All signs point to a crushing surge in health care costs for patients and employers next year — and that means health care industry groups are about to brawl over who pays the price.
Why it matters: The surge could build pressure on Congress to stop ignoring the underlying costs that make care increasingly unaffordable for everyday Americans — and make billions for health care companies.
[This special report kicks off a series to introduce our new, Congress-focused Axios Pro: Health Care, coming Nov. 14.]
- This year’s Democratic legislation allowing Medicare to negotiate drug prices was a rare case of addressing costs amid intense drug industry lobbying against it. Even so, it was a watered down version of the original proposal.
- But the drug industry isn’t alone in its willingness to fight to maintain the status quo, and that fight frequently pits one industry group against another.
Where it stands: Even insured Americans are struggling to afford their care, the inevitable result of years of cost-shifting by employers and insurers onto patients through higher premiums, deductibles and other out-of-pocket costs.
- But employers are now struggling to attract and retain workers, and forcing their employees to shoulder even more costs seems like a less viable option.
- Tougher economic times make patients more cost-sensitive, putting families in a bind if they get sick.
- Rising medical debt, increased price transparency and questionable debt collection practices have rubbed some of the good-guy sheen off of hospitals and providers.
- All of this is coming to a boiling point. The question isn’t whether, but when.
Yes, but: Don’t underestimate Washington’s ability to have a completely underwhelming response to the problem, or one that just kicks the can down the road — or to just not respond at all.
Between the lines: If you look closely, the usual partisan battle lines are changing.
- The GOP’s criticism of Democrats’ drug pricing law is nothing like the party’s outcry over the Affordable Care Act, and no one seriously thinks the party will make a real attempt to repeal it.
- One of the most meaningful health reforms passed in recent years was a bipartisan ban on surprise billing, which may provide a more modern template for health care policy fights.
- Surprise medical bills divided lawmakers into two teams, but it wasn’t Democrats vs. Republicans; it was those who supported the insurer-backed reform plan vs. the hospital and provider-backed one. This fight continues today — in court.
The bottom line: Someone is going to have to pay for the coming cost surge, whether that’s patients, taxpayers, employers or the health care companies profiting off of the system. Each industry group is fighting like hell to make sure it isn’t them.
Employers face a brutal increase in health-insurance premiums for 2023, Axios’ Arielle Dreher writes from a Kaiser Family Foundation report out this morning.
- Why it matters: Premiums stayed relatively flat this year, even as wages and inflation surged. That reprieve was because many 2022 premiums were finalized last fall, before inflation took off.
“Employers are already concerned about what they pay for health premiums,” KFF president and CEO Drew Altman said.
- “[B]ut this could be the calm before the storm … Given the tight labor market and rising wages, it will be tough for employers to shift costs onto workers when costs spike.”
🧠 What’s happening: Nearly 159 million Americans get health coverage through work — and coverage costs and benefits have become a critical factor in a tight labor market.
- Premiums have increased by 20% over the past five years, KFF says in its annual Employer Health Benefits Survey.
🔎 Between the lines: In the tight labor market, some employers absorbed rising costs of coverage instead of passing them on to workers.
- An October survey of 1,200 small businesses found that nearly half had raised prices to offset rising costs of health care.
🧮 By the numbers: It cost an average of $22,463 to cover a family through employer-sponsored health insurance in 2022, KFF found.
- Workers contributed an average of $6,106.
Almost 40% of Americans are willing to split their ticket and vote for a candidate from the opposing party who made a top priority of lowering health costs, according to a Gallup/West Health poll published Thursday.
Why it matters: Though candidates haven’t been talking much about medical costs in the run-up to the midterms, the issue remains enough of a priority that it could erode straight party-line voting.
By the numbers: 87% of Americans polled said a candidate’s plan to reduce the cost of health care services was very or somewhat important in casting a vote.
- The issue cut across partisan lines, with 96% of Democrats and 77% of Republican respondents saying a candidate with a health care costs plan was an important factor.
- 86% also said a plan to lower prescription drug prices is very or somewhat important. That’s especially true for seniors.
Of note: Democratic voters were more likely than Republicans to say they would cross party lines because health costs are a top priority. Four in 10 Democrats said they were likely to do so compared to about 1 in 5 Republicans.
The next phase of the Biden administration’s bid to curb rising drug costs is in the hands of an under-the-radar federal office called the Center for Medicare and Medicaid Innovation (CMMI).
Driving the news: The center will publish a report within three months on how it can use new payment and delivery models to lower drug costs and boost access to treatments for beneficiaries of the two government health programs, per a recent executive order from President Biden.
Zoom in: CMMI was created through the Affordable Care Act to experiment with new ways of paying for and delivering health care.
- Pilot programs typically last for years. Participation is usually voluntary, but the center can require provider involvement in some cases.
