Editor’s note: St. Luke’s Health System President and CEO Dr. David Pate prepared a primer on the factors and potential components of healthcare legislation being considered on the federal level and their chances of success. What follows is a set of explanations, implications and discussion of those elements as a companion reference to the table in the main report.
This recently came up when President Trump said, “We’re going to have insurance for everybody.” That caused some heads to turn, because people equated his comments with support for universal health care coverage, something President Trump has previously expressed support for, but which the Republican Party does not support. The assertion subsequently was clarified; what the president meant was that everyone will have options for insurance that will be more affordable, but no one would be forced to purchase insurance if they don’t want it.
It is not likely that President Trump means everyone when he says “everybody.” First of all, of the nearly 30 million uninsured in the country, some are not eligible because they are undocumented aliens and some are in the gap – i.e., they make too much to qualify for Medicaid, yet not enough to qualify for subsidies and can’t otherwise afford to purchase insurance.
President Trump and Republicans don’t seem to be supportive of assisting either one of these groups. The balance of the uninsured largely are above 400 percent of the federal poverty level, but currently make a choice to remain uninsured and pay the penalty because of affordability issues. It may be that under the new Republican plan, stripped-down, catastrophic-type coverage can be offered at much lower rates than is offered for fully ACA-compliant plans today on the exchanges, and therefore, it is possible that the president refers to this group in his statement when he expands access to insurance for “everybody.”
Because both the president and his spokespeople have repeatedly stated this, and Rep. Tom Price defended this in his hearing, I will give it a “2” for likelihood, but it is not a conservative Republican notion and not likely to see much support in Congress from either party.
Universal access to insurance would be highly desirable for patients, healthcare providers and insurers, so I rated it high but less than a “10,” because it appears likely that President Trump believes this is achievable by significantly reducing the essential health benefits that insurance plans would have to satisfy, meaning that insureds would likely be paying very high deductibles and having much less coverage than they do today.
It’s worth noting that access to insurance is not synonymous with access to care. Even if an individual has insurance, deductibles, co-insurance and co-pays may limit the patient’s ability to access covered services (see the discussion of the fifth item in my chart, below). Further, there must be sufficient participating providers in the area with availability in their schedules to see patients.
Coverage for those with preexisting conditions on the same terms as everyone else has been immensely popular.
Obviously, covering those with preexisting illnesses skews the risk pool adversely, so the only way to effectively do this and still keep premium rates affordable is to ensure that you have plenty of healthy people in the risk pool to pay premiums, but require little spending by the health plan.
This was the purpose of the individual mandate under the ACA – to ensure that enough healthy people signed up. Even so, most would agree that the intent of the individual mandate was undermined by the Obama administration itself when it created a penalty that was far less than the cost of typical premiums, when it extended the time people could remain on grandfathered or grandmothered plans (these were pre-ACA plans that often were bare bones and inexpensive and attractive to younger, healthier individuals) and when there were many (too many, in the minds of insurers) opportunities to qualify for enrollment during special enrollment periods, allowing people to sign up for insurance when a significant health issue arose without paying in premiums for the full plan year.
There is bipartisan support for guaranteed issue, but the individual mandate is very unpopular and has been the target of President Trump and the Republicans. The Republican solution to requiring guaranteed issue, but not requiring everyone to have insurance, is to require continuous coverage to ensure that the preexisting condition is being treated and that the person has been regularly and consistently paying premiums to offset their higher costs, in order for insurers to be prohibited from charging higher premiums to the person with the preexisting illness.
Guaranteed issue is an element of almost every plan that would repeal the ACA, and it is in patients’ and healthcare providers’ interests for persons with preexisting illness to have adequate, affordable insurance that covers the illness or condition. I give it my highest score for likelihood and desirability.
Under the ACA, employers with greater than 50 employees were required to offer ACA-compliant insurance policies to their employees or face a penalty. Republicans have long attacked this feature of the law. Employers have also opposed it. It appears that Democrats feared that employers would simply stop offering insurance, increase their employees’ pay and send their employees to the individual marketplace.
