The Undercurrent of the Supreme Court Decision: Money
So, it looks like June 25th will be the moment of truth we have all been anticipating. The Supreme Court is expected to hand down its ruling on the 2010 healthcare reform law. Who knows what will happen? Tom Norton reports.
Politically, no matter what the call is, President Obama will be in the center of this SCOTUS drama. A decision from the Supremes which completely kills the law could be viewed by the DC punditry as Obama’s “Jimmy-Carter-military-fiasco-in-the-desert” moment; or, conversely, a SCOTUS finding fully endorsing the law could be just as easily spun as a Harry Truman-like, “I-make-the-hard-decisions” deal. Either way, it’s going to have a big impact on the fall presidential elections.
But beyond all this political hyperbole, I want to ask you to consider a different, very real undercurrent of the Supreme Court’s decision: Money, lots of money. Who understands this undercurrent and is worrying about the money at stake here? Well, many different groups, both private and public, in all walks of life. Let’s review a few of the more obvious players and their unique, money-oriented view of this SCOTUS decision.
Private Healthcare Businesses
First, it’s clear the pharmaceutical industry has an awful lot at stake, no matter what happens. Over the course of the next 10 years, it is estimated the industry stands to gain an estimated $115 billion in new Rx revenue. All of that could be entirely lost if the law goes down. ( http://tinyurl.com/cy4gp6e).
More specifically, according to another report released by Bloomberg Government, Pfizer, the largest US drug maker by sales, could lose $6.2 billion in sales over the next 8 years, if the law is overturned -- the most of any of the big pharma group. That works out to an average of $770 million a year, or 3.2 percent of PFE’s 2011 reported U.S. pharmaceutical-related revenue. Given the times, it’s not something I imagine Pfizer, or any drug company wants to contemplate.
But this loss of Rx revenue could be compounded even further if some sections of the law are ruled as permissible. In that case, it could be that expensive “gimmees” in the law that the industry agreed to provide in its 2009 deal with President Obama—would be retained and not rescinded. These include concessions that increased the use of generics, as well as discounts on expensive branded drugs the industry “contributed” to the closing of the so-called ‘donut hole’ in Medicare prescription drug coverage could stick. Both are big ticket items.
And think about this: What would the combination of direct HCR revenue losses and/or continued expensive 2010 HCR obligations do to big pharma’s stock? Nothing that is good, I would think.
Moving on, let’s look at another big healthcare position tied up in this Supreme Court case: the insurance industry. These folks could also be deeply impacted if the law is vaporized. Again, according to Bloomberg Government,( http://tinyurl.com/865of6m ) it’s estimated the health insurers stand to gain $1 trillion in new revenue over the next eight years, if HCR plays out. However, as mandated in HCR, 80 percent of any new revenues must be allocated to patient services and care by the insurers. So, that would net out to a $200 billion revenue increase, still a fairly serious piece of change. If the law goes down, though, it’s all gone.
And as the Rx folks have learned, insurers now understand that they also may have to continue providing various aspects of the new HCR, no matter what the Supreme Court decides. Think “keeping kids on parent health insurance policies until they turn 27”; “offering coverage without limits”; “covering certain “preventive care services without copayments”; and “providing access to independent appeals.” ( http://tinyurl.com/d6t5yk4 ) Currently, insurers are squishy about offering “insurance for those with pre-existing conditions”, but I would bet a lot they will end up caving on that one, too. All totaled, this could mount up to a bunch of lost money for the insurers.
Another study which focused on several different healthcare businesses in the 27 states that brought suit against HCR found big losses for these groups. Anticipated losses for managed care plans, nursing homes, and inpatient hospitals businesses operating in those states would amount to $207 billion for the period 2014 to 2018. Biggest losers in this review? Managed-care. They would miss out on nearly $50 billion in revenue during those five years; followed by nursing homes, $29 billion; and inpatient hospitals, with an estimated $28 billion loss ( http://tinyurl.com/d5rx74m). And remember, these estimates are only for the healthcare businesses operating in the 27 states that filed the suit.
And finally, -- by percentage of revenue -- what entity appears to be the biggest potential healthcare loser of all, assuming a complete rejection by the Court? It looks like the home health care business would take the prize, losing more than 11% of total revenues from 2013 to 2020 if the Supremes decide the entire law is invalid (http://tinyurl.com/coh9lrx ).
So as you look across the range of various private healthcare entities, enormous amounts of money are riding on this upcoming June 25th SCOTUS decision. Needless to say, these businesses are very anxious about the outcome.
Meanwhile, back in Washington, “healthcare revenues” means something entirely different. Washington sees the possible demise of HCR as a Congressional budgeting bonanza! About two weeks ago, it occurred to some Republican Members that if SCOTUS knocks down some or all of the law, voila’, hundreds of billions of dollars would all of sudden not have to be “spent” by the federal government and could be used for other federal “needs”. How would this work? Consider some of the numbers:
· The Congressional Budget Office estimates that eliminating the law's "individual mandate" would “save” Congress $282 billion in federal spending over 10 years
· Cigna estimates that the “recovery number” would jump to more than $500 billion through 2022 if the mandate and related insurance market reforms, such as the requirement that insurers provide coverage for people with pre-existing conditions, are struck down.
If you throw in “savings” from an entire HCR blowout by the Court, including the costs associated with the Children’s Health Insurance Program (CHIP), and the planned Medicaid expansion, Politico estimates the totals could go as high as $1 trillion dollars, which is a very interesting number if you are a Member of Congress stewing over the oncoming $1.2 trillion mandatory sequester budget that Congress must face in January of 2013.
Of course, all of these “savings” go out the window if the law is upheld…So it’s safe to say, even for Congress, with a trillion dollars in play they are watching the outcome of the Supremes’ decision carefully.
And what about out there in the real world of state governments? What are the states going to do if HCR goes down? In this venue, it really could get grim.
The need for HCR money in the states is desperate. This is because the Great Recession has already ravaged state healthcare programs, even as new healthcare services are being promised under HCR. Politico describes this situation as creating “an unknowable, sweat-inducing array of scenarios…as state policymakers seek ways to keep their residents healthy” (http://politico.pro/LpvxnV). This is all about ever increasing, unmet state medical needs that collide directly with the constitutionally mandated balanced budgets that most states adhere to. So, if the states don’t get new HCR money for expanded Medicaid and the other new services that they are now obligated to provide under HCR, they cannot, and they will not provide that new healthcare to their citizens. This can only lead to big trouble at the state level. Even if they get HCR money, it will be tough providing current state care, much less the newly promised HCR services; without HCR money, most state folks don’t even want to talk about it. This is one venue this is completely focused on the money side of HCR.
So, I hope you have begun to appreciate the multiple issues woven into this Supreme Court decision next week. There’s no doubt this determination by SCOTUS is going to generate a major legal moment in American socio/political history. And that’s what everyone is focused on.
However, I think we also need to understand there are deep private and public undercurrents coursing through this Supreme Court decision that will add up to massive gains or losses for numerous industries and many government entities. An awful lot is on the line.
And thinking more broadly, you have to wonder how that cold, hard money-tinged fact will manifest itself in the delivery of American healthcare in the months and years ahead? Well, I am not sure. But I would say that within a week, we will begin to find out.
Tom Norton can be reached at email@example.com
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