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How drug companies are beating Trump at his own game
https://www.politico.com/story/2018/08/03/trump-drug-prices-companies-721145
Recent price freezes and rollbacks are symbolic measures with little lasting impact.
A July tweet from President Donald Trump sent panic through the C-suites of some of the world’s biggest drug companies, prompting Pfizer and nine other companies to roll back or freeze prices.
But there’s less to those announcements than meets the eye. The gestures turned out to be largely symbolic — efforts to beat Trump at his own game by giving him headlines he wants without making substantive changes in how they do business.
The token concessions are “a calculated risk,” said one drug lobbyist. “Take these nothing-burger steps and give the administration things they can take credit for.”
Of the few companies that actually cut prices, for instance, most targeted old products that no longer produce much revenue — such as Merck’s 60 percent discount to a hepatitis C medicine that had no U.S. revenues in the first quarter.
Others volunteered to halt price increases for six months — in some cases, just weeks after announcing what is normally their last price hike for the year.
“A lot of this shit is meaningless to satisfy Trump,” said another drug lobbyist.
The industry’s deft response to Trump’s tweet shaming has also become a test of whether his administration is serious about following up with an aggressive crackdown on the companies or will simply declare victory based on token measures and move on.
“I think right now it’s a lot of noise, not a lot of substantial impact to the companies,” said Les Funtleyder, a health care portfolio manager at E Squared Asset Management, which owns shares in Pfizer. The prospect for meaningful change “is out there … but that will take motivation on the part of regulators and policymakers.”
Analysts are in broad agreement that the spate of recent concessions won’t hurt bottom lines, or rein in drug prices beyond this six-month period, because many companies already increased prices this year — in some cases, just weeks before publicly pledging to freeze them for the rest of 2018.
“There’s the glass-half-full and glass-half-empty interpretation,” said Walid Gellad, director of the Center for Pharmaceutical Policy and Prescribing at the University of Pittsburgh. “Glass half full says we have never before seen pharma promise not to raise prices anymore. So this is a step forward — including for patients. Glass half empty is that these are token measures — either on drugs few people use, or drugs that just had their price raised, and that prices will just go up next year.”
Either way, Gellad said, “this is not the kind of structural change we want in the market so that prices go down.”
Drug prices are a fixation for Trump, who rants about them in conversations with aides and advisers, according to people close to the president. He sees the issue as a political winner, especially among his conservative — and largely older — base, which relies heavily on prescription drugs. And after facing huge hurdles moving his legislative priorities through Congress, he sees this as something he can win on by using his executive authority.
That has put huge pressure on Health and Human Services Secretary Alex Azar, a former top official of Eli Lilly and Co.
“They talk three times a week, and they never have a conversation where drug pricing isn’t a topic,” said one person briefed on the conversations, adding that Trump has also interrupted Cabinet meetings to encourage Azar to brief the group on the latest developments.
But even as Azar implements his 44-page blueprint aimed at lowering prices, Trump has grown impatient with the glacial pace of rulemaking and arcane details of drug policy.
His outlet is Twitter, where he can marshal the rage of his millions of followers in an instant. White House aides say he sees his Pfizer tweet as a warning shot to other drug companies — part of a public “shaming” campaign designed to pressure companies to take voluntary steps to lower prices.
That strategy diverges sharply from what Azar is saying publicly — raising doubts about how serious the administration is about cracking down on drugmakers.
The HHS secretary’s rhetoric often targets pharmacy benefits managers — the obscure middlemen who manage the drug side of patients’ health insurance benefits — not drug companies. And targeting the middlemen is a play directly out of pharma’s strategy book — drug companies have long sought to pin patients’ frustration with rising costs on PBMs. HHS has also signaled it wants to overhaul a drug discount program for hospitals that could put money back in pharma’s pocket.
Pfizer CEO Ian Read himself praised the president’s blueprint on the company’s recent second-quarter earnings call, just a few weeks after Trump’s Pfizer tweet.
“I don’t think the administration is gunning for [pharma],” said Ronny Gal, a financial analyst at Sanford Bernstein. Everything they are doing right now is “scratching around the problem,” he said.
“You can tell by the way the stock has performed that investors aren’t too concerned,” Funtleyder said. “They figure, ‘OK, the pharma companies waved the white flag for now, so they’re out of the cross hairs.‘”
Meanwhile, HHS and drug industry officials have worked closely to show Trump they are getting results, administration and pharmaceutical industry sources tell POLITICO.
In private meetings with drug officials, HHS officials ask what steps they’ve taken that they might relay to Trump to keep the president satisfied, said drug company sources.
“They’re also like, ‘Hey, don’t be stupid. If you’re going to do something you feel like we can mutually take some credit for, let us know. … If you can get a good tweet out of it, don’t be an idiot. Let us know [ahead of time],’” said one person familiar with the conversations.
“They’ve said: ‘What would it take for you to lower prices?’” said another top drug industry official.
