Finance and Business Strategy

Why the nation could see major healthcare reform legislation soon

January 24, 2023 4:17 pm

Don’t expect much healthcare reform from the 118th Congress. That’s what many pundits said after the mid-term elections, based on two common assumptions.

1 The administration had its shot. During the first two years of President Joe Biden’s first term, when Democrats controlled the White House, the Senate and the House, healthcare reform was mostly limited to temporary measures related to the public health emergency, surprise medical billing and Medicare drug price negotiation. A House now under GOP control and a slim Senate majority for Democrats will give Biden even less room to maneuver legislation.

2 All eyes are on the 2024 presidential election. Politically speaking, the best chance for healthcare reform in the 118th Congress would be a contested Democratic primary, where Biden would look to bolster his healthcare resume to outflank a progressive opponent. As it stands, however, Democrats appear to be united in support of the president’s reelection. Republicans, meanwhile, largely abandoned healthcare as an election issue after failing to “repeal and replace” Obamacare in 2018, and they are not likely to reopen old wounds with the public’s attention on the economy.

For healthcare finance leaders, it would be convenient to accept these assumptions as true and cross legislative risk off the list of things keeping us awake at night. Unfortunately, however, a more circumspect read of the tea leaves suggests a different future.

3 trends may tell a different story

Emerging trends may soon push Washington to enact healthcare reform faster than anticipated.

1 Lagging healthcare inflation is about to hit consumers’ wallets. For the first time since 2008, healthcare no longer appears to be a top voter concern. Instead, according to polling by Harvard T.H. Chan School of Public Health/SSRS, mid-term elections in November were about financial well-being. Voters ranked healthcare 12th on the list of issues that were “extremely important” to them — behind gas prices (fifth), the economy and jobs (third) and inflation (first).a It’s surprising that voters did not rank the need for cost-effective healthcare higher, given that Americans spend on average nearly 12% of their annual income on insurance premium contributions and deductibles alone.b But this public sentiment could change between now and 2024.

Based on the average three-year commercial insurance contract, the next two years represent the first opportunity for many hospitals to shift pandemic-era costs (2020-2021) to payers and employer-sponsored plans during contract negotiations. Likewise, governmental payment mechanics guarantee historical inflation will soon creep into the next two year’s prices. Inevitably, as many of these costs trickle down to employees and beneficiaries, Americans will turn to Washington for solutions (and particularly if this dynamic plays out during a recession).

2 Big U.S. employers are beginning to organize. Between now and 2024, the top challenge for U.S. employers is clear: Control healthcare costs. According to a recent Willis Towers Watson (WTW) survey, 94% of large employers say managing healthcare benefit costs will be their top priority over the next two years, with 73% citing healthcare inflation and provider consolidation as their greatest obstacles.c

Already, some employers are moving beyond traditional healthcare cost management strategies (e.g., cost-shifting, high performance networks, benefit redesign) toward experimenting with collective market power. Take, for instance, the recently announced partnership between the Purchaser Business Group on Health (a coalition of large U.S. employers) and Mark Cuban Cost Plus Drug Co., called EmsanaRx Plus, aimed at providing discounted drugs to self-insured employers.d Or consider a recent Axios report of employer industry giants partnering with advocacy groups in Washington to push back against hospital prices (including, for example, Arnold Ventures, Families USA and Alliance to Fight for Health Care).e

Meanwhile, individual employers such as JP Morgan Chase and Amazon have announced innovative care delivery models to take the care of their employees into their own hands.

After years of absorbing status quo cost-shifting, a tight labor market will encourage these employers and others to explore innovative strategies, many of which will require extensive legislative and/or regulatory lobbying.

3 The political marketplace is evolving on healthcare reform. According to an analysis by McKinsey & Company, national healthcare spending is on track to grow faster than national economic growth (real GDP) in 2023 by up to 5.9 percentage points.f This projection compares with a 3.0 percentage-point differential between healthcare spending and economic growth in the decade prior to the  2010 enactment of the Affordable Care Act (ACA) and a 0.3-point differential in the period between ACA enactment and the onset of COVID-19 in 2020. In the modern era (1970-present), whenever this differential has exceeded 5.5 percentage points (as has occurred five times), policymakers in Washington have swiftly intervened with significant legislative and/or regulatory action.

Should this threshold be crossed in 2023, policymakers in Washington have proven they have a growing appetite to work across the aisle to enact major reform. Examples include repeal of the Medicare sustainable growth rate in 2015, medical device and drug development reform (2016), opioid legislation in 2018, surprise medical bills in 2020 and Medicare drug price negotiation in 2022. This past year saw a few other interesting developments:

  • Sen. Tammy Baldwin (D) and Sen. Mike Braun (R) began working together to target anticompetitive provisions of contracts between health insurers and hospitals.
  • Rep. Vicoria Spartz (R) and Rep. Pramila Jayapal (D) introduced legislation to empower the FTC to scrutinize non-profit hospital consolidations.
  • Rep. Frank Pallone (D) and Rep. Cathy McMorris Rodgers (R) continued their quest to scrutinize hospital compliance with price transparency rules.

Reform in the offing?

These trends suggest major healthcare reform remains a real possibility in the next congressional term. Healthcare finance leaders should not assume that action is off the table. 

Footnotes

a. Bipartisan Policy Center, “Health policy in the next Congress,” Webinar, Dec. 1, 2022.
b. Statista, “Percentage of median income spent on premium contribution and deductible by U.S. employees from 2008-2020,” 2022.
c. WTW,  “Employers to tackle employee healthcare affordability amid rising costs,” Press release, April 26, 2022.
d. Levy, S., “Mark Cuban Cost Plus Drug Company partners with EmsanaRx,” DSN, Dec. 12, 2022.
e. Owens, C., Goldman, M., “Health care’s sleeping giant: Employers,” Axios, Nov. 3, 2022.
f. Fleron, A., Shubham, S., “The gathering storm: The uncertain future of US healthcare,” McKinsey & Company, Sept. 16, 2022.

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