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Repeal + Replace = Repackage?

Local healthcare VC Steve Kraus sees a way to reconcile the politics and policy of “Obamacare” in Trump’s America

Steve Kraus of Bessemer Venture Partners recently sat down with G20’s own Mike Troiano to tell his story and explore the local implications of changes in healthcare policy likely to emerge from a Trump administration.

Steve knows his stuff. He leads healthcare investing activities at Bessemer Venture Partners, a storied century-old VC firm headquartered right here in Cambridge’s Kendall Square. Steve has been recognized by Forbes Magazine as one of the top healthcare investors in the industry, having led or actively participated in investments in Ovascience, Sirtis Pharmaceuticals, Affymax, Aveo, Transave, Verastem, Acceleron, Restore Medical and Flex Pharma… and those are just the ones who made it onto the NASDAQ. Today he serves on the boards of Welltok, Bright Health, Health Essentials, Docent Health, Allena Pharmaceuticals, Alcresta, and Docutap.

He and Mike explored the challenges and opportunities presented by President-Elect Trump’s campaign promise to repeal and replace “Obamacare,” the Affordable Care Act. For starters, Steve acknowledges our current health care system is far from ideal.

“If we were to start from scratch, we would never create the health care ecosystem that we have today.”

He says our system has evolved into a complicated one, with multiple forces that can separate payers, providers, and patients from the ideal solutions for all. He believes, however, that Obamacare has its roots in some fundamentally good (and surprisingly conservative) ideas about how to leverage the free market model of exchanges to improve patient outcomes and lower cost, increase the flow of data through digitization of patient records, and shift focus away from “fee-for-service” models that incentivize procedures toward “fee-for-outcome” models that encourage efficiency.

He points out that much of the DNA for the law we’ve come to know as “Obamacare” came from Republicans, in particular from a Cato Institute plan that first put forth the idea of the exchanges, later backed by Paul Ryan. While the system has its flaws, it would be a shame to throw out the baby with the bathwater.

Trump’s commitment to maintain two of the more popular provisions of the law (no exclusion for pre-existing conditions, and the ability to keep children on their parents plan until age 26) further complicates the problem. Ensuring the viability of the program under those constraints would require either a Federal government mandate or a Federal government subsidy, neither of which would be popular with Trump’s conservative base.

Steve’s insight was that one way to reconcile the “good” with the “bad” might be to change something as simple as terminology. By converting Democratic “subsidies” with Republican “tax credits,” for example, the GOP could maintain the more popular protections of the law while turning it from the “government takeover” they’ve so long maligned into an historic “tax cut” that would shrink the size of their Federal government and most like satisfy their base. I was struck by the wisdom of the insight, more as a taxpayer and patient than as an investor in tech.

Steve also reminds us that every major new piece of healthcare legislation creates big opportunities for innovation. While it’s hard to identify those opportunities without more details on what “replace” will mean, an entrepreneur could do worse than read any new legislation word for word with an eye toward anything that says someone “shall” do something.

He sees Pharma benefiting from the declining threat of a single-payer system in the U.S., and also has some advice for individuals like us asking what they should be doing now:

  • get your personal health care information together via the newly developed data exchanges.
  • get educated about options you might have when it comes to providers, care options and costs because we will continue to head towards a higher deductibility world where patients will be expected to participate in more decisions. Better to be an information rich consumer of health care.
  • take a look at getting your genome sequenced so you might learn more about what you could face in the future. This process has dropped in price form $10,000 to $1,000 and is headed to $100.

On a more pessimistic note, Steve registered concern over major changes like replacing Medicaid expansion with block grants, and shutting down exchanges in poorer states that could result in more people going without desperately needed healthcare. He noted that despite being called, “The Affordable Care Act,” many voters saw their premiums increase substantially on November 1, a fact that may have swayed the election materially in swing states. For many of these same people, though, expensive coverage may end up looking better than no coverage at all.

More locally, Steve is hopeful that the Boston digital IT community will continue to grow and benefit from the continued pressure for greater efficiency in HC. He’s bullish on Governor Baker’s leadership and his deep understanding of the HC market. It sounds like companies and individuals will need to be agile as we move into new territory with respect to HC policy.

Catch the conversation yourself below, and be sure and subscribe to our newsletter so you don’t miss the next one!