new proposed rule aimed at making health insurer plans under the Obamacare exchange more profitable.

Both changes come on the cusp of significant insurer uncertainty, with Humana announcing its departure from the exchange market in 2018, and other insurers—such as Aetna and Anthem—threatening to cease future participation in the absence of meaningful modifications to the system.

 

New IRS Individual Mandate Policy

Following the signing of an executive order by President Trump on Jan. 20, 2017, which directed federal agencies to reduce the burden of the ACA, the IRS retreated from its previous policy that would have required an indication of health insurance coverage on tax returns. The system the IRS initially developed would have automatically rejected tax returns that failed to indicate whether the individual maintained health insurance, allowing the agency to efficiently enforce the ACA’s assessment of a penalty on those lacking coverage.

Under the newly announced policy, this mechanism for handling so-called “silent returns” will not be implemented. Instead, the IRS will continue to accept and process electronic and paper returns, even in the absence of an indication of coverage status. However, the IRS will still be enforcing the individual mandate if people volunteer on their 1040s that they lacked health coverage in 2016. While the agency reserves the right request additional information from individuals that file “silent returns,” the policy shift will undeniably lead to a lesser degree of enforcement under the mandate.

 

CMS Market Stabilization Proposed Rule

As Congress continues its debate over repealing, repairing, or replacing the ACA, a recent CMS notice of proposed rulemaking (“NPRM”) is intended to calm insurer anxieties over the long-term viability of the health insurance exchange. The NPRM offers numerous policy and operational tweaks geared toward stabilizing the marketplace, including:

  • Shortened 2018 Open Enrollment Period. The NPRM would reduce the open enrollment period for 2018 to 45 days (November 1 to December 15, 2017). This would allow insurers to collect a full year’s premium for 2018 from regular enrollees and limit adverse selection by those individuals who discover health issues during the months of December and January.
  • Special Enrollment Periods. The NPRM would target special enrollment periods (“SEP”) by tightening up eligibility, restricting the upgrade ability of existing marketplace enrollees, and limiting overall use of the “exceptional circumstances” SEP.
  • New Guaranteed Availability Requirement Interpretation. To address insurer concerns over potential abuses, the NPRM would add flexibility to the guaranteed availability requirement for allowing an issuer to collect premiums for prior unpaid coverage before enrolling a patient in the next year’s plan with the same issuer. This is meant to incentivize patients to avoid coverage lapses.
  • Reduced Essential Community Providers Requirement. The NPRM proposes that for 2018, plans be required to include only 20 percent of Essential Community Providers (e.g., community health centers, family planning clinics, safety-net hospitals) within their network, rather than the current requirement of at least 30 percent.
  • Network Adequacy Delegated to States. Starting with the 2018 plan year, CMS proposes deferring to the state regulators to ensure network adequacy, provided that the state has adequate authority and resources to ensure reasonable access to providers.

Unlike the traditional 30-day minimum for feedback, the NPRM has an unusually short comment period—only 20 days—for CMS to consider public comments prior to issuing a final rule. This expedited timeframe is intended to accommodate insurers who are frantically working to finalize their forms and rates for 2018.

Anthem-Cigna Merger Blocked by Federal Judge

By Ann Hogan, Class of 2018

In July of 2016, the Department of Justice brought suit to block the $54 billion merger of Anthem and Cigna. In the complaint, the DOJ alleged, “Anthem’s purchase would eliminate it as a competitive threat and substantially lessen competition in numerous markets around the country. The harm to competition in any one of these markets is sufficient to enjoin the transaction.” If the DOJ is unsuccessful and Anthem and Cigna are allowed to merge, it would become the largest health care provider in the nation. “Anthem has argued that the deal would save health insurance customers over $2 billion in medical costs because Cigna customers will be able to access discounts that Anthem is able to offer its customers.”

