by Paddy Padmanabhan

Trump’s executive order on the ACA: early scenarios for healthcare tech firms

Jan 25, 2017
Healthcare IndustryTechnology Industry

The executive order signed last week is the first step toward dismantling the ACA. The order has significant implications for technology firms operating in certain markets.rn

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President Trump wasted no time getting down to business after his inauguration last week. His very first action in office was to sign an executive order that gives federal agencies broad powers to dismantle the Affordable Care Act (ACA). Through the order, federal agencies were advised to minimize the “unwarranted economic and regulatory burdens” of the ACA. There are direct and indirect implications for different segments of the healthcare industry and the technology sector, both in the near term as well as the medium term.

Here are a few initial takeaways for the technology sector:

The executive order allows agencies to “waive, defer, grant exemptions from or delay” taxes or penalties pertaining to the enforcement of ACA rules. The order is widely understood to be an approval to waive penalties on individuals who choose not to insure themselves. The ACA’s individual mandate had made it a requirement for every individual to obtain insurance, or face penalties. While there may not be any implications for 2017 (the open enrollment season has ended, and coverage under policies bought on the exchanges is guaranteed until the end of the year), 2018 could see a disruption in the individual exchange markets. The Congressional Budget Office (CBO) has estimated that the number of uninsured people may rise to as many as 32 million and that the cost of premiums could go up significantly.

  • Health plans that derive a significant amount of revenue from members acquired through exchange enrollments will slow down on technology investments on exchange products, and may well start to unwind existing exchange IT infrastructure.
  • Companies whose revenues are dependent on exchange enrollment levels, such as those that offer member support and benefit management services, could be impacted if membership starts dropping and individuals decide to abandon the exchanges.

The order encourages agencies to work toward creating a system that allows the sale of health insurance across state lines, and toward “achieving and preserving maximum options for patients and consumers.” This action is clearly intended to drive competition, which will improve consumer choice and keep premiums in check. It could also be a big opportunity for some health plans. However, others, such as regional plans who do not have the scale or resources to operate in interstate markets, could be at risk.

  • Interstate markets would be a new opportunity for health insurance companies that will look to launch new products and create an IT infrastructure to manage these new lines of business.
  • The competition will drive advanced analytics for targeting and segmentation, and boost healthcare consumerism. It could also provide new opportunities for digital health firms with platforms that help launch and manage products for health plans.

The order does not specifically mention Medicaid, however by allowing states more leeway with administering the ACA rules, Medicaid expansion in 31 states could be rolled back through funding cuts. The withdrawal of financial support to state Medicaid programs could cause some revenue impact for health plans with a large Medicaid population.

  • Health plans with a managed Medicaid portfolio will likely see a revenue impact from lower per-member per-month (PMPM) revenues, which will have downstream impact on technology and services firms that support health plans with a large Medicaid portfolio.
  • Depending on what replaces ACA Medicaid expansion (there are some reports of block grants as an alternative), technology investments in upgrading existing systems or building new systems could drive IT spend in the near term.

The executive order seeks to reduce the economic and regulatory burdens on every part of the healthcare ecosystem, including “individuals and families, healthcare providers, health insurers, patients, recipients of healthcare services, purchasers of health insurance, or makers of medical devices, products, or medications.” The medical devices industry may benefit in the short term if the government chooses to eliminate the medical device tax. President Trump has said he favored simplifying FDA approval procedures for launching new drugs (although he has been recently critical of the pharma industry’s pricing, the withdrawal from the Trans Pacific Partnership could also impact the pharma sector). Depending on how these play out, discretionary spending across the board, including spending on technology, will be impacted.

The dismantling of the ACA has to go through administrative processes that could take time. Moreover, some aspects of the ACA cannot be unwound without congressional approval.

The big unknown at this time is what will replace the ACA. President Trump has indicated he favors a replacement that will provide insurance for everybody. Till the details emerge, the healthcare markets will be in wait-and-see mode. Technology firms will need to assess risks and opportunities from their current market footprint and develop scenarios for the future.

More to come.