This mandate was to try to prevent that, however, the mandate phased in and it appears that employers mostly chose to continue to offer benefits, even those who were not subject to the mandate. Therefore, from a likelihood standpoint, this feature is almost certain to be repealed and not replaced, and from a desirability standpoint, it does not appear to be necessary.
This is another very popular feature of the ACA. It has resulted in an increase in the number of students and young adults who have insurance coverage; in fact, some colleges and universities have done away with their student health insurance plans.
President Trump has specifically identified this element as a feature he would like to preserve in the replacement plan. Other Republicans have also voiced support. This element is included in House Speaker Paul Ryan’s “A Better Way” plan. Given the popular support and the specific references of support by the president, the speaker and other Republican leaders, I believe there is a high likelihood that we will see this in the eventual replacement bill.
However, this feature has undermined the individual mandate and therefore, I score it less than a “10” as to desirability. Because most employers subsidize the healthcare coverage for children, it is far less expensive for children to be covered under their parent’s health plan than to have individual coverage of their own and pay into the risk pool that supports those with preexisting conditions. But because some of these young people would simply go without insurance due to unaffordability, I rate the desirability higher than a “5.”
Deductibles have increased 67 percent over the past five years. The average U.S. worker now pays $1,318 out of pocket before their health insurance begins to provide coverage, up from $584 a decade ago. However, plans for individuals and families who purchase insurance on the public exchanges often have deductibles in the $3,000 to $6,000 range and $6,000 to $12,000 range, respectively (in 2015, the average silver plan deductible was more than $2,500 for an individual, and the average bronze plan deductible for an individual was more than $5,300). I refer to these as ultra-high deductibles.
Unfortunately, these deductibles mean that care is unaffordable for many Americans, even with insurance. These high deductibles, in part, do what they are intended to do – cause patients to consider whether they really need the care they are considering.
They also cause patients to skip or delay necessary services just as often as they forgo low-value services. More than 37 percent of adults who are insured reported going without needed health care, including doctor’s visits, tests, medications, health screenings and dental care. That number jumps to more than 50 percent if the insured also has low income. Medication adherence rates fall for patients in every income group with high-deductible plans who have high blood pressure, diabetes, depression or cholesterol problems.
Further, while high deductibles are intended to make patients more involved shoppers of the care services they seek, studies show that most do not shop for their care, even when provided with online tools to assist them.
President Trump has promised to make care more affordable for all. It is hard to imagine that would mean support for these high deductibles. Public sentiment is also against high deductibles.
For all of these reasons, I believe it is less likely that ultra-high deductibles will be a part of the replacement bill; at the same time, I think it is unlikely that there would be a ceiling to deductibles imposed on health plans under the replacement bill, especially given the fact that Republicans seem to be pushing for HSAs and allowing catastrophic-like health insurance coverage.
As far as desirability, deductibles have the unintended negative effects I mentioned above, and cause care to be unaffordable for more than half of all Idahoans. Therefore, I score it lowest of all potential elements.
Under the ACA, previously commonplace annual and lifetime caps are prohibited. This does contribute to some increase in the cost of insurance, however, the prohibition ensures that many individuals with costly, chronic diseases continue to have insurance coverage.
This benefit impacts a relatively small number of people, so this element has not received a lot of public comment or support. It is not clear whether Republicans will support this (though this prohibition on annual and lifetime caps does appear in the Patient Freedom Act of 2017, introduced by Sen. Bill Cassidy (R-LA)) or feel that the prohibition against the caps will be necessary if high risk pools are implemented under their replacement plan. I score the likelihood that this element will be included in the replacement bill as a “5,” and because it ensures continued coverage for those with significant illness and contributes to only a small increase in premiums for everyone else, I score the desirability at a “9.”
Currently, all qualified health plans under the ACA must include essential health benefits, which include such things as hospital services, physician services, emergency care services, prescription drug benefits, maternity care, mental health services and drug addiction treatment. This has unquestionably increased the cost of insurance, while ensuring that fewer individuals are underinsured.
It appears that key to delivering on Republican promises to lower the cost of insurance for everyone is this feature of significantly decreasing essential health benefits so that people can purchase less coverage for a lower premium. Therefore, I think the likelihood is quite high that a significant decrease in essential health benefits will be the foundation of whatever replacement plan is finally passed.
