Health insurers and their customers have the biggest stake in the future of the Affordable Care Act, but the effects of the Supreme Court once again weighing in on the law could reverberate across the entire healthcare industry, including pharma.
After nearly a decade weathering political attacks and repeal attempts, the healthcare law again faces an uncertain future after a Texas judge struck down the entire law as unconstitutional in December.
U.S. District Judge Reed O’Connor said the ACA was only upheld by the Supreme Court in 2012 because of the individual mandate, which requires people to purchase healthcare insurance or pay a fine. He ruled that because the mandate penalty was eliminated in 2017, the law can no longer stand.
Experts say if the ACA were struck down, it could send the healthcare system into chaos. However, most are predicting it will ultimately not be ruled unconstitutional.
Still, O’Connor’s ruling has implications beyond the government healthcare marketplace, noted APCO Worldwide senior director William Pierce, because the law is full of provisions that affect healthcare access and cost. The ACA added 20 million people to the insurance pool through changes to Medicaid and employer insurance rules.
But the law goes beyond insurance: It also helps to control costs, including implementing lifetime spending caps and coverage of preventive services and pre-existing conditions. “There’s all this other stuff in the ACA that seems to have absolutely no impact on the individual marketplace,” Pierce said.
“If this were to be upheld as far as it goes [to the Supreme Court], then the impact would be profound on almost everybody who’s in the healthcare space.”
Potential pharma impact
It’s not just insurers who should pay attention to news about the ACA. The sudden change could cause upheaval among all areas of the industry, even though the ACA doesn’t have many provisions that apply directly to pharma.
Notable exceptions include the Biosimilars Act, which cleared a pathway for the copycat versions of biologic drugs, and the Sunshine Act, which required drugmakers to disclose payments to doctors.
Both of these acts are also at stake if the law is struck down, potentially stalling the nascent biosimilars market and striking a blow to the government’s push for transparency around pharma’s payments to doctors.
If this were to be upheld as far as it goes [to the Supreme Court], then the impact would be profound on almost everybody who’s in the healthcare space.William Pierce, APCO Worldwide
If the ACA were found to be unconstitutional, the ruling likely wouldn’t have immediate effect, Pierce explained. Its provisions would likely be phased out over a period of time, during which lawmakers could build its replacement, either at the federal or state level.
“That would be laid down before Congress, but that could take a while,” he said. “If the next appeals court were to uphold [O’Connor’s decision], this is going to ramp up pressure tremendously on Congress and the administration on some kind of plan to fill in if the ACA is struck down.”
That means provisions such as the Biosimilars or Sunshine Act would need to be passed through Congress again.
Congress could build a new federal insurance market or states could take up the mantle. Several Democrat-led states and cities have made moves to provide government-subsidized insurance to more residents, including California, New York, and Washington state.
The larger pool of healthcare beneficiaries had a domino effect. More patients means more drugs bought at pharmacies and used in hospitals, which leads to more money going back into insurance companies, PBMs, health systems, and pharma and device companies.
Meanwhile, the case, coupled with the focus on areas such as drug pricing, is piling even more scrutiny onto the healthcare industry and its rising costs.
“The ACA judgment is just one point of interest, but what really matters going forward are the fundamental changes in healthcare, and that goes down to unaffordability,” said David Gruber, M.D., managing director in the healthcare industry group at Alvarez & Marsal.
President Donald Trump’s efforts to tackle one aspect of unaffordability — drug prices — may also be affected by the ACA, noted Hunter Hammond, an analyst at Height Capital Markets.
Some of Trump’s proposals to lower drug prices, such as the program basing Medicare and Medicaid prices on international drug prices, rely on a division of the Centers for Medicare and Medicaid Services created by the ACA called the CMS Innovation Center.
“There’s an interesting dichotomy,” Hammond said. “Trump was happy to take a win from the Texas judge ruling, but needs the ACA and CMS to achieve some drug pricing policy.”
Although O’Connor’s ruling did not have immediate effect, both lawmakers and health companies are preparing for a long appeals process. Analysts from Height Capital Markets predict the Fifth Circuit will rule in Q3 2019, and the case will reach the Supreme Court in 2020 at the earliest.
If the case reaches the Supreme Court, the analysts noted, the five Supreme Court justices who upheld the ACA in 2012 in a 5-to-4 vote are still on the bench.
One potential outcome is a route Pierce calls “splitting the knot,” in which the courts agree the individual mandate is unconstitutional, but decide to separate it from the majority of the ACA.
That outcome would separate just a few clauses, including the mandate and those ensuring coverage for pre-existing conditions and equal insurance prices for people regardless of health status, from the remainder of the law in this case.
Health insurers should start talking to lawmakers and the public about the value of their services and the benefits of having an insurance marketplace such as the one created by the ACA, Pierce said. However, these companies should avoid the political fray, he warned.
“All of a sudden, the value of health insurance will become quite apparent,” he noted. “[Insurers] have to talk candidly about what this would mean for the healthcare marketplace as we know it and focus on the benefits of the marketplace itself without getting into the political side, such as the stability and consistency [for healthcare].”
The heated partisanship around the ACA may make that task difficult, explained Hammond. The timing of the Fifth Circuit and Supreme Court rulings would put the ACA case in the middle of the 2020 presidential election, he said, where it would likely become a major talking point.
Insurers have gotten used to the environment created by the ACA, and it has generally been good for their bottom lines, Gruber noted.
However, if significant changes to the ACA take place because of this case, larger companies would have better luck weathering the storm than smaller competitors.
Meanwhile, enrollment in the ACA healthcare marketplace was down for the second straight year in 2018. Signups dropped about 4% during the shortened enrollment period, about 367,000 fewer people than 2017. Even with fewer people on the market, the impacts on business and those who gained insurance could be huge.
“It creates tremendous instability and uncertainty,” Pierce said. “That’s not good for business and could tremendously impact access to healthcare. That is the end goal: that you can go to the doctor and access your medicines.”