ACA Post-SCOTUS – What Matters Now


The Court’s rule modifying the Medicaid expansion (you can make the additional federal funds conditional on state participation in the expansion, but not all Medicaid funds) appears to be violated by the ACA’s Medicaid maintenance of eligibility (MOE) provisions

MOE provisions require the states to retain Medicaid eligibility standards from the date of ACA passage until roughly 2019. In effect these provisions require the states to carry boom-level Medicaid generosity through bust-level (i.e. lower) state revenues and (i.e. higher) Medicaid enrollment. The ACA makes all federal Medicaid support conditional on complying with the MOE provisions; this appears to directly violate the rule created to address the Medicaid expansion

States are likely to agitate for eliminating the MOE provisions. Being close to the (2014) start date, losing MOE probably has less to do with reducing spending (+/- $1B in 2013) and more to do with who does the spending. If MOE falls, states will push what Medicaid enrollees they can onto the exchanges, where these enrollees will be subsidized entirely by federal dollars. Such changes would reduce Medicaid enrollment projections, and may be material to Medicaid HMOs

Repeal is a long shot at best. The odds of a Romney win AND a 60 seat Senate super-majority are infinitesimal; repeal can thus only proceed under reconciliation. Even these odds are incredibly long

Setting aside the MOE question, states will participate in the Medicaid expansion for simple Keynesian reasons – for every $0.10 they spend they appear to get around $0.82 in benefit

Consensus seems to frame the mandate in terms of post-2014 volume gains, but we think these will disappoint. Employers are likely to shift employees to exchanges, where fewer buy insurance and those who do purchase buy less. Today’s uninsured will benefit from the exchanges, but because of the high marginal costs of buying coverage – even on the exchanges – fewer will buy than is generally expected

Hospitals now have a clear source of pricing power. Health plans should see 2014 as an enrollment land-grab; however the marginal enrollee has little familiarity with health plan names and no primary care relationship, but recognizes the name(s) of the preferred local hospital(s). Hospitals are the recognizable brands that draw the marginal enrollee; this means pricing power pre-2014

IPAB is here to stay; the closer its start date (2015) looms, the tougher it is to muster the pay-fors to eliminate it. IPAB can only work by reducing the price of innovative (device, drug, biotech) products used in Medicare beneficiaries’ care, and the necessary reductions are quite large

The AWP replacements likewise are here to stay – with ACA clear, the states should soon move away from AWP, followed eventually by larger commercial buyers. The information asymmetries embedded in AWP enable large generic dispensing margins; when AWP goes these margins fall

For details, please read the full text here

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