However, I rate the desirability much lower. There certainly is no reason for most older women to pay a portion of their premium towards maternity care, and if three rounds of healthcare reform (Clinton, Obama, Trump) haven’t already driven me to drug or alcohol use, I probably don’t need coverage for drug rehabilitation in my insurance policy; but there are plenty of cases where individuals thought they didn’t need more expensive coverage and didn’t purchase it in the pre-ACA era, only to develop a costly condition that then bankrupted them.
For example, not all pre-ACA plans covered cancer care. Young, currently healthy and lower-income individuals are more likely, given the choice, to purchase what we refer to as catastrophic health insurance plans because of the low premiums. Some will end up underinsured.
Further, I suspect that Republicans will not keep the requirement for insurers to provide certain preventive services at no out-of-pocket expense to their enrollees. I am a big believer in preventive services and have reason to believe that this feature has increased health screenings and preventive measures, which undoubtedly has helped save lives and avoid costly illnesses, so I would hate to see this benefit removed.
A central feature of most of the Republican plans for replacement is the creation of health savings accounts. A similar feature, “health reimbursement arrangements (HRAs),” was enacted for employees of small businesses under the 21st Century Cures Act with bipartisan support.
The idea of health savings accounts is to make the individual more responsible for their healthcare spending and to create more sensitivity to healthcare costs, as people now feel that they are paying for their health care as opposed to a health insurance company. This suggested feature is often paired with the next element, a refundable tax credit that would be used to help fund the HSA.
Under the proposed HRAs, employers can contribute pretax dollars to offset employees’ payment of their premiums, rather than the employer providing insurance directly, and employees can contribute pretax dollars to their account directly.
Some Republicans would create HSAs only for those who do not receive employer-based coverage; others would like to see everyone in HSAs and move people away from employer-based insurance programs.
While the likelihood that HSAs are a key feature of the replacement bill is quite high, given the broad-based support for this by Republicans, including the president, Ryan and Price, the desirability is far less.
First of all, studies thus far have shown that HSAs do cause people to be more careful in their healthcare spending, but they tend to reduce the use of both necessary and unnecessary care. And when provided with shopping tools to assist beneficiaries in choosing less expensive services, there is evidence that most people will not use them.
People have a hard time understanding what HSAs are and how they work. And finally, though this last concern could be remedied in large part by how the government decides to fund the HSAs, as a general rule HSAs do not benefit lower-income individuals as much as higher-income individuals, because the former generally cannot afford to make much in the way of contributions to their HSAs, and the financial pressures may cause them to hold back on seeking needed care even more than higher income individuals.
For all of these reasons, I score the desirability at a “4,” though the score would be much higher if the government proposes sufficient funding of HSAs that would put enough money in the accounts of lower-income individuals at the start of the year, or on a monthly basis, that would allow them to use the money to pay for health care premiums.
This is the most widely proposed element by the Republicans to replace the subsidies provided under the ACA.
Different than the ACA, for which tax credits were only available to individuals earning up to 400 percent of the federal poverty level, the proposed tax credits would be available to everyone and generally would not be tied to income levels, but rather would increase with age.
This would be a mechanism to help everyone pay for their insurance premiums and out-of-pocket costs (and could further move insurance away from being employer-sponsored). It is the mechanism most often proposed to fund HSAs. For that reason, I give the same score for likelihood as I did for HSAs.
As to desirability, it does concern me that the few references to the actual amounts of the tax credits proposed would be less than those currently available under the ACA. I suppose that the justification for the lower tax credits is that with the decrease in mandated essential health benefits, premiums of these more basic plans will be less; nevertheless, I remain concerned that lower tax credits will increase the financial pressures on lower-income individuals and families to be underinsured.
Price sees high risk pools as an important element of the replacement plan to “allow every single person in the individual small group market, who are the ones challenged with pre-existing illness, to be able to gain access.” It appears that high risk pools have support among many in the Republican base, but Democrats are critical of this proposal. Since these high risk pools would be run by the states, it is likely that governors will have a larger voice on this element of “repeal and replace” than many of the other elements.
