Election Spotlight: Healthcare Reform
By IBISWorld Analysts Radia Amari and Anna Son
“I want America to have the finest healthcare in the world. And I want every American to have that care when he [sic] needs it.” President Richard Nixon made that proclamation in 1971, 41 years before President Barack Obama and president-hopeful Mitt Romney officially begin debating the perennially divisive issue of healthcare reform in the run-up to the November elections. In 2010, the Obama-endorsed Patient Protection and Affordable Care Act (PPACA) passed Congress, a legislation that has been compared to the one put into effect during Romney’s tenure as Massachusetts governor. In June, the US Supreme Court upheld the healthcare law, which is generally considered the most far-reaching healthcare reform since the passage of Medicare and Medicaid in 1965. In fact, a group of 26 states and the National Federation of Independent Businesses, a small-business lobbying group, petitioned the validity of the healthcare legislation, including its mandate for all Americans to acquire health insurance.
The PPACA includes provisions to expand insurance coverage to more Americans by prohibiting insurance carriers from excluding people with preexisting conditions, while also mandating that all Americans purchase health insurance or face a fine. Many of the 450 provisions will be implemented by 2015, unless Romney wins the election this November and repeals the act.
Despite the Supreme Court’s ruling in favor of PPACA provisions, Romney has pledged to dismantle the legislation and replace it with a version that limits federal government reach. According to Romney’s plan, which remains more of an abstract than a detailed proposal at this time, most healthcare responsibility will shift to the individual. For example, he suggests moving away from employer-insured programs by giving employed Americans a tax break to purchase healthcare plans. Romney’s proposed healthcare legislation deviates from what he helped implement in Massachusetts. In 2006, the Massachusetts General Court passed “An Act Providing Access to Affordable, Quality, Accountable Health Care,” a bill providing universal healthcare for the state’s residents.
Following the emergence and implementation of these acts, the healthcare reform debate has become one of “Obamacare” versus “Romneycare.” So what will happen to healthcare if Obama wins the election? And if Romney is elected? More specifically, how will the medical sector, including the Primary Care Doctors industry (IBISWorld report 62111a) and the Pharmacies and Drug Stores industry (44611), and non-healthcare industries be affected?
What follows is a discussion of several of the most-affected industries (in terms of revenue and risk) if Obama is reelected or Romney is elected. The report takes the adoption of the remaining PPACA provisions as its point of departure. Depending on each candidate’s plans for the future of PPACA, two key drivers for the healthcare sector are at the heart of the matter: the number of people covered by private health insurance and federal funding for Medicare and Medicaid. Furthermore, regardless of whom is elected, the president will require Congressional support to pass additional healthcare measures, which adds a level of uncertainty to either candidate’s effect on healthcare regulation. At the same time, the president will have the power to veto existing policies and push for new ones. These potential policies are the focus of this special report.
Click here for Healthcare Industries Risk Level By Candidate
Policy Issue: Health Exchanges and the Individual Mandate
According to a study completed by nonprofit organization Commonwealth Fund, one in four working-age Americans were without health insurance at some point in 2011. Nonetheless, the PPACA’s individual mandate, which requires US citizens to obtain health coverage or pay a penalty, has not been without its controversy. Opponents of the reform, including Romney, consider the federal government’s imposition of the mandate a violation of individual freedom and, therefore, unconstitutional. (The Supreme Court released its ruling in late June, upholding the original statute’s provisions.) The United States spends about 18.0% of its federal budget on healthcare. If elected president, Romney has promised to repeal the PPACA, including the mandate for universal healthcare, driving the number of people covered by private health insurance up and the federal funding for Medicare and Medicaid down. If Obama is reelected, the mandate will take effect in 2014, driving the number of people covered by private health insurance down and the federal funding for Medicare and Medicaid up.
Primary Care Doctors and Specialist Doctors
IBISWorld reports 62111a and 62111b
If the individual mandate takes effect in 2014, more than 32 million uninsured Americans will receive insurance coverage by 2019, which will further boost demand for primary-care and specialist physicians, especially in the form of preventative care. (The PPACA requires that free preventative-care services, like mammograms, be included in insurance plans.) At the same time, a shortage of physicians could create problems for the influx of newly insured patients. The Primary Care Doctors industry includes primary-care doctors who are trained to treat a wide variety of health-related problems, provide basic and continuous care and offer referrals to specialists. Specialist physicians limit their practice to a particular branch of medicine or surgery.
Over the five years to 2012, revenue for both industries has increased; however, high unemployment brought on by the recession and slow economic recovery since has stifled demand. High unemployment has left many Americans without employer-based insurance or unable to afford premiums for directly purchased insurance. Private health insurance accounts for an estimated 55.0% of each industry’s revenue. Over the five years to 2017, revenue for the Primary Care Doctors and Specialist Doctors industries will grow at an estimated annualized rate of 4.5% to $214.0 billion and 5.2% to $553.0 billion, respectively. If implemented, the mandate will drive much of the demand, but other factors, including an aging population, will contribute to the growth.
Romney’s proposal could both hinder and benefit the industry: cutting employer-based coverage would reduce the number of insured Americans, which would decrease industry demand and revenue, but industry profitability would rise because a large operating expense would be eliminated.
IBISWorld report 62121
The health exchanges that will allow for universal healthcare would also include access to affordable dental care for adults and children. Health exchanges will offer individuals and (primarily small) businesses different health plan options to buy. There can be one health exchange per geographic area. Additionally, the legislation would require pediatric dental care to be included as part of the minimum essential coverage for individuals through the state-run health exchanges, precluding out-of-pocket charges for pediatric oral care. If put into effect, these provisions will further buttress industry revenue, which has expanded over the past five years. Demand for the industry has risen in line with improvements in technology and growing awareness of oral hygiene’s importance. These same trends are expected to continue over the next five years, pushing up revenue at an estimated average annual rate of 5.1% to $140.8 billion in 2017. Romney has not provided any details regarding dental care. That said, as Massachusetts governor, he vetoed a provision in the Massachusetts healthcare law that mandated dental insurance for Medicaid beneficiaries.
Small Businesses
Healthcare premiums for small businesses are currently 18.0% higher on average than those of larger businesses. In the light of this disparity, in 2010 the PPACA implemented a small-business tax credit of 35.0% for employers with fewer than 25 employees and average annual wages of $50,000. The legislation’s provision provides subsidies to small businesses that would in part cover their healthcare premiums. In 2014, the tax credit will increase to 50.0%. According to the White House, about half of businesses with three to nine employees offer health insurance benefits. The health exchanges would further benefit small businesses (within and outside the healthcare sector) by granting them greater bargaining power with insurance companies and reducing administrative costs.
According to US Census data, most companies in the information, retail, wholesale and healthcare sectors employ fewer than 20 workers. For example, 70.2% of companies in the Software Publishing industry (IBISWorld report 51121) and 69.1% of gas stations (44711 and 44719) have fewer than 20 employees. Other industries include: convenience stores, computer stores, internet publishing and broadcasting, grocery wholesaling, automobile wholesaling, dentists, primary-care and specialist doctors, Hotels and Motels, trade and technical schools and hair and nail salons.
Romney’s plan would provide tax breaks to employees, who would be responsible for purchasing their own health plans. This approach actually provides small businesses with a disincentive to offer health insurance coverage since eliminating coverage would reduce operating expenses and increase profitability. The same would apply to large business. (As of 2014, the PPACA will require companies with more than 50 employees to provide health insurance coverage.) More than 150 million Americans, who currently have insurance through their employers, would be affected by Romney’s proposed plan.
Policy Issue: Medicaid and Medicare
The healthcare reform also expands eligibility for Medicaid and Medicare. Medicaid is a federal program operated at the state level that provides health coverage to lower-income individuals, families and children, the elderly and people with disabilities. The federal government pays between 50.0% and 77.0% of state Medicaid budgets. Under the PPACA, about 16 million low-income adults and children will gain health coverage through Medicaid, including adults younger than 65 with annual incomes of less than $15,000. According to the latest available US Census data, 4.2 million adults aged 65 and older were Medicaid beneficiaries in 2009. The Supreme Court’s decision on the reform limits the expansion of Medicaid, however, concluding that the law’s financial penalties on nonparticipating states are unconstitutional. Nonetheless, a majority of states are expected to participate.
The legislation has also expanded eligibility for Medicare members. According to the PPACA, Medicare would provide coverage to people who have developed certain health conditions as a result of exposure to environmental health hazards from living in an area subject to an emergency declaration made as of June 17, 2009. Medicare currently provides health coverage to people aged 65 or older, people younger than 65 with certain disabilities and people with End-Stage Renal Disease, a condition that requires dialysis or a kidney transplant. In 2010, the PPACA implemented the provision to expand services to Medicare beneficiaries, including free annual wellness visits, mammograms and other health screenings. The Centers for Medicare & Medicaid Services, a branch of the US Department of Health and Human Services, administers Medicaid and Medicare. The PPACA includes a provision to establish the Center for Medicare and Medicaid Innovation that would design, test and evaluate payment methods for government health programs. Because the government reimburses healthcare providers that offer care to Medicaid and Medicare members, some industries would be adversely affected if reimbursement rates declined through the PPACA.
While the Obama administration would continue to expand coverage under Medicare, the Romney administration would limit the federal government’s current open-ended financial contributions to the program. Under Romney, the government would contribute a fixed amount of money on behalf of beneficiaries to the Medicare trust fund. Beneficiaries could then use the money to either purchase private insurance or help pay for traditional Medicare. Romney also proposes an increase to the eligibility age for enrolling in Medicare, suggesting that age eligibility increase by one month every year. This policy would reduce the number of beneficiaries by slowly increasing the age minimum for seniors to join.