- CMMI programs can become permanent fixtures of Medicare and Medicaid — if they’re found to save money or improve care quality.
Be smart: The expectation is the center will tackle the prices health providers pay for Medicare drugs like infusions or injectables. Under the Inflation Reduction Act, the government can’t negotiate prices for these drugs until 2028.
- Experimenting with price negotiation or payments based on patients’ health outcomes could help regulators learn best practices before that start date.
- The center may also look for ways to incorporate drug pricing reforms into its existing projects and across different federal payers, said David Ault, a lawyer at Ropes & Gray and a former CMMI employee.
Refining policies from recent congressional action on Medicare prescription drug pricing could also be on the agenda.
- The center could test alternative versions of the $2,000 annual cap on out-of-pocket costs for Medicare prescription drugs, for example.
- Incorporating a monthly spending limit “could avoid having people pay everything in one month, after which all of their treatments are free,” Stacie Dusetzina, a health policy professor at Vanderbilt University Medical Center, wrote in an email.
Flashback: CMMI has tried to tackle drug prices under previous administrations, with mixed success.
- Both the Obama and Trump administrations failed to implement experiments meant to lower health providers’ Medicare drug costs. But 106 health plan sponsors currently participate in a center program that gives seniors access to lower-cost insulin.
Reality check: It could take some time to get new drug pricing experiments up and running.
- Programs typically take a year and a half to two years to be approved and implemented, so any new drug pricing model likely wouldn’t start until at least 2024, Ault said.
Don’t forget: The Centers for Medicare and Medicaid Services, the center’s parent, will continue its own work on drug pricing as it implements policies from the Inflation Reduction Act.
- Congress also hasn’t tapped out of the discussion. Lawmakers seem keen to continue talking about insulin costs and pharmacy benefit manager practices, Rachel Sachs, a law professor at Washington University in St. Louis, told Axios.
Zoom out: Expect to see more from CMMI in the next couple years, on drug pricing reforms and other federal health care policy issues.
- “You oftentimes see the innovation center being very active in the last few years of administration, trying to take ideas or concepts … far enough along that they’re in place, should there be a change in political party,” Ault said.
The $740B Inflation Reduction Act (IRA) includes significant reforms for Medicare’s drug benefits, including capping seniors’ out-of-pocket drug spending at $2,000 per year, and insulin at $35 per month. Medicare plans to fund these provisions by requiring rebates from manufacturers who increase drug prices faster than inflation, and through negotiating prices for a limited number of costly drugs. Drug prices are consistently a top issue for voters, but seniors won’t see most of these benefits until 2025 or beyond, well after this year’s midterms and the 2024 general election.
The Gist: While this package allows Democrats to deliver on their campaign promise to allow Medicare to negotiate drug prices, the scope is more limited than previous proposals. Over the next decade, Medicare will only be able to negotiate prices for 20 drugs that lack competitors and have been on the market for several years.
Still, because much Medicare drug spending is concentrated on a few high-cost drugs, the Congressional Budget Office projects the bill will reduce Medicare spending by $100B over ten years. However, these negotiated rates and price caps don’t apply to the broader commercial market, and some experts are concerned this will lead manufacturers to raise prices on those consumers—creating yet another element of the cost-shifting which has been the hallmark of our nation’s healthcare system.
The pharmaceutical industry also claims that this “government price setting” will hamper drug development (although there is limited to no evidence to support this proposition), signaling that they will likely spend the next several years trying to influence the rulemaking process as the new law is implemented.
Mark Cuban’s pharmacy, Cost Plus Drug Co., has hundreds of drugs marked at discounted prices, but some pharmacy experts say there’s a larger problem that needs fixing, CNBC reported July 28.
The online pharmacy launched in January with about 100 drugs, and by its one-year anniversary, plans to have more than 1,500 medications, according to the company’s website. The business model, which allocates for a $3 pharmacy dispensing fee, $5 shipping fee and a 15 percent profit margin with each order, aims to uproot the pharmaceutical industry, which has faced criticism for years about its opaque business practices.
Gabriel Levitt, the president of PharmacyChecker, a company that monitors the cheapest drug prices, told CNBC there’s more to be done.
“As much as I support the venture, what they’re doing does not address the big elephant in the room,” Mr. Levitt said. “It’s really brand-name drugs that are increasing in price every year and forcing millions of Americans to cut back on medications or not take them at all.”
Brand-name drugs are 80 percent to 85 percent more expensive than generics since brand-name drugs have to repeat clinical tests to prove efficacy, according to the FDA. Cost Plus Drug Co. only offers generics. Mr. Cuban told CNBC he hopes to sell brand-name medications “within six months,” but added that it’s a tentative timeline.
Despite the hype, accountable care organizations (ACOs) and other Medicare-driven payment reform programs intended to improve quality and lower healthcare spending haven’t bent the cost curve to the extent many had hoped.
