The Chaos of Uncertainty in Healthcare During the Transition to the New Administration

Uncertainty was the theme of the day during the 21st annual "Wall Street Comes to Washington" roundtable, hosted by the Leonard D. Schaeffer Initiative for Innovation in Health Policy, a partnership of the Brookings Institution Center for Health Policy and the USC Schaeffer Center for Health Policy & Economics.

Following Donald Trump’s unexpected election as the next president of the United States, people in the industry are left with a lot of unknowns, panelists explained, which has led to market volatility for healthcare stocks.

Who will run HHS or be the next administrator for CMS? Sheryl Skolnick, director of research at Mizuho Securities USA, reiterated that there is a lot that people just don’t know at this point. But that’s not the only problem facing analysts and the healthcare industry.

“Then there’s the backpedaling,” Skolnick said. “Maybe we don’t want to take 20 million people’s health insurance away.”

As a result, there is tremendous uncertainty and the markets are attempting to make certainty out of uncertainty. “We’re rationalizing and in that rationalization lies danger when we know nothing more today than we did a week ago,” she said.

Instead, investors are making directional bets, explained Matthew Borsch, healthcare equity research analyst for Goldman Sachs. One thing people expect to see with Trump as president and a Republican-controlled Congress is more de-regulation in the commercial market and a shift toward Medicare privatization. He did express some skepticism at the latter.

“I think it’s a stretch to use the word ‘privatization,’” he said. “It might just mean a faster growth for Medicare Advantage.”

When it comes to Medicaid and Medicaid expansion, “the market has thrown up its hands,” Borsch said, because no one has any idea what is going to happen. As a result, stocks for companies that have benefited from Medicaid expansion have seen a lot of selling off.

Another change in direction under the new administration could be the tone in dealing with proposed large health insurance mergers. Ana Gupte, managing director and senior analyst of healthcare services at Leerink Partners, speculated that Aetna probably regrets pushing to get a trial date by the end of 2016 since the Department of Justice under Trump will probably be more business friendly.

The only known? The Affordable Care Act (ACA) is going to undergo some major changes. It is clear that the individual mandate has not worked, said Gupte, and that seems the one provision that will definitely get cut from the healthcare reform law.

However, the problem remains that the sustainability of the health insurance market is called into question if, as Trump has indicated, Republicans keep the guaranteed issue, but get rid of the individual mandate. Keeping the guaranteed issue, but also wanting affordability simply won’t work, said Skolnick.

Looking at the situation in a “glass half full” light, Borsch said he thought the country might be on the cusp of getting bipartisan acceptance of healthcare reform.

“Because we had the partisan Affordable Care Act, and now the Republicans are inheriting that with a pledge to repeal and replace,” he said. “They will own it and they will have to take it seriously.”

He optimistically hopes to see a restructuring of the individual market, including the exchanges in some fashion, to allow for more product flexibility so products can be tailored to younger and healthier populations. Plus, even if Republicans don’t keep subsidies, they may include tax credits to help people purchase coverage, because there will likely have to be some time of required continuous coverage to replace the individual mandate.

Skolnick took a more pessimistic view, and doesn’t see much hope for bipartisanship. She also worries about infighting within the GOP and if the party can even come to an agreement among itself.

“It’s now the Republicans’ problem,” she said. “You wanted it? You got it. Ok, now what are you going to do?”

The challenges that faced the ACA are still here and most solutions are just “variations on a theme.” She wonders how the Republican constituency will react when they wake up one day and realize it’s the same healthcare under a different name.

She added that there is no guarantee that the Republicans or anyone else can ever get this right. There is a fundamental problem in that the only people who want to buy health insurance are sick people, which makes it costly.

Skolnick concluded by reminding people how difficult it was for President Barack Obama to get the ACA passed when he came into the White House with a clear mandate and 60 votes in the Senate, and it still took 2 years. Republicans do not have the 60 votes needed in the Senate. So she recommended that if Republicans really want to repeal and replace the ACA, that the need to do it first and foremost, and quickly.

“Get it passed,” Skolnick said. “We can’t deal with … the uncertainty. It doesn’t matter what the replacement is, just give it to us.”