“There is a real fear that Trump only understands things very simplistically,” said a lobbyist for several drug companies. “So they want to keep tossing treats for him or he will go after blunt instruments,” like government drug price negotiations — steps neither the conservative leadership at HHS nor the drug industry want.
Observers both inside HHS and outside the administration see Azar’s drug pricing team as a buffer for the drug industry.
“To be candid, the secretary is pro-patient, pro-innovation and pro-competition and, quite frankly, really standing in between the industry and some faster ways to lower prices that some would say are not pro-competition,” said HHS’ John O’Brien, a senior adviser to Azar, at a drug cost event one day after Trump’s tweet attacking Pfizer.
Azar prefers the industry and HHS work to make change together, rather than it being adversarial, according to people familiar with HHS’ strategy.
He publicly touts industry price freezes and reversals “in part to show Trump they’re making progress, but also to show the industry that you get recognized for playing ball,” said a person familiar with the discussions.
The White House, meanwhile, was thrilled about the industry’s recent price freezes, even as officials acknowledged the companies’ announcements are only a first step — and promised what one official characterized as a “deluge” of drug price-related regulatory action in the coming months.
“Nothing about what they do or don’t do is going to really turn the tide in a major, major way on a voluntary basis,” the official said of the drug companies’ actions, promising that the administration will take aggressive action.
In the meantime, the White House isn’t ruling out more Twitter shaming.
“You’ll see continuing of the tweeting and announcing different actors doing good or bad things in the market,” the official said.
That will get particularly tricky for the industry come January, when drugmakers would typically take their biggest price increases of the coming year — and when their public concessions sunset.
“They can live with the changes that were made — but they can’t live with not raising prices forever,” Gal said. “It’s a noose they put their head into. In January, we will see what happens with that noose. Does it tighten or not?”
Do States Know the Status of Their Short-Term Health Plan Markets?
The Trump administration this week issued a final rule reversing federal limits on short-term health coverage, allowing such plans to become a long-term alternative to individual market coverage. Starting in October, insurers will be allowed to sell short-term plans for just under 12 months, up from the current federal limit of three months. And in a sharp break from prior regulations, insurers can renew short-term plans for up to 36 months. The rule does strengthen a consumer notice required in application materials, but the notice does not need to inform consumers of all limitations and “fine print.” Importantly, the rule does not preempt state regulation that includes shorter limits on coverage.
Short-term plans are not required to comply with the Affordable Care Act’s (ACA) consumer protections, meaning insurers that sell these policies can deny coverage to individuals with preexisting conditions and are not required to cover essential health benefits. These plans are typically marketed to healthy consumers, for whom coverage with limited benefits and a low premium may appear attractive.
In the past, many state insurance departments have had to warn residents about deceptive marketing practices sometimes undertaken by short-term plan sellers, which can lead consumers to believe they are buying a comprehensive policy when they are not. During the fall open-enrollment seasons for ACA marketplaces, these plans will be competing for consumers’ premium dollars with comprehensive coverage, introducing the possibility of still greater consumer confusion.
We surveyed the Departments of Insurance (DOIs) in the 17 state-based ACA marketplace states to understand how the market for short-term coverage is working on the eve of this policy shift. We found that most states have little information about the status of their current short-term plan markets. Additionally, inconsistencies in how states have collected and reviewed the premium rates and contracts for short-term plans will make it difficult to assess how the market is responding to the new federal rules.
Most States Do Not Have a Complete Picture of the Current Short-Term Market
With the exception of New York, which doesn’t permit short-term plans, 16 states in our survey require insurers to file for approval in order to sell short-term policies. However, once these policies are approved, few states require annual reapproval unless policies undergo significant rate or benefit design changes. Most DOIs acknowledged that insurers with short-term policies that were approved decades ago could potentially market them to consumers this fall without any additional regulatory approval.
As a first step to prepare for the Trump administration’s rulemaking, some states started to identify their approved short-term sellers and which ones are actively marketing. For example, in Maryland, the legislature directed the DOI to contact every approved short-term plan insurer to determine whether they are actively marketing. Similarly, Oregon is now reviewing advertisements for short-term products, and insurers marketing products that are at least five years old have been asked to refile with the state. However, overall, few states are aware of which short-term insurers are actively marketing. A few DOI officials also explained that with the new rule, more short-term plan insurers are likely to market within their state.
Insurers Marketing Short-Term Plans Are Generally Different Than Those Marketing Individual Plans
We compared the list of 2018 marketplace insurers to those who have been approved to sell short-term policies. Four of the 17 states (Massachusetts, New York, Rhode Island, and Vermont) in our survey have no approved short-term sellers because they require such plans to play by some or all of the same rules as traditional coverage. While the data are limited,1 it appears that 11 of the 17 states have more insurers approved to sell short-term plans than individual plans. There tends to be little overlap among the companies, although there are a few approved to sell in both the individual and short-term markets.
This separation poses a risk to individual market stability, as short-term sellers may target healthy marketplace consumers, undercutting ACA-compliant insurers. In return, ACA-compliant insurers may be incