Monday, August 26, 2019

Who pays for astronomically expensive orphan drugs? Some questions prompted by the NYT report

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The Times' Reed Abelson and Katie Thomas have a major story exploring a key factor in rising healthcare costs: specialty drugs for rare diseases, which increasingly can carry price tags in the millions per patient per year. The trend and the impact are laid out succinctly:
Rare diseases, however, aren’t all that rare. There are an estimated 7,000 of them, and about 30 million Americans have one — roughly the same number of people in the United States with diabetes. And although there are no treatments for most rare diseases, new therapies are coming on the market nearly every month,  with some reaching beyond $2 million a year for a single treatment. Of 59 new drugs approved in 2018, more than half, or 34, were for rare diseases. 
Leaving aside the broad question of how the U.S. might contain costs for these drugs without choking off their development, the story prompted a few thoughts and questions about how these costs are currently distributed, and how that might change. Some factors to consider:
  • Self-funded plans. About 60% of people insured through employers are in plans funded by the employer, rather than in plans in which the insurer assumes the risk.  A major focus of the Times story is the Russian Roulette risk to employers of landing an employee with multimillion dollar costs. The lead anecdote concerns the impact of a family with millions of dollars in drug costs annual on a union, the International Brotherhood of Boilermakers: "At one point in 2018, for every hour that one of the union’s 16,000 members worked, 35 cents of his or her pay went to Alexion to cover the Pattersons’ prescriptions." Questions: Is this union self-funded? Or does the cost hit the union via yearly premium hikes for a fully insured plan?

  • Stop-loss insurance.  Most employers that self-fund health plans buy stop-loss insurance -- that is, reinsurance that covers costs above a certain threshold. According to Sun Life, a major stop-loss insurer, the average deductible for a company with more than 1,000 employees is $300,000, while small employers, with under 200 employees, average $50,000. Questions: how many self-funded employers -- particularly small ones -- skip stop-loss insurance and assume full risk? And if stop-loss claims are high, particularly for a small employer, does renewal become unaffordable? 

  • New HRA rule. The Trump administration recently finalized a controversial administrative rule that allows employers to use the employer tax exclusion for health insurance to fund employees' premiums in the individual market. Employers can also satisfy the mandate to provide health insurance to their employees by funding individual market coverage.  ACA-compliant individual market plans cap enrollees' costs at about $8,000 per year for an individual. Will the increasing risk of high-cost specialty drugs prompt small employers in particular to push employees into the individual market? If so, what might be the impact on premiums in the ACA marketplace? Also, how much leeway do individual market insurers have to deny coverage for specialty drugs? 
So, to put all the questions in one place (and elaborate a bit):

1. Large-group fully insured plans are medically underwritten. Does the chief impact of a few high cost patients hit employers mainly in the form of annual premium hikes?

2. If a self-insured plan relies on stop-loss, is there any renewal protection, i.e. any protection from astronomical premium increases in the year after a high-cost employee surfaces?  If not, "stop loss" might only stop losses for a year.

3. There are various estimates of the impact of the new HRA rule on the ACA marketplace. The rule  does include controls to deter employers from dumping the most expensive employees into the individual market, e..g, an employer can't offer a choice between an employer plan or HRA individual market to individual employees. But there's nothing to stop an employer from shifting a whole class of employees (say, part-time employees at a given location) to the individual market if that class becomes too expensive. As part of the overall forecast impact of the HRA on individual market premiums, what might be the impact specifically of the rising incidence of high cost specialty drug prescriptions on how employers react to them?

[Update, 3:00 p.m.: In a Brookings analysis of the likely impact of the HRA rule (published prior to the rule's finalization), authors Cristen Linke Young, Jason Levitis and Matthew Fiedler specifically raise the possibility that firms will find a way to ring-fence expensive employees in a class of employees who they then push into the individual market. Other employers may shift a whole work force if it becomes too expensive:
First, despite the proposed requirement that an individual-market-integrated HRA be
offered to all similarly situated workers, employers have broad flexibility to decide what workers are “similarly situated.” In particular, they can use any combination of the permitted characteristics, which would create opportunities for employers to target HRAs to high-cost classes of workers. For example, these rules may allow a mid-size employer with a single high-cost worker or family to direct that worker to the individual market by subdividing its workforce using the allowed characteristics. Further, there is nothing to restrain risk-based targeting in cases where sicker workers are naturally  congregated in one geographic area or class. This type of risk is potentially greatest in states where rating areas cover a relatively small geographic area, as it allows the finest-grained sorting of individuals into classes.

Second, the structure of the rule does nothing to prevent firm-level shifting. As discussed above, firms with a sicker-than-average workforce would likely find an individual-market-integrated HRA attractive, because it would allow them to shift the cost of covering their workforce to the community rated individual market risk pool. By contrast, healthier-than-average firms would prefer traditional coverage priced based on their own risk. Importantly, the risks to the individual market from this type
of behavior are greatest in states that today have a relatively robust and low-premium individual market – because the gulf between the community-rated individual market and the experience-rated premiums of a sicker-than-average firm are greatest, leaving more relatively unhealthy firms in the range where they benefit from shifting (pp. 7-8).]
4. Re individual market formularies: Generally, in ACA-compliant plans, insurers have to offer at least one drug in a given class of drugs -- does that mean they have to cover orphan drugs? Or could an older, much less effective treatment satisfy formulary requirements? To what extent do answers to these questions filter down to the states, which are charged with fleshing out the Essential Health Benefits, including drug coverage?

Update re last question: response from Brookings' Christen Linke-Young:
EHB requires coverage of 1 drug in every USP category/class, so older drugs could only substitute if in the same USP category/class, which is unlikely

1 comment:

  1. High deductible health plans concentrate the cost of sick patients away from the risk pool, and onto the individual sick families. (Side note: our increasing over-reliance on HDHPs is probably bad public policy.)

    The upshot of that is to hide the true cost of healthcare from the community at large. The hiding of the true cost of healthcare from ourselves is an American healthcare specialty, and is found in a lot of different arenas, such as the employer portion of our premiums being effectively hidden from us as employees, with the similar result that we as a community have little idea what healthcare really costs. No one, or at least very few of us, have a real sense of how much our employers pay for our premiums -- which is the same as saying no one of us in employer-sponsored plans knows how much lower our pay is than it would be if we didn't have insurance through work.

    One of the Prime Directives of American healthcare is to always hide the true costs of healthcare from the community at large. One way to accomplish this hiding imperative is to jam the risk onto individual families by mechanisms such as high deductibles.

    But the Abelson/Thomas story, and this Xpostfactoid post, highlight yet another quintessentially American way to hide high costs from the community, in this case by loading all of the risk of rare conditions on the few unfortunate groups who the sick folks belong to. Yes, it is better from the sick families' perspective to have your group picking up the cost, instead of having the cost loaded directly and exclusively onto your family, as occurs with the HDHP mechanism -- way better.

    But still, just as in my opinion it is questionable public policy to rely on super-high deductibles just to keep the community's premium down, by the same token is it good public policy to load these super-high costs onto individual employee groups of even several thousand? Yes, it's better to tap the resources of the employer group than of individual families, but still the end result is to hide from the community the real cost of taking care of the community.

    Maybe in addition to revisiting the 1983 act that Abelson & Thomas point to as driving the rare disease drug development boom (perhaps by limiting excess profits taken or by requiring abundant repayment of any government drug development subsidies or appropriate profit sharing with the government), we should be looking at withdrawing the ability to self-fund treatments for these expensive rare disease drugs. Maybe instead we require even self-funded plans to fully insure coverage for just the class of super-coster drugs.
    This approach would push the risk off individual groups and onto a much broader insured risk pool.

    Stop kidding the community about how much healthcare costs by making the community pay something closer to the full costs.