However, on February 8, 2017, Judge Amy Berman Jackson of the U.S. District Court for the District of Columbia ruled in favor of the DOJ stating, “it would violate antitrust law for the second- and third-largest health insurers in the U.S. to combine.” The company made a statement that it, “promptly intends to file a notice of appeal and request an expedited hearing.”

Two weeks prior to Judge Jacksons’ ruling blocking the Anthem-Cigna merger, Judge John D. Bates of the United States District Court for the District of Columbia blocked the Aetna and Humana merger on antitrust grounds. Judge Bates wrote, “the court is unpersuaded that the efficiencies generated by the merger will be sufficient to mitigate the anticompetitive effects for consumers in the challenged markets.” It seems that the judges side with the DOJ’s view that the merger of the top two companies would not be beneficial to consumers.

Selling Health Insurance Across State Lines—A Summary

By Kim Macdonald, Class of 2018

Selling Health Insurance Across State Lines—A Summary

Currently, health insurers are restricted to each state for purposes of regulation. One primary health reform proposal is to allow insurers to sell health insurance to out-of-state markets. Proponents argue that removing the state line restrictions will encourage competition, increase consumer choice, and, therefore, offer national plans with much lower premiums as determined by the market. By providing people with more options, in theory, consumers can choose the plans that provide only the benefits they need without paying for superfluous benefits.  Critics argue that allowing interstate sales of insurance will instead provide a mechanism for insurers to choose their regulator, sparking a “race to the bottom” for the states with the least restrictive regulations. In turn, removing the barriers to selling health insurance across state lines may encourage states to have less restrictive regulations to attract health insurance companies.  Removing these restrictions would likely benefit the young, healthy policy holders, resulting in lower premiums because they do not rely on regulations to cover their needs. By contrast, fewer regulations could harm older and sicker policy holders who depend on the coverage restrictions to qualify for sufficiently robust policies.

Additionally, critics argue interstate sales of health insurance would decrease the availability of policies per state, since insurers have to compete on a national market rather than a regional or state-wide market. Some critics are concerned the proposal undercuts states’ role in regulating insurance, which, counterintuitively, may increase the necessity of the federal government to further regulate the market to ensure basic minimum standards.

Insurers would also have to grapple with the difficulty of setting up a network of providers and entities without being in-state.  Insurance costs reflect the general health of an area’s population. Therefore, while one policy may be affordable in one state due to its robust network of providers, lower cost of living, and overall health of the population, the exact same policy may not translate financially across state borders. Insurers face difficulties with selling “healthy state” plans to sicker populations in other states.

ACA- Benefits and Risks

By Zachary Gureasko, Class of 2017

The future of the health care industry is as uncertain as ever, pending the potential repeal (and hopefully subsequent replacement) of the Patient Protection and Affordable Care Act (“ACA”), colloquially known as “Obamacare.”

On January 20, 2017, President Donald J. Trump signed an executive order titled “Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal.” This particular order directed federal agencies to reduce enforcements of the ACA’s requirements, subject to two limits: any reductions in the enforcement of the ACA’s provisions must be consistent with the law itself, and the change must comply with “notice and comment rule making” requirements (should the law so require). Although these are significant limitations on the order, they indicate a willingness to repeal the ACA as soon as possible and practicable. As of the date of this post, proponents of the repeal of the ACA have not tabled a viable alternative to replace the Act. They have also not designated which provisions of the Act they intend to keep, if any, although President Trump has indicated that he wishes to keep in place the prohibition on denying coverage to individuals with preexisting conditions. There are some notable risks and benefits to this prospective repeal.

One of the notable benefits is for branded pharmaceutical companies due to the bidding processes that may take place in the event of the ACA’s repeal. Although 90% of the prescription drugs in this country are generic, and therefore there is significant market control over the prescription drug industry, pharmaceutical companies have been able to needlessly increase the prices of brand-name prescription drugs. These participants, who have often increased prices for products that do not provide significant value to the consumer, will most likely suffer. Unlike generic drug companies, brand-name drug companies are subject to the industry fees imposed by the ACA. Any cost reduction realized by the elimination of these fees will be counterbalanced by substantial revenue erosion. This will pave the way for other players in the brand-name drug industry to emerge, establishing a more competitive market that will hopefully drive up value while lowering costs. President Trump has stated that it is one of his express goals to remove barriers to entry into free markets for drug providers.