This is another area where there is not a groundswell of public support, but that may be because most people have never experienced high risk pools and do not understand them.
There would likely be support from insurance companies, and perhaps healthcare providers more broadly, especially if it meant coverage for those with preexisting illness who were unable to maintain continuous coverage, assuming that the guaranteed issue under the ACA was repealed and replaced with guaranteed issue for those with continuous coverage under the replacement plan. Therefore, I give this a “6” for likelihood.
As for desirability, the Idaho experience with high risk pools has been favorable, but nationally, these pools have not worked out well. Thirty-five states had high risk pools prior to the enactment of the ACA. In many states, budget considerations caused states to increase waiting periods, freeze new enrollment, charge unaffordable premiums (premiums typically ranged from 125 percent to 200 percent of the average individual market rate in the state) and/or deductibles, impose annual or lifetime spending caps (often $1 million to $2 million, which many beneficiaries reached and then were again without coverage), limit benefits and restrict choices of insurance carriers.
Nearly all states excluded coverage for preexisting conditions (wasn’t this the whole reason for high risk pools?) for a period of six to 12 months, while providing coverage for other conditions for the enrollee.
While a high risk pool would have a lot of desirability for Idaho (if Idaho could have few regulatory restraints to allow us to run it our way, which proved successful in the past), given that the history outside of Idaho is not good and there is no assurance that federal funding would be sufficient to operate these pools, I score it a “5.”
However, if there was a significant funding commitment on the part of the federal government, my score would go up considerably, as using government funds to help cover that small but costly portion of the population (the sickest 5 percent of Americans account for nearly 50 percent of healthcare spending) would leave the rest of the free market to operate with a healthier risk pool and lower premiums.
These would allow small businesses to come together through a trade or professional association to purchase coverage for their employees and spread the risk. These plans are part of Ryan’s “A Better Way” plan. Sen. Rand Paul is an advocate for these plans and Price voiced strong support for them during his confirmation hearing. I have not heard President Trump voice support for these, nor does there appear to be a public groundswell of support for them, but on the other hand, I have not heard opposition; that may mean the public has not heard of them. Unless a sector rises in support (e.g., small business), I rate the likelihood as a “5.”
As far as desirability, while there certainly is logic to creating association health plans, one challenge would be offering insurance programs to companies that are part of the association but in disparate parts of the country. That likely would limit the choices of insurers to those that are national in presence (there are only four or five such insurers today) or those insurers with access to strong national networks. Therefore, I only rate the desirability at a “7.”
Under the ACA, the difference in premiums based on age charged for the oldest policyholders can be no more than three times (3:1) the premium for the youngest policyholders. Prior to the ACA, it was not unusual for this age rating band to be 5:1 or even 6:1.
This makes sense, because older patients tend to use six times as much health care as young adults. The result of the rating compression under the ACA was that older individuals paid less in premiums than they previously would have, but younger people paid much more, and this deterred many young, healthy individuals from purchasing insurance.
Increasing the age rating band is popular among Republicans. A leaked draft document the Trump administration was using in negotiations with payers would allow health plans to increase the ratio to 3.49:1. I score its likelihood of being an element of the final replacement plan as an “8.”
As for desirability, the downside is that it will increase premiums that older individuals pay. Some would argue that younger adults are more likely to have coverage under their parent’s plan or to have generous tax credits or subsidies to offset the higher premiums that result from the current, narrow age rating ratio, whereas older adults are likely to have high out-of-pocket costs that will further add to the resultant higher premiums if the age ratio were widened.
I am not persuaded by this argument, and suspect that making premiums more affordable for younger people may increase the number of healthy insureds, and their addition to the risk pool would help to keep premiums down for all. Therefore, I rated the desirability of this feature as an “8.”
Ordinarily, there is an annual enrollment period during which those without employer-based insurance and who don’t qualify for government-sponsored health plans can sign up for non-group health insurance. The leaked draft discussion document the Trump administration prepared for negotiations with insurers proposed decreasing this annual enrollment period from three months to six weeks.
To account for major life events (e.g., the birth of a child, divorce and the loss of coverage through the ex-spouse’s employer, loss of employment, etc.), there are special enrollment periods that allow individuals and their families to sign up for insurance.