A recent and provocative opinion piece in STAT News, from health policy researcher Kip Sullivan and two single-payer healthcare advocates, calls for pressing pause on value-based payment experimentation. The authors argue that current attempts to pay for value have ill-defined goals and hard-to-measure quality metrics that incentivize reducing care and upcoding, rather than improving outcomes.
The Gist: We agree with the authors that current value-based care experiments have been disappointing.
The intention is good, but the execution has been bogged down by entrenched industry dynamics and slow-to-move incumbents. One fair criticism: ACOs and other “total cost management” reforms largely focus on the wrong problem. They address utilization, rather than excessive price.
But we’re having a price problem in the US, not a utilization problem. Europeans, for example, have more physician visits each year than Americans, yet spend less per-person on healthcare. It’s our high prices—for everything from physician visits to hospital stays to prescription drugs—that drive high healthcare spending.
The root cause: our third-party payer structure actively discourages real efforts to lower price—every player in the value chain, including providers, brokers, and insurers, does better economically as prices increase. That’s why price control measures like reference pricing or price caps have been nonstarters among industry participants.
Recent reforms that increase price transparency, while not the entire solution, at least shine a light on the real challenges our healthcare system faces.
Senate Majority Leader Chuck Schumer (D-NY) and Senator Joe Manchin (D-WV) surprised everyone Wednesday night by announcing they reached a deal on a legislation package called the Inflation Reduction Act of 2022. The deal is a revival of portions of President Biden’s “Build Back Better” plan, more narrowly scoped to meet the demands of Sen. Manchin.
On the healthcare front, the bill would allow Medicare to negotiate prices for certain prescription drugs starting in 2026, and limit seniors’ annual out-of-pocket spending on Part D prescriptions to $2,000. It also includes $64B to extend the enhanced tax credits for Affordable Care Act exchange plans through 2025, avoiding health plan rate increases for millions of Americans.
The Gist: While several Senate Democrats have announced support for the legislation, the party can’t afford any holdouts given its razor-thin majority. If all Democrats get on board, this legislation will fulfill the party’s longtime promise to lower prescription drug prices. But it stops well short of other major healthcare measures being discussed last year, including expanding Medicare coverage to include dental, vision, and hearing coverage, and closing the so-called Medicaid coverage gap.
- Healthcare costs are becoming an increasing source of stress for older Americans, leading to some paring back on treatment, medicines or other spending on food and utilities — or skipping them altogether — to cover medical costs, according to new research conducted by Gallup in partnership with West Health.
- The survey of U.S. adults released Wednesday found that almost half of adults aged 50 to 64 and more than a third of adults 65 and older are concerned they won’t be able to pay for needed healthcare services in the next year. That’s nearly 50 million older Americans.
- About 80 million adults above age 50 see healthcare costs as a financial burden. Becoming eligible for Medicare seems to assuage those worries slightly, however: 24% of adults aged 50 to 64, who are not yet eligible for the federal health insurance, said health costs were a major burden. That percentage fell to 15% for those aged 65 and above.
The West Health-Gallup survey, conducted in September and October of 2021, is the latest vignette of how exorbitant healthcare costs in the U.S. are increasingly impacting the financial stability of Americans, especially those of retirement age who are more likely to have expensive medical needs.
Out-of-pocket healthcare expenses for adults aged 65 and older increased 41% from 2009 to 2019, according to HHS data. That population spends on average almost double their total expenditures on healthcare costs compared with the general population, despite Medicare coverage.
That cost problem is only likely to worsen amid surging inflation raising the cost of groceries, gas and other needed items. Additionally, U.S. demographics shifts are an added stressor. By 2030, the percentage of Americans 65 years and older will outweigh those under the age of 18, a first in the country’s history, according to Census Bureau projections.
The resulting stress on the Medicare program could impact benefits and cost for beneficiaries.
“As sizable numbers of Americans 65 and older face tangible tradeoffs to pay for healthcare, many more Americans in the next decade will incur health and financial consequences because of high costs,” researchers wrote in the report.
The West Health-Gallup poll found about one in four adults aged 65 and above cut back on food, utilities, clothing or medication to cover healthcare costs. That’s compared to three in 10 for adults aged 50 to 64.
Older women and Black adults were more likely to forgo basic necessities to pay for healthcare than other demographics.
More than 20 million Americans aged 50 years and above said there was a time within the last three months when they or a family member was sick, but didn’t seek treatment due to cost.
More than 15 million Americans said they or a family member skipped a pill or dose of prescribed medicine in order to save money.
Researchers urged policymakers to act to improve efficiency and reduce the costs of medical care and prescription drugs in the U.S. Congress has yet to take meaningful action to lower medical costs, despite rising support for government intervention and high-profile proposals from the Biden administration.