Category: Health Alerts

How the U.S. Single-Payer System for Seniors’ Health Compares Internationally

The Commonwealth Fund has published another survey of health care across countries. The Commonwealth Fund’s widely reported surveys, while thorough, are frustrating because they invoke abstractions (for example “universal health insurance coverage“) to explain why the U.S. health system underperforms.

The latest survey should be able to get around this problem because it surveys only people aged 65 years and older in 11 developed countries. Because almost all American seniors are on Medicare — a single-payer, government-run program that is mostly funded by taxpayers — we might expect the Commonwealth Fund to find that the U.S performs about as well as other countries.

No such luck. Kaiser Health News featured the survey’s conclusions about the challenges American seniors have, relative to their peers in other countries, in getting access to care:

Americans older than 65 are more likely to have chronic illnesses and to say they struggle to afford health care — despite qualifying for the federal Medicare program — than are seniors in other industrialized countries, according to a study by the Commonwealth Fund published Wednesday in the journal Health Affairs.

The media often manage to pluck criticisms of U.S. health care out of the Commonwealth Fund surveys that are not quite as straightforward in the reports themselves as they appear in the stories about the reports. This case is no exception.

Post-Obamacare Reform: Will Health Insurers Be Redeemed?

A version of this Health Alert appeared at Forbes.

Robert Pear of the New York Times recently described the “symbiotic” relationship between the Obama administration and health insurers. It was not always so:

But since the Affordable Care Act was enacted in 2010, the relationship between the Obama administration and insurers has evolved into a powerful, mutually beneficial partnership that has been a boon to the nation’s largest private health plans and led to a profitable surge in their Medicaid enrollment.

“Insurers and the government have developed a symbiotic relationship, nurtured by tens of billions of dollars that flow from the federal Treasury to insurers each year,” said Michael F. Cannon, director of health policy studies at the libertarian Cato Institute.

The entire article is a depressing read. And it is not just the fact that insurers are profiting from Obamacare. It’s that Obamacare is motivating health insurers to consider other harmful public policies. Most glaringly, health insurers appear to be inches away from endorsing price or profit controls on research-based pharmaceutical firms. (The pharmaceutical industry’s response to this threat is also somewhat short-sighted, but that is another story for another Health Alert.)

This poses quite a challenge for health reform after Obamacare is repealed by the next president in January 2017. Just as Ronald Reagan’s 1981 tax reforms did not drop out of the sky when he took office but had been developed in Congress for years by Jack Kemp and William V. Roth, the newly elected Congress has the opportunity and responsibility to pursue a consensus on post-Obamacare health reform that puts patients’ needs in front of politicians’ delusions, so the next president has something with which to replace Obamacare. 

The “Average” Obamacare Rate Hike May Be Much Lower than Advertised — and That Indicates More Adverse Selection

Now that we are on the third day of open enrollment, it may be time to puncture the balloon of “tame” Obamacare premium hikes. There has been a drumbeat of positive news about premiums in the Obamacare exchanges. Here are some of the higher profile reports:

  • According to PricewaterhouseCoopers (PwC), seven states and DC (which had announced approved rates by November 4) have an average premium (across metal tiers and ages) of about $344, an increase from 2014 of 3.5 percent. By contrast, the average premium increase across all reporting states is 5.6 percent, and the average premium is $381;
  • According to the Robert Wood Johnson (RWJ) Foundation and the Urban Institute, which reviewed 17 states, six states will have average premium reductions across the carriers’ lowest cost silver plans, 10 will have small premium increases (defined as 5 percent or less) and two will have increases greater than 5 percent;
  • According to the Kaiser Family Foundation, which reviewed the lowest-cost bronze plan and the second-lowest-cost silver plans in 15 states, the average premium for a bronze plan will jump up 3.3 percent, and the average silver premium will drop 0.8 percent.

Good news? Well, not really. First, we have no idea what the “average” change in premium will be until after the dust settles on open enrollment next February 15. A simple average of rates announced prospectively does not tell us much until we see which plans Obamacare enrollees actually choose.

“Peak Obamacare”: Will Exchanges End with a Bang or with a Whimper?

A version of this Health Alert appeared at Forbes.

The U.S. Supreme Court has agreed to hear King v. Burwell, an important case about Obamacare’s subsidies (tax credits) to health insurers. Plaintiffs argue that in the 36 states with federal Obamacare exchanges, subsidies cannot be paid legally. If no tax credits can be paid, neither the individual mandate to buy health insurance nor the employer mandate to offer insurance can be enforced.

Few people would voluntarily buy health insurance from an Obamacare exchange if the health insurers on the exchanges did not receive subsidies to enroll people. The premiums would be too high otherwise. Experts expect that the Supreme Court might decide on King v. Burwell in July, in which case Obamacare will end with a bang.

Some observers, like insurance expert Robert Laszeswki, believe that a legal victory would be like shooting the puck into your own team’s net. States which lose subsidies because they do not have their own exchanges would quickly try to establish them. Republican governors would be forced to cave in to Obamacare. Indeed, the risk of starving the federal exchanges of subsidies has led to some interesting fantasizing among Obamacare supporters about how states with operating exchanges, like California, could enroll people from other states, and hang on to subsidies that way.

It is not really politically tolerable for people in 14 states (plus DC) to receive significant subsidies to purchase health insurance while people in 36 states do not. Although there will be a battle of wills between the President and the anti-Obamacare governors over solving the dilemma that the Supremes might bring about, the results of the mid-term election significantly reduce the risk that Republican governors will stampede into state exchanges. Rather, a Supreme Court defeat of federal exchanges would likely force the President to return to Congress to re-open Obamacare.

Obamacare’s Most Popular “Patient Protection” is Why Patients Can’t Get Paid for Saving the System Money

Last Monday, I posed the rhetorical question “Why Can’t Patients Get Paid for Saving the System Money?” and gave some examples, such as Medicare’s competitive bidding for durable medical equipment and incentives offered by Medicare Advantage plans, demonstrating how rules inhibit patients’ ability to participate more fully in forming prices and controlling costs. The primary reason for such rules is to compensate for Obamacare’s most popular provision: Prohibition against medical underwriting, so that sick and healthy patients of the same age pay the same premiums.

Health Savings Accounts, Flexible Spending Arrangements and Health Reimbursement Arrangements are powerful tools to engage patients in managing healthcare costs. However, as structured today, they are very blunt. Once a patient hits his deductible, he becomes immune to further costs. This is the primary reason why hospitals’ costs and prices are so hard to control.

The California Employees Retirement System (CALPERS), in collaboration with WellPoint, Inc., introduced reference pricing for knee and hip replacement surgery. This meant that the employer would pay a fixed fee — and no more — to have the operations done at high-quality, low-priced facilities. Employees who wanted to go to higher-priced facilities paid the difference. As a result, high-priced facilities cut their rates by one third.

This started back in 2008. So, you would think that, by now, WellPoint would have introduced reference pricing for hip and knee replacements to all its corporate clients across the United States. No such luck. As a result of Obamacare, the U.S. Department of Labor (DOL) is threatening to regulate this practice:

Reference pricing aims to encourage plans to negotiate cost effective treatments with high quality providers at reduced costs. At the same time, the Departments are concerned that such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.

Health Policy after the Mid-Terms: NCPA’S Early Take

Republican candidates won a decisive victory at the voting booth on Tuesday, in all races: House, Senate, governorships and state legislatures. The future of Obamacare has never looked worse.

The next battle is more daunting: the Republican Party needs to avoid shooting itself in the foot, govern in a way that achieves results rather than perpetuates partisan bickering and continue to develop patient-centered health reform for the post-Obamacare future. Although Obamacare itself will not be repealed until January 2017, Republican success yesterday gives depth, resilience and energy to the post-Obamacare health reform movement.

Here is a list of some priorities for the new Congress:

  • Repeal the excise tax on medical devices. This enjoys broad, bipartisan support — even from Democrats who voted for it when they imposed Obamacare on the nation. The tax is grabbing far less revenue than expected. Nevertheless, an important question stands out: How to pay for the lost revenue under Congress’ scoring rules? Some argue that repeal needs no offset; the industry would prefer that repeal be paid for via corporate tax reform; but grassroots conservatives will be skeptical unless the lost tax revenues are offset by Obamacare spending cuts.
  • Shore up Medicare Part D Drug Plans by allowing them to better control fraud, which many Democrats support. Who could be against that?
  • Obamacare discourages patient-focused innovation in health insurance plan design. Some Democrats have voiced support for the health insurers’ proposed “copper plan.” This is a point of leverage to open discussions on a wide variety of plan designs that suit patients’ needs, not politicians’ preferences.

Why Can’t Patients Get Paid for Saving the System Money?

Back in 2008, I met Michael Leavitt in his capacity as U.S. Secretary of Health and Human Services for President George W. Bush. Secretary Leavitt was trying to implement a new way for Medicare to buy some medical supplies, categorized as durable medical equipment (DME), through competitive bidding.

At the time, DME was bought using the same, Soviet-style fixed-fee schedules that Medicare uses for doctors and hospitals today. Competitive bidding for DME had actually been legislated in the Medicare Modernization Act of 2003. In 2014, we know that competitive bidding has saved hundreds of millions of dollars.

However, five years after the law was signed, it was still struggling to launch. The reason is not hard to discover. The initial round of bidding in 2008 resulted in prices about half of the prices which had prevailed before for power wheelchairs, electrical hospital beds and diabetic test strips. Obviously, many inefficient suppliers who had profited under the prior regime were shut out of the newly competitive market and did what businesses in the health care industry tend to do in such situations: They went to their politicians to acquire legislation that would protect them, and the program was kicked out of bounds for a few more years.

Competitive bidding for DME finally took place in 2011 — eight years after being legislated. A 2014 report by the Government Accountability Office determined that competitive bidding saved Medicare $400 million in 2011 and 2012, reduced inappropriate use of some equipment by over one fifth and did not harm patients’ access to the equipment they needed.

Of course, the suppliers which would prefer not to compete under this system continue to lobby for protection. Competitive bidding can be a blunt tool. As the program evolves, the Centers for Medicare & Medicaid Services (CMS) must be careful not to lump differentiated products in the same bucket and force commodity pricing on them. Nevertheless, there was no significant uprising by Medicare beneficiaries against competitive bidding for DME like there has been against Obamacare’s cuts to Medicare.

Medicare Should Revoke Drug Dealers’ License to Steal!

Nearly 39 million Medicare beneficiaries, including seniors and the disabled, have subsidized drug coverage thanks to the Medicare Modernization Act (MMA) of 2003. Medicare drug plans are popular with seniors. Although subsidized by Medicare, Part D plans are offered by private insurers and compete with each other for seniors’ patronage.

When Congress passed the Medicare Part D drug program back in 2003, it inadvertently created a license to steal. Prescription drug abuse costs health plans nearly $75 billion per year — about two-thirds of it from public programs such as Medicare and Medicaid. That makes Uncle Sam the biggest illicit drug dealer in the country! Prescription drug fraud and abuse also drives up seniors’ premiums as well as boosts costs for taxpayers and health plans that administer seniors’ drugs benefits.

Questionable drug use typically involves addictive painkillers that create a heroin-like euphoria. More than 16,000 people die annually from abusing pain relievers — double the number that die abusing cocaine and heroin combined. For every death, there are 10 people admitted to a treatment program for substance abuse and 32 emergency room visits. For each person who overdoses, 130 chronically abuse prescription drugs and 825 casually use them for nonmedical purposes.

