Healthy Policy Disagreements 09/26/2025

Weekly Rundown

Other Top Headlines

• CMS issued guidance on their State Directed Payment changes resulting from the One Big Beautiful Bill Act. Right now, 30 states use commercial rates as the benchmark for state-directed payments to improve provider access for Medicaid patients. The new cap will be 100% or 110% and although existing programs will be temporarily grandfathered in, they will start phasing down in 2028, leading to big cuts in reimbursement.

• Jeff Wu, Deputy Director for Policy at CMS’s Center for Consumer Information and Insurance, which regulates the ACA plan,s had an informative, candid, and wide-ranging conversation with the Applied Policy team about agent/broker fraud, price transparency, the vision for ICHRAs, and advanced EOBs. You can watch a replay here.

• A largely unresolved and potentially unknowable issue in health care policy and financing is what costs more: traditional Medicare or Medicare Advantage. The latest salvo in the war comes from the Health Leadership Council in a new report challenging MEDPAC’s methodology, which says MA is 22% more expensive for taxpayers. I tend to trust the earnest nerds at MEDPAC, but I’m keeping an open mind on this one.

• NY Medicaid admin costs would make any payer jealou,s according to a new report from the Rockefeller Institute of Government on modernizing Medicaid administration at 2.5% (cf. Centene’s SG&A of 8.5%) ¹

  

• ACA enhanced subsidies still up in the air, but the bipartisan Problem Solvers caucus is throwing out potential compromises like a $200k income cap on subsidy eligibility and no more zero-dollar premiums, which have been a source of broker fraud in the market. 4 more days to make a deal before the government shuts down, and less than 3 weeks until renewals and window shopping start!

• The ACA tax credits are designed to cap spending on health insurance as a percentage of income, which means that if wages are flat and premiums go up, the tax credits get more expensive for the taxpayers generally but not the person getting the tax credits. This chart from Mark Howell at Paragon Institute does a good job of showing how this has played out over the years.

  

• A strange coalition, call it the Lina Khan-ate, which might include Republican senator Josh Hawley and Democratic firebrand Liz Warren, is shining a brighter light on consolidation and corporate medicine lately. Olivia Kosloff, senior fellow at the American Economic Liberty Project and author of Acute Condition, moderated a panel on healthcare at the Anti-Monopoly Summit last week, which you can read about here and watch here, featuring former AAG Jonathan Kanter, orthopedic surgeon Dr. Towsen, union leader Leslie Frane, and congressman Pat Ryan.

Long Form Take

A professor of mine at business school, dispensing some career advice, said the most intolerable thing for any executive is uncertainty and that the higher the uncertainty, the higher the executive’s willingness to pay for advice – even if the advice turns out to be wrong or the correct answer fundamentally unknowable a priori. He had a funny bit about how accountants drive VWs whereas tax lawyers drive BMWs and McKinsey partners drive Porsches. But the spiritual guru to the CEO gets a Gulfstream for providing guidance on the ineffable. 

So how do we think the government affairs advisors to the healthcare industry are travelling these days? 

If you’re an executive at an insurance company with an ACA marketplace business, you’re still figuring out how to price your product next year. The enhanced subsidies are set to expire at the end of the year, and in a normal year, premiums would be set, renewal notices would start going out next week, the “window shopping” period would start in a few weeks, and open enrollment would begin in 35 days. But as the enhanced subsidy question remains unresolved, insurance companies can’t finalize prices because who will buy insurance is contingent on the subsidy question being resolved. No enhanced subsidies probably means a sicker risk pool and higher prices, whereas yes on enhanced subsidies means lower prices and a healthier risk pool. Without this piece of information, insurers are caught in a sort-of ouroboros (you know, the ancient dragon that eats its own tail) of uncertainty here, unable to make good inferences about their potential members. 

CMS is also expanding access to catastrophic plans for people over 30 years of age which is also potentially destabilizing for the risk pools. The theory here is that a buyer of a catastrophic plan is probably healthier on average. If you’re opting into a catastrophic plan, you probably don’t plan on getting an expensive disease or procedure because the deductibles are really high. So the healthy people over 30 buy catastrophic plans and the metal plans get the sicker patients, so you’ve got to raise prices, but then price sensitive people resort and so on and so on until you’re in a death spiral. Like I said, that’s just the theory, we’ll have to see what happens in practice. 

Payers of course pay providers, so this uncertainty bleeds into hospitals and medical groups. The individual market isn’t huge, about 7% of the population, and its reimbursement rates are lower than off-market place or group insurance. But relative to Medicare, it’s over 1.5x which isn’t nothing. An important and maybe unintuitive thing to remember about buyers in the ACA marketplace plan is that economically they’re quite similar (or in non-expansion states almost identical) to Medicaid patients, so any increase in the uninsured rate doesn’t translate to hospitals getting cash prices or even Medicare or Medicaid prices, it means more uncompensated care, bad debt, and charity care. 

Another source of heartburn for health care provider businesses is new potential restrictions on H1B visas which was announced on September 19th. When you get outside of big tech, hospitals are a significant utilizer of the H1B program largely to bring foreign trained health care workers to help alleviate provider shortages in high demand areas but also rural areas that have trouble staffing. Sponsoring organizations can apply for exemptions, but if you’re trying to staff a hard-to-fill position, the possibility of an exemption doesn’t do much to relieve the symptoms of your uncertainty. 

Earlier this summer, FDA commissioner Marty Makary and CMS administrator Dr. Mehmet Oz authored a WSJ op-ed outlining a thesis that working with industry, rather than “blunt-force regulation”, was a faster path to make America healthy again. There’s an intuitive appeal to this approach, and a more private sector friendly stance from the administration with a deregulatory agenda was surely welcomed by many executives in health care. But a side-effect (or possibly an adjuvant therapy) to this approach has been what seems to me like an unbearable amount of uncertainty for these same executives. 

Across international trade, diplomacy, and especially lately, health care, the Trump administration has leveraged “strategic uncertainty” to help advance his policy goals. If you’re a health care executive, it’s hard to imagine a consultant or advisor you could call to help resolve all this uncertainty, so your willingness to pay is exceptionally high. It might be the perfect moment for this administration to make a big ask of industry in exchange for a little relief.

1  This isn’t a fair comparison for the private payers as 74% of New York Medicaid beneficiaries are on Managed Care Plans like those offered by Centene. But it’s still an impressively low admin cost for 2nd largest Medicaid program in the country.

2  Plus D.C. !