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:

Having some health insurance is better than having none. But American insurance...

Those of us engaged in the long struggle to pass and implement the ACA have (not wrongly) fixated on how vital it is to have health insurance, and we've been cheered by the roughly 25% reduction in the nation's uninsured in the ACA's first year. We've also celebrated the ACA's ending of arbitrary policy rescissions, yearly and lifetime coverage caps, medical underwriting, and plans lacking essential benefits like childbirth and drug treatment.

Some coverage is better than none. But recent good reporting is also highlighting the extent to which much if not most health insurance in America remains inadequate, exposing plan holders to sometimes substantial, sometimes damaging and sometimes ruinous costs. The incidence of such exposure may be rising rather than falling, as employers continue to offload the cost of care onto employees.

Footnote to a fact-checked false impression

The Note's Chris Good flags an anti-Obamacare ad aimed at young adults by Crossroads Generation, a younguns' auxilliary of Karl Rove's American Crossroads.  This 1-minute font of information nyaah-nyaahs that while Obamacare enables adults under 26 to remain on their parents' insurance, 

...actually, states already allowed kids to stay on their parents' insurance before Obamacare.

I want to add one key point and one minor to Good's debunk below:

Will self-funded plans have to offer contraception?

I have a really basic question about the just-announced compromise regarding insurance coverage for contraception -- so basic that this post should have a shelf life of about ten minutes. But I really wonder.  Under the compromise,

• The new regulation will require insurance companies to cover contraception if the non-exempted religious organization chooses not to. Under the policy:

• Religious organizations will not have to provide contraceptive coverage or refer their employees to organizations that provide contraception.

• Religious organizations will not be required to subsidize the cost of contraception.

• Contraception coverage will be offered to women by their employers’ insurance companies directly, with no role for religious employers who oppose contraception.

• Insurance companies will be required to provide contraception coverage to these women free of charge.

Question: more than half of Americans who get their health coverage from their employers are in self-funded plans -- that is, plans in which the employer sets aside funds to cover the cost of health care, usually hiring a third party administrator to handle the claims process, as well as a stop-loss insurer to cover costs above a certain level.  So: who will "provide contraception coverage" in self-funded plans?   If it's the self-funded entity, then the employer is paying for it. Would the TPA somehow absorb the cost -- or a stop-loss insurer under some special rider? If so, surely either would find a way to pass the cost back?

Will someone please render this post unnecessary?

UPDATE 2/14: At Business Insurance, Jerry Geisel relays this clarification-to-come notice:

In regulations issued Friday [Feb. 10], the administration said it will develop a comparable rule that would apply to employers affiliated with religious organizations that self-fund their health care plans.

“The departments intend to develop policies to achieve the same goals for self-insured group health plans sponsored by nonexempted, nonprofit religious organizations with religious objections to contraceptive coverage” according to regulations released by the Internal Revenue Service and the Departments of Labor and Health and Human Services.

For now, “I see a gaping hole” on the self-insurance issue, said Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago.

 UPDATE 2/15:  NPR's Jim Zarroli cites an industry expert who assumes that for self-funded plans, "the insurance company" footing the bill would be the TPA:

One industry official who didn't want to be named said it's clear contraceptive services save money over time or are at least cost neutral. But he's worried about the White House compromise, anyway. He says insurance companies will be forced to put out a lot of money up front without getting reimbursed and that sets a dangerous precedent.

Insurance industry consultant Robert Laszewski says the problem is complicated by the fact that most employers and virtually all big companies self-insure. They pay their employees health care costs out of pocket every year. The insurance company is paid just to administer the plan. And it typically passes on its costs to the employers. Only in this case, it won't be able to do that.

"The problem is the insurance plan is going to have to front about $360 per person who uses the birth control pill," he says. "And the insurance company that does that will not be able to recoup any savings."

This creates an almost unprecedented problem, according to Laszewski. Federal and state governments frequently order private companies to do things like put airbags in cars, he says. But those companies can charge more to make up the cost.

"I have never seen an example of the federal government telling a company they have to provide a service and they are not allowed to charge for it," he says.

Insurance companies that administer these plans will have no choice but to try to find a way to pass on the immediate costs to their other customers, he says, even if no one wants to admit that's happening. White House officials insist they can prevent that.

They also say the fact that the compromise has been embraced by some former critics, such as Catholic Charities and the Catholic Health Association, suggests it can succeed in the long run even if some details still have to be worked out.

New coverage rules for employer-provided health plans

Most overviews of the effects of the new health reform law have suggested that it won't have a large impact on employer-provided insurance. That ain't necessarily so.

Business Insurance reports that employers "will have to redesign their health care plans to extend coverage to employees' adult children up to age 26, eliminate lifetime dollar limits and remove pre-existing condition exclusions, if any, for children up to age 19."

Historically, insurance has been regulated by the states. While many states have strict coverage mandates (and others minimal ones), employers that offer self-funded health plans to their employees have been exempt from these mandates.  Since more than half of all Americans who get their health coverage from their employers are in self-funded plans -- approximately two thirds of large employers self-fund -- that's a large regulatory loophole.

According to Business Insurance, however, the new federal coverage rules do apply to self-funded plans:

For example, few employers extend coverage to employees' children to age 26 as the legislation will require starting next year; typical cutoffs are at age 23. Many states already require such extensions, but those state laws apply only to insured plans and not to the roughly two-thirds of larger employers that self-fund their plans.