The HHS Office of the Inspector General (OIG) reports that some individuals themselves are abusing the drugs. In other cases, they attempt to obtain drugs they don’t need in order to profit by reselling them. This is especially true of narcotic pain relievers derived from opium poppy plants. Substantial numbers of narcotic pain relievers are diverted to the illicit market where their “street value” far exceeds their pharmacy costs. For instance, the OIG reports the “street” price of Oxycodone is a dozen times the normal retail price at a pharmacy. Its agents report that a bottle of Oxycodone is worth $1,100 to $2,400 per bottle if sold on the streets of Northern California.oxy

Ed Gillespie’s Health Reform Plan a Big Step in the Right Direction

Ed Gillespie, the Republican candidate for the U.S. Senate from Virginia has proposed a substantive plan to reform U.S. health care. The Washington Post called it “the most sensible GOP alternative.” An economic consulting firm estimates the plan, which was developed by the 2017 Project, would reduce the federal deficit by $1.13 trillion over 10 years.

There is significant overlap between the 2017 Project’s proposal and the NCPA’s: They both rely on individual tax credits for individually-purchased insurance as a building block for a new, consumer-driven health system.

The 2017 Project’s proposal would give adults under 35 years of age a tax credit of $1,200 a year; those between 35-49 years would get $2,100; and those 50 or older would get $3,000. Those with children would get an additional $900 per child. Those who can buy health insurance for a lower premium can deposit the leftover tax credit in a Health Savings Account.

However, these tax credits would only be available to employees of firms with fewer than 50 full-time equivalent employees. Those in larger firms, who remain in the employer-based market, would retain non-taxable health benefits, up to a limit. However, the tax exclusion would be capped at the 75th percentile of annual premiums. The value of benefits above this cap would be taxable to the employee. (In 2014, the average premium for single coverage in employer-based benefits is estimated to be $6,223. Let’s say that the 75th percentile is $4,667. So, if a person has coverage worth $6,000, $1,333 of that would be taxable.)

The NCPA’s proposed reform, on the other hand, gives everyone a tax credit and includes all employer-based health benefits in taxable income. The 2017 Project’s alternative is more politically palatable because it does not appear to threaten employer-based benefits. (In fact, the NCPA’s alternative does not prevent employers from offering benefits either.) Like the NCPA’s reform, it restores medical underwriting.

Free of Obamacare Taxes, the Future of Health is Digital

A version of this Health Alert appeared at Forbes.

A handful of recent reports indicate that capital, overall, is seeking to exit the health care industries burdened by Obamacare’s excise taxes and annual fees. With one outstanding exception — digital health — much of health care is seeing consolidation through mergers and acquisitions (M&A). As for fresh capital, venture funding has shriveled from its 2007 high.

Mergermarket has published its analysis of Q3 global mergers and acquisitions in pharma, biotech and medical devices. Mergermarket reports $354.3 billion in deals so far in 2014, more than two-thirds over last year’s value and the highest annual level since 2001. These sectors also have the highest share of all global M&A (14.2 percent), the biggest share of M&A since 2001.

Unfortunately, Mergermarket’s analysis is already somewhat out of date, because it includes deals announced but not yet closed. So, the failed merger of Shire and AbbVie is included in the total. This deal appears to have been primarily motivated by the tax benefits of inversion to a foreign domicile, and AbbVie will pay Shire a $1.65 billion break-up fee for jilting the Irish-domiciled firm. AbbVie is not going to grow its own business instead. Rather, it announced a $5 billion stock buyback program.

Nevertheless, most deals are going through, despite the U.S. Treasury’s attempts to stop these inversions. Despite all the political hand-wringing about companies moving their tax domicile to avoid U.S. taxes, inversions were not the primary cause of most deals. Rather, corporate strategy drives the consolidation, according to Mergermarket.

Global Pharma, Medical & Biotech sub-sector trend