Pharmaceutical and biotech companies could also realize greater revenues if the Branded Prescription Drug Fee that levies taxes on drug-makers in proportion with their market share is eliminated by repealing the ACA. Companies’ bottom lines could be benefitted even further if Trump’s tax plan succeeds, thereby decreasing business tax rates, allowing larger companies to keep more of the money they earn. Deregulation is also integral to President Trump’s long-term plan for the healthcare industry. Stocks have reportedly increased for pharmaceutical and biotech companies since President Trump’s election and inauguration.

In contrast, the risks for providers and payers are significant if the ACA is repealed completely. Without a replacement, repealing the ACA would, in the first year, cause 18 million individuals who are currently insured to lose coverage. An increase in the number of uninsured individuals will have an exceptionally negative impact on providers, as an increase in the number of uninsured correlates with a provider’s inability to collect payments from the uninsured, increasing the provider’s “bad debt.” A greater number of uninsured necessarily implies higher premiums, deductibles, and cost-sharing for those who are still insured, meaning that Medicare and other third-party payers will have to pass these costs on to consumers that are still enrolled. This will lead to a decline in Medicaid enrollment, as the historically poor and categorically needy will be unable to afford these increased costs. Private insurers could potentially benefit, since they have not experienced the increased enrollment that was anticipated under the ACA’s individual mandate. The simple fact is that repealing the ACA without a viable alternative will leave millions uninsured, and the ones losing coverage are not the ones who will feel the first, strongest financial effects. Providers and payers will experience increased costs and bad debts, and this is undesirable in an era where the focus of the industry is moving toward value-based measures.

As time goes on, it appears that the ultimate goal of ACA’s many detractors is truly to replace and reform (or “repair”) the Act rather than repeal it entirely, but the future is uncertain, for better or for worse, for all those involved in the health care industry.

 

The Prevalence of Health Savings Accounts Predicted to Increase During the Trump Administration

By Ann Hogan, Class of 2018

It is no secret that repealing the Affordable Care Act (ACA) is a top priority on the Trump Administration’s agenda. It is predicted that the use of Health Savings Accounts (HSAs) will increase and may be used as a replacement for the ACA. The Republicans favor competition among the insurance companies rather than a government-mandated program. Thus, HSAs will rise in popularity as it gives the individual more flexibility and control over their healthcare.

 

Enacted by Congress in 2003, Health Savings Accounts are usually paired with a high deductible insurance policy and allow both the policyholder and their employer to contribute money into the account for medical expenses without being taxed. Simply put, HSAs are a tax-free savings account to be used specifically for medical expenses. HSAs limit the amount of money that can be contributed to the account each year. In 2017, the policyholder and their employer may contribute up to $3,400 to an HSA for individuals and $6,750 for families. Policyholders age 55 and older can contribute an extra $1,000 each year. However, unlike the “use it or lose it” function of Flexible Spending Accounts (FSAs), HSAs allow the policyholder to keep their balance and continue saving from year to year. Another attractive feature of the HSA is that the policyholder can take their HSA with them if they were to switch jobs or insurance providers.

The Trump Administration believes that the increase of HSAs will give individuals more control over their health care decisions and costs resulting in better quality outcomes in care and cost. According to the 2015 Census of Health Savings Account – High Deductible Health Plans, AHIP Center for Policy and Research, Nov. 2015, “nearly 20 million Americans have an HSA.” The Report from the Health Care Reform Task Force states that House Republicans have proposed HR 5324: Health Savings Account Expansion Act of 2016 by Rep. Dave Brat. While the healthcare reform process will be slow to change, the utilization of HSAs are predicted to increase.