Insurers have complained that the SEPs allow too many criteria to qualify individuals for special enrollment and that the government does too little to verify that the individual does in fact meet the criteria. Insurers point to the fact that costs are significantly higher for those who enroll through SEPs, suggesting that some people wait until they experience a significant health issue to enroll and begin paying premiums.
Republicans have voiced support for tightening the criteria and for verifying eligibility, and the insurance industry is very supportive. I have heard no opposition to this, thus, it seems likely that this may be an element of the replacement plan, and in fact, it is an element being considered by the House Energy and Commerce Health Subcommittee in their proposed legislation, so I score it as a “9.”
From a desirability standpoint, we want those who have significant life events to be able to get coverage, but we certainly want to control eligibility because not doing so discourages continuous coverage and increases insurance costs, so I rate this as a “10.” There has been at least one Republican supporting tying SEP eligibility criteria to those events that would qualify the individual for COBRA coverage, but I would strongly oppose that, because COBRA does not provide eligibility for events such as birth, adoption or marriage.
The ACA provided for a 90-day grace period for insureds to catch up on premium payments before being terminated from coverage. Insurers have complained that some people abuse this provision by signing up for insurance, utilizing benefits and then stopping payments of premiums, but still receiving care for 90 days, so that the insurer is deprived of premiums to help cover the costs of the treatment.
A McKinsey study supports insurers’ claims, finding that one out of five exchange enrollees stops paying premiums at some point during the year, yet half of them re-enrolled in the same plan the following year, thus obtaining up to three months of coverage without paying premiums to support it. Republicans have suggested reducing the grace period to 30 days and the Trump administration has supported a reduction in the grace period.
The argument against reducing the grace period is to accommodate lower income individuals who may have trouble making regular premium payments. As for the likelihood of this proposal being a part of the replacement plan, I score this a “6.” As far as desirability, I score it a “9,” because it will help ensure healthy insurance markets, help ensure providers receive payments for services rendered and help deliver on Republicans’ pledge to make insurance more affordable.
The so-called Cadillac tax is an ACA tax on high-value insurance plans offered through employers (it imposes a 40 percent tax on employer-sponsored health plans with aggregate values that exceed $10,200 for individual coverage and $27,500 for family coverage, indexed to the Consumer Price Index) that was to begin in 2018, but has been delayed to 2020.
The idea was to create a disincentive for employers to offer rich plans to their employees, who would as a result probably incur higher utilization of healthcare services and contribute to an increase in healthcare spending.
Republicans hate this tax. Even Democrats are not wild about this tax because unions hate this tax. I give it a “0” chance to be in the replacement bill.
However, I bring it up because there are Republicans who believe the current system, in which employer costs for employee health insurance are fully tax-free, has contributed to our healthcare spending problem and deprived the government of a valuable stream of tax dollars that could be recaptured if there was a tax exclusion cap put in place.
Sen. Ted Cruz is among a group of Republicans who would like to see health insurance de-coupled from the workplace and would likely support measures that would discourage employers from continuing to offer employment-based insurance.
In fact, there are those who would like to see the tax exclusion for employers completely eliminated and who would move workers to their own HSAs or non-employer sponsored health plans for which the government would provide them with a tax credit or tax deduction, respectively.
Personally, I would hate to see this happen. Employer-sponsored health plans have covered more Americans than any other type of insurance, in most cases, with greater benefits and lower out-of-pocket expense than individual policies. Cost increases for employer-sponsored insurance have also been lower than for the individual market.
While in my view, the Cadillac tax has “0” chance of being in the final replacement bill, the tax exclusion cap is possible, and in fact is already a feature in the American Health Care Reform Act introduced by the House Republican Study Committee, a caucus of conservative Republican House members, though it is almost certain to face opposition from the public and unions. Therefore, I score the likelihood for an employer tax exclusion cap in the final replacement bill as a “3.”
As for desirability, the Cadillac tax was flawed from the beginning, because the level at which employee benefits would be taxed was indexed to the Consumer Price Index instead of medical inflation, so increasing numbers of plans would qualify to be taxed each year as medical costs have consistently outpaced overall inflation (healthcare spending is forecast to continue to grow faster than the GDP, at a rate of 5.8 percent from 2014 to 2024).
Since imposing a tax exclusion cap would likely cause employers to cut back on benefits or stop offering health insurance, and because the few proposals I have seen have tied this cap to overall inflation and not medical inflation, I score this very low, at a “2.”
The premise behind narrow networks is that if an insurer can deliver higher numbers of patients to a lower number of providers, the insurer can receive price concessions from the providers.
That has proven to be the case. In a study published in the health policy journal Health Affairs, narrow networks conferred as much as a 13 percent price advantage over a much broader network. In another study by the Massachusetts Group Insurance Commission, state employees who switched to a narrow network spent 36 percent less on health care than their coworkers who remained in plans with broad network coverage.
Further, narrow networks assist providers who are trying to manage financial risk by helping to keep patients in the network of providers who are aligned with the goals of the network.
I have not heard a position on this element staked out by Republicans. However, narrow networks are not popular with the public, though they do tend to make their own choices to participate in narrow networks for the benefit of the lower premium. For these reasons, I give the likelihood that this will be a feature of the replacement bill as a “3.”
On the other hand, because of the improved coordination of care and the premium discounts, I score the narrow-network possibility as a “9” for desirability. This is an area where I believe provider networks (networks designed, assembled, led and coordinated by providers) have the opportunity to demonstrate even greater value than insurer networks (looser networks assembled by insurers of providers who may not collaborate and coordinate care together as individual members of the network).
This element is intended to promote competition and thereby lower insurance premiums. It is something that has been touted by the president repeatedly, even when he was a candidate, and it has been taken up by the speaker in his plan, by Price, by Paul in his plan and by many others. There doesn’t appear to be any real opposition, so I have given this a likelihood score of 10 for being in the replacement plan.
However, from a desirability standpoint, I have scored it a “0” for three reasons: (1) because insurance companies are not asking for this; (2) because the National Association of Insurance Commissioners (NAIC) opposes it; and (3) because it has been tried in the past and failed to appeal to any insurance companies.
Maine passed a law in 2011 that allowed insurers from other states to sell their plans in Maine. The state’s Bureau of Insurance even actively reached out to insurers to try to attract them to the state, but there were no takers. Between 2008 and 2012, four other states – Georgia, Kentucky, Rhode Island and Wyoming – tried much the same thing, and similarly had no takers.
The major obstacle is that out-of-state payers incur great cost to set up provider networks, and generally cannot negotiate favorable contracts when they have little to no membership to start with. I suspect that the opposition from the NAIC is the likelihood that, if such practice is approved and if payers actually decided to avail themselves of this provision, insurance companies might locate in a lightly regulated state and then sell their policies in more heavily regulated states, undermining state regulation of insurance and underpricing existing in-state insurers.
Ryan’s “A Better Way” plan calls for the establishment of private alternatives to Medicare by 2024 and premium support payments to eligible beneficiaries to allow them to select traditional Medicare or a private plan. The idea is to capitalize on free market principles and drive greater competition, efficiency and lower costs, and thereby preserve the Medicare trust fund.
The problems are that President Trump expressly stated that he would not touch Medicare, and changes to entitlements would be hugely unpopular. There would have to be significant upside for the president and Congress to pick a battle with the AARP. For these reasons, and the fact that midterms are approaching in 2018 with all 435 seats in the House and 33 seats in the Senate up for election, it is hard to believe that there will be any support for this in Congress; I scored this at only a “1” for likelihood that this element ends up in the replacement bill.
As far as desirability, this is far more difficult to assess. Medicare is highly efficient, with administrative costs amounting to only about 2 percent of expenditures, whereas that number for commercial carriers is on the order of 11 percent, including those plans that currently offer Medicare advantage plans. On the other hand, insurers have developed robust utilization management programs, whereas traditional Medicare does not perform any utilization management and therefore, it is possible that the additional operating expense for private payers actually is made up in cost savings to the program. Because I am on the fence here, I scored this element a “5” for desirability.