IBISWorld report 62161
Home-care providers, who provide in-home medical and nonmedical healthcare services, generate the majority of their revenue from government reimbursement programs (e.g. Medicare and Medicaid). According to PPACA provisions, Medicaid will include new incentives to shift spending away from nursing care and toward home-care services, given the latter’s cost advantages. The legislation will also make it easier for states to add home-care services to their Medicaid programs and streamline the process by making such services permanent Medicaid benefits, which will further drive industry demand and, in turn, revenue.
At the same time, the industry could face declining demand under Romney, who proposes to transform Medicaid operations. According to Romney, Medicaid would become state controlled, with the federal government providing block grants with predetermined funding amounts to the states. Such grants would increase at an annual rate equivalent to the consumer price index plus 1.0%, which would not match rising healthcare costs.
There are also drawbacks for the industry under the Obama administration in the form of reimbursement changes to Medicare-certified home health agencies (HHAs). The Congressional Budget Office estimates that these changes will result in an aggregate $39.7-billion reimbursement cut for Medicare-certified HHAs from 2010 to 2019. This industry generates an estimated 41.0% of revenue from Medicare. In short, the industry will simultaneously benefit from and be hindered by PPACA provisions.
IBISWorld report 44611
The healthcare reform law has increased Medicare prescription drug coverage limits, helping 5.1 million Medicare recipients save $3.1 billion. After a Medicare beneficiary surpasses the prescription drug coverage limit, the Medicare beneficiary is financially responsible for the entire cost of prescription drugs until the expense reaches the “catastrophic coverage” threshold. (Under catastrophic coverage plans, the plan pays all covered expenses once a person spends a specified maximum amount on medical care.) The expansion of coverage limits has, thus, benefited the Pharmacies and Drug Stores industry because more consumers are filling and refilling prescriptions in light of lower out-of-pocket expenses. Over the five years to 2017, industry revenue is projected to grow at an estimated annualized rate of 2.1% to $247.7 billion. Obama’s reelection would support continued industry growth, while a Romney victory could hamper demand as greater drug coverage limits are repealed.
Family Planning and Abortion Clinics
IBISWorld report 62141
Through the Title X program, Medicaid is the single-largest source of public funding for family planning services in the United States. But because of budget cuts, states have reduced funding for the program. Moreover, while the PPACA expands coverage to Medicaid members, the Title X program will nonetheless face cuts from state budgets. Program funding would drop further if Romney is elected. In addition to converting the Medicaid program into a series of block grants, Romney has promised to cut all federally funded Title X family planning programs, including Planned Parenthood. The organization, which currently receives more than $300.0 million in annual funding through Title X, provides comprehensive family planning and related preventative healthcare services, including cervical cancer screenings and mammograms.
In addition to genetic and prenatal counseling, voluntary sterilization and pregnancy termination, the Family Planning and Abortion Clinics industry also provides contraception. It would, therefore, benefit from the PPACA’s mandate for insurance plans to provide access to birth control free of co-pays or deductibles. This provision would then support industry revenue expansion over the five years to 2017 at an estimated annualized rate of 4.2% to $2.8 billion. Industry gains will also affect other health-centered industries, such as the Pharmacies and Drug Stores industry, which is a supplier of contraception. According to a 2010 Planned Parenthood-commissioned survey, more than 50.0% of 18- to 34-year-old women struggle to afford birth control.
Conclusion
Regardless of whether the PPACA remains law and its additional regulations are put into effect over the next few years, from a risk standpoint, it’s statistically insignificant. Despite the act’s impact on the number of people covered by private health insurance and the federal funding for Medicare and Medicaid, the aging population and total health expenditure will supersede any changes in regulation. The sum of these healthcare industries’ revenue is projected to grow at a healthy 4.3% five-year annualized rate to $2.8 billion in 2017, and wages within the sector are also forecast to rise. Therefore, the biggest threat to the healthcare sector, which employs one in eight Americans, is the uncertainty of regulation that surrounds the future of these industries and may be hindering investment. Investment has stalled because changes to entitlement programs could affect the number of beneficiaries and the level of reimbursement rates, factors that underpin industry revenue and profitability. Moreover, changes to the existing healthcare system, like employer-sponsored insurance regulation adjustments, would also affect industries beyond the healthcare sector. As such, this reform is understandably a hot topic that many Americans will consider when voting in the November 2012 Presidential Elections. Nonetheless, according to IBISWorld analysis, it’s not so much a question of which candidate will be best for the sector as much as actually getting a solid, long-term plan in place on which people and businesses can base their decisions.
To download full research reports for the industries discussed in this article, click on the report titles below.
Primary Care Doctors, Pharmacies and Drug Stores, Specialist Doctors, Dentists, Software Publishing, Gas Stations, Convenience Stores, Computer Stores, Internet Publishing and Broadcasting, Grocery Wholesaling, Automobile Wholesaling, Trade and Technical Schools, Hair and Nail Salons, Home Care Providers, Family Planning and Abortion Clinics
Tags:
