Tuesday, August 27, 2019

Healthcare reformers can't leave employer-sponsored insurance untouched

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Presidential candidates and other Democrats who want to patch or build on the ACA rather than create a substantially new system generally neglect, to varying degrees, an attendant problem: employer-sponsored insurance (ESI) is also in dire need of reform.

A Kaiser Family Foundation's report on large employer coverage released this month found that health spending by families in large employer plans has grown twice as fast as wages over the past decade. The employer share of costs in family coverage (premium plus out-of-pocket) has downticked only slightly:  it was 68% in 2008 and 66% in 2018.  But families and employers alike are tapped out: total costs increased 67% over those ten years. The total cost of large group coverage for a family of four now averages $22,000 per year. Reducing healthcare costs is among voters' top priorities.

Beyond the steady-but-high yearly increases recorded by Kaiser, yesterday NYT reporters Reed Abelson and Katie Thomas spotlighted a recent development that could be destabilizing: the proliferation of specialty drugs for rare diseases, which can carry price tags in the millions per patient per year. As Abelson and Thomas note, about 10% of the population is afflicted with rare diseases,  and more than half the drugs approved in 2018 targeted such diseases.

While small group insurance remains comparatively expensive, small group employers (those with under 100 employees) individually are insulated from these costs, as the ACA bans medical underwriting for small groups. Large group employers are fully exposed, however.  Most are self-funded -- and the stop-loss insurance they buy is medically underwritten. As David Anderson explains, at renewal time, the reinsurer will likely exclude coverage for a persistent high-cost condition, or else raise premiums accordingly. Fully insured large group plans are also medically underwritten; an employer with persistent high costs will face proportionate premium increases.

Large group plans are also not subject to most of the ACA's coverage rules, as they have historically offered comprehensive coverage. They can, however, exclude categories of drugs, or particular drugs, as long as they can't be shown to be discriminating against a group or individual. While fully insured plans are subject to state antidiscrimination laws that may further limit their ability to cut out certain treatments, self-insured plans are not (they're governed by ERISA, the federal law governing employee benefits).  Georgetown's Dania Palanker offers a brief primer on Twitter:
Most large group coverage is comprehensive, although some are very limited in coverage. But comprehensive coverage doesn't cover everything. It's expected to cover specialty drugs, but that doesn't mean all specialty drugs. Plans often cut services that cost them a lot.
As to lasering out expensive coverage:
From a discrimination standpoint, it's not whether somebody switches jobs but what the intent of the change is. A self-funded plan can choose to exclude HIV treatment because it will save them $2 million in claims each year. It can't because they want people with HIV to quit.

The test is whether it’s intentional discrimination, against either a group or individual. There’s an insurance safe harbor in the ADA that allows plans to make decisions based on financial/actuarial data even if it effectively discriminates if it is not intended to discriminate.
About 150 million Americans are insured through employers. "If you like your plan you can keep it" is a compelling political promise -- but one that may be difficult to fulfill. While employees are paying roughly the same percentage of total costs as they did in 2008 (or 2003), they're paying a fixed percentage of a relentlessly growing pie. At the same time, the employer share takes up an ever growing share of the employee's compensation. And increasingly, that growing "pie" may exclude treatments of truly astronomical cost.

"ACA 2.0" bills introduced in the House and Senate improve subsidies in the individual market but don't address the sustainability of ESI. The Senate bill, introduced by Elizabeth Warren, seeks to protect enrollees in employer plans, with measures such as ending balance billing and requiring plans to offer certain services before the deductible is met. But the bill does nothing to reduce the underlying costs of either self-funded or fully insured ESI. 

Those bills that create a public option -- e.g. Medicare-X, Choose Medicare, and Medicare for America -- do affect ESI in several ways. To the (varying) extent that they open the  public option (deemed "Medicare") to employers or employees whose employers offer private insurance, they force ESI to compete with a high standard of coverage -- which might effectively empower employer plans to pay providers rates comparable to those paid by the public plan. The same might hold for prescription drugs, as the public option bills generally empower the federal government to negotiate drug prices, and/or create prescription drug oversight boards that can block pricing deemed excessive.  Finally, the Medicare for America bill, which enables all Americans to buy into a new public plan on an income-adjusted subsidized basis, also mandates that healthcare providers have to accept the public plan payment rates from private plans as well -- affording them a basis to compete.

The presidential candidates' plans (leaving aside Sanders' Medicare for All)  are sketchier. Biden's plan purports to let anyone buy in to a new public option on a subsidized basis, with premiums capped at 8.5% of income, but says nothing about the employer plans that would have to compete with it. Kamala Harris would phase out ESI as we know it over ten years, at which point employers could, if they so wish, sponsor a private "Medicare" plan (along the lines of Medicare Advantage). Those plans will be "reimbursed less than what the Medicare plan will cost to operate" -- so they presumably will not pay providers higher rates than the public plan does. Centralized prescription drug cost control would presumably also apply.

Today, Ezra Klein reports that Democratic senators likely to drive healthcare reform if Democrats win the presidency and a (presumably bare) Senate majority (Brown, Wyden, Stabenow, Warner) are focused on incremental changes: opening Medicare to people age 50 and up, possibly introducing a public option in the ACA marketplace, and empowering Medicare to negotiate drug prices. Assuming that public option is open on a subsidized basis only to those currently eligible for marketplace subsidies (e.g., those who lack access to ESI), these measures would affect ESI only indirectly -- pulling some older employees out, and perhaps putting downward pressure on drug prices.

It's possible to imagine legislation that would tighten requirements on ESI, such as subjecting all employer plans to ACA coverage rules, including the Essential Health Benefits. Without some means of reducing costs, however, such measures would presumably drive up premiums. Could prescription drug rates negotiated by Medicare also be extended to employer plans, creating an all payer rate regime? What about capping provider payments rates for commercial insurance, as Ezekiel Emanuel recently suggested? Such direct rate-setting is probably beyond the political capability of U.S. elected officials (witness the all-out drive happening now to kill legislation protecting patients from balance billing).  What about federal reinsurance for ESI plans, perhaps with federal payment rates to providers and for drugs above the attachment point? Spitballing here...but if ESI is going to be left more or less as is, it needs relief.

1 comment:

  1. Good summary as always. I do not think that Medicare has ever 'negotiated' ten cents of savings on specialty drugs. Nor will it do so without the classic willingness to "walk away from the table."

    This would mean that if a new cancer drug is priced at $400,000 a year, Medicare would not cover it until the price came down to $40,000 a year (which is still price gouging probably)

    If this means that a patient dies due to a lack of this drug, the greed of the drug company can be highlighted but plenty of Americans will still blame Medicare. The directors of CMS would be lynched in effigy.

    We need a Patent Medicine Review Board like Canada's.