The U.S. pays higher drug prices than almost every other economically developed country. Other countries typically do not allow every drug to be covered by their government programs, and negotiate directly with pharmaceutical companies to achieve significant price reductions over what Americans pay.
Presidential candidates Trump and Clinton both advocated for allowing the U.S. government to negotiate with pharmaceutical companies for the price of drugs for the Medicare program.
After taking office, President Trump met with pharmaceutical company executives and said that the government would not set drug prices, but that price bidding was a possibility and that the government might foster bidding wars.
It is not clear to me exactly how the government would achieve this. Polls show that the public is highly supportive of allowing Medicare to directly negotiate prices with drug makers. While the president and the public are very supportive (in fact, public polling shows that more people are concerned with lowering drug costs than repealing the ACA), the reason the U.S. has a ban on allowing the Medicare program to negotiate prices for medications is the strength of the pharma lobby and that has not changed. Because I think Congress would be very unwilling to act against the pharma industry’s interests, I handicap the likelihood that this would be a feature of the replacement bill at a “1.”
As far as desirability, in general this feature would be highly desirable, as prescription drug pricing has gotten out of control and Americans are disadvantaged in pricing compared with almost all other countries.
However, to allow for effective negotiations, the Medicare program would have to be authorized to create a formulary on which certain drugs may not be included. The argument against allowing Medicare to negotiate drug prices is that were it to take place and pharmaceutical companies had to make price concessions for the Medicare program, they would simply raise drug prices for all those with commercial insurance. Therefore, I score this possibility as a “7.”
It will be interesting to see if a confirmed Secretary Price will avail himself of a power that HHS already has, but to my knowledge has never used – “march-in rights.” Under a law passed in 1980, HHS can assert march-in rights to invalidate a medication patent when the price is excessive and not “available to the public on reasonable terms” for those drugs that were created through federally funded research.
There are, of course, other options that could be pursued to decrease drug costs, e.g., limiting the granting of patents for existing drugs for which only a minor change has been made if that change is not associated with a significant improvement in safety or effectiveness, adding FDA staff to accelerate the review and approval of generic medications and increasing antitrust enforcement.
Personally, I propose implementing a system analogous to the medical loss ratio (MLR) that was imposed on insurance companies that restricted what percent of the premium had to be directed to medical costs, and if the percent fell below the threshold, that portion of premiums had to be refunded to purchasers of the insurance.
In this case, I suggest a limitation on the profits of pharmaceutical companies as a percent of their operating revenue, with strict definitions regarding what expenses qualify, so that marketing and direct-to-consumer advertising is not incentivized in the manner it is today. Despite the cry from pharmaceutical manufacturers about the R&D costs, profits for the industry average in the high 20 percent range, and marketing and administrative costs often exceed R&D costs.
Another possible solution is to have patents expire within a certain number of years (I would probably propose two) after the company has recouped the R&D costs of the drug. Thus, if the company charges a high price, it will recoup its costs sooner and the patent will expire sooner, opening the drug up to competition from a generic.
Yet another possibility is to allow a rate-setting agency to oversee drug price increases, much the way insurance rates are reviewed
This would allow U.S. citizens to purchase their medications from other countries that sell the drugs for far less than the price in the U.S.
The candidates have made fleeting references to allowing this. Mrs. Clinton formalized a position late in the campaign to allow this as an emergency measure if pharmaceutical companies raised their prices in the U.S. to unreasonable levels. Currently, the food and drug laws of the U.S. prohibit this, because of concerns over safety of the drugs.
It may be interesting to note that for medications sold in the U.S., 80 percent of the active ingredients and 40 percent of the finished drugs are made overseas. Most active ingredients are made in India and China, where labor is cheaper. Safety issues with legitimate medications may be overblown, however concerns over counterfeit or altered medications may be legitimate.
Therefore, I score the desirability of this element as only “3,” based upon the fact that there is little political or public push behind this, but there would be intense resistance from the pharmaceutical lobbyists, and for that reason I give the likelihood a score of “1.”
Medicaid is a federal – state partnership. The federal government funds a portion of the state Medicaid costs, ranging from a low of 50 percent to a high of 74.63 percent, depending, in part, upon the state’s average per capita income relative to the national average.
