A conversation with Michael Klotz of Pragmatic Funds.
A Reuters-Ipsos poll* conducted in late August 2018 found that 70% of Americans favor “Medicare for All” including 52% of Republicans and 85% of Democrats. Even though healthcare has been mentioned as a top issue for the upcoming primary elections, a solid majority sentiment towards what amounts to essentially a Single-Payer model is somewhat surprising.
While Pragmatic Fund Management (“PFM”) considers the likelihood of any significant policy changes as very low, at least in the short-run, it is worth considering what such a long-term trend and potential disruptive policy change might mean for the Pragmatic Seed fund portfolio companies.
Before analyzing the potential impact of a move towards Medicare-for-All system, we need to make some general assumptions and speculate, to some degree, what the broad outlines of such a policy shift would look like.
The following broad assumptions are being made for purposes of this analysis presentation
— Medicare-for-All will have two key goals:
• Provide Universal coverage
• Reduce healthcare costs (inflation, % of GDP, other)
— To accomplish universal coverage and yet maintain choice and variety, a combination of public (government-direct) and private (e.g. Medicare Advantage) programs will be available
— To accomplish cost savings, the current Medicare (direct) model with an estimated 2% administrative overhead cost will be the benchmark the program will aspire to reach
— Overall the structure will be similar to current Medicare (Parts A, B), Medicare Advantage (Part C) and Part D (prescriptions) and also borrow from insurance exchanges (ACA)
— It is not clear whether Medicaid would be rolled up, but the (state) programs will likely be more standardized across the US
— States will have some autonomy to drive their own version of some programs (see Exchanges in ACA) and continue to regulate health plans under their insurance commissions
— Employers’ roles will significantly change away from plan sponsorship to providing specialized, edge-type benefits and perks
— This analysis will ignore programs including Dental, Vision, Behavioral Health and Long-Term Care. While these are important, these details are beyond a meaningful analysis PFM can currently provide
— It will take at least until 2021 to see passable legislation and a potential political constellation that would allow for the passing of a Medicare-for-All type legislation
— After legislation has been passed, a transition period of at least three, but as many as ten years for certain aspects and programs will be provided, not dissimilar to the roadmap that has been developed for rolling out all the aspects of the Affordable Care Act of 2009.
— Private sector health insurance/payer organizations (for and not-for profit) will still play a significant role in the new system by providing alternative and add-on programs that align with Medicare-for-All. Present-day equivalents are
• Medicare Advantage Plans
• Supplemental Insurance Plans
Impact on the Overall Healthcare System
The impact on the overall healthcare system will be significant. Which is obviously the point.
On the government and regulatory side, it seems clear that HHS/CMS and related agencies will undergo significant changes, only topped by even more significant changes in money that flows through these agencies. State agencies (mostly current Medicaid-related) will also see likely changes which are more difficult to predict. However, it is reasonable to expect that any services provided/administered by states will become more uniform across the US.
Consumers will also see drastic changes, not least because the most likely version of Medicare-for-All is that the government is replacing employers as the primary sponsor of healthcare for the working populations, which will significantly change how consumers and companies are taxed, on one hand, and how consumers select, enroll and get assistance with their healthcare coverage.
Providers will also see changes, but likely these changes will be a continuation of already significant changes in payment, risk-share and cooperative trends, which can be summarized as the move towards value-based care and corresponding value-based payment models.
Payers will see the most significant changes. The aggregate number of people in health plans (as opposed to the Medicare model which pays providers directly) may shrink significantly if Medicare-for-All extends the direct Medicare model that is currently in use (in addition to Medicare Advantage, which continues to grow in popularity and number of subscribers). The mix of health plans will also change dramatically towards a more homogeneous type of plan (with some variations), which, at least in the long run, should simplify plan management and administration.
Payers which have a plan portfolio heavy on commercial (employer sponsored and individual/Exchange) and Medicaid will have to prepare for dramatic changes in both operating models and membership number and possibly member demographics. A failure to anticipate, plan and execute on the transitions could would likely result in significant problems, including bankruptcy.
If you would like to continue the conversation, Michael can be reached at: firstname.lastname@example.org