There currently is no limit on the total amount of Medicaid spending by the federal government, but under block grants, the federal government would pay each state a fixed amount of funding that would grow with inflation or a fixed per capita amount of money.
Fixed funding would be especially difficult for states in difficult economic times, when more people will qualify for Medicaid and because healthcare spending generally exceeds the rate of inflation, leading to effectively a reduction in funding if that funding is adjusted only for the CPI.
Republicans, including the president, the speaker and Price, favor block grants as a way to decrease the federal government involvement with state Medicaid programs, increase state control and flexibility to administer the programs the way they would like and limit the federal spending. In view of the fact that there is such broad Republican support for this, and little public opposition, I give it a score of 8 in likelihood of being included in the replacement bill.
As for desirability, while many Republican governors have expressed support for block grants, these grants almost certainly mean fewer Medicaid dollars, and therefore pressure on states to reduce eligibility and/or benefits. As governors come to understand exactly what the proposed block grants would mean for their states, they will not be as supportive of block grants, but rather seek to have more control of and flexibility for their state Medicaid programs.
In Price’s Empowering Patients First Act, there were significant cuts in Medicaid spending through block grants. Further, it is not at all clear whether the new block grants would account for increased Medicaid spending in those states that expanded Medicaid. Speaker Ryan’s plan calls for each state to get the standard federal match for their expansion population, which would probably make expansion financially unfeasible for all states. For all of these reasons, I score the desirability at a “2.”
States currently have the ability to seek waivers from the federal government to allow them to contract with commercial insurance carriers to offer Medicaid beneficiaries coverage through what are typically HMO-like managed care policies. Today, more than half of all Medicaid beneficiaries are covered by one of these private plans.
Republicans have not generally come out vocally in support of privatizing Medicaid, but rather have supported giving more control and flexibility to states to administer their Medicaid programs. Waivers generally address such issues as whether states can allow private plans to impose a small premium and/or cost-sharing obligations on the Medicaid beneficiaries, things that are ordinarily prohibited under Medicaid, and which the Obama administration was generally reluctant to agree to.
An argument for privatization is a CDC study examining more than 9.5 million deliveries in more than 30 states between 2011 and 2013 that found that infants born at term with birth defects who were covered by Medicaid had a 45 percent higher mortality risk, regardless of birth defect type, compared with those who were covered by traditional private insurance.
The objections to privatizing Medicaid have included the fact that some of the Medicaid dollars that would otherwise go to benefits have to be used to fund higher administrative costs that commercial insurers have compared to state Medicaid departments and a profit margin for the insurer. Other objections include the fact that these managed Medicaid programs have narrower networks, decreased access for beneficiaries, increased waiting times for appointments, decreased access to specialists, diminished use of services and increased limitations to/denial of services.
Though it is highly likely that the Trump administration will be more liberal in granting waivers to states, it is not likely that Republicans will add privatization of Medicaid as an element in their replacement legislation. Further, given the high likelihood that the replacement bill will implement Medicaid block grants, state budgets will be under greater pressure and eligibility and benefits are likely to be cut back, and as a consequence, commercial payers may be less likely to be willing to participate and would be under even more financial pressure in administering these programs.
Even though Alabama received a waiver, allowing it to move its Medicaid plan to a managed care model, it is delaying those plans due to financial issues. Iowa’s privatized managed care program is another case in point, and is so even though Medicaid block grants have not yet been implemented. Private insurers have expressed concern that the plan is severely underfunded and their involvement has been described as a “catastrophic experience,” involving the loss of millions of dollars on the Medicaid population. Therefore, I score it a “2” for likelihood.
As for desirability, for all the reasons stated above, I score it a “2.” Far better would be attempts by state governments to work directly with provider networks to manage the risk of these high-risk populations. The cost savings to be achieved are through case management, care coordination, management of care transitions and disease management, and providers are far better positioned to execute effectively on these programs than are insurers.
David C. Pate, M.D., J.D., previously served as president and CEO of St. Luke's Health System, based in Boise, Idaho. Dr. Pate joined the System in 2009 and retired in 2020. He received his medical degree from Baylor College of Medicine in Houston and his law degree from the University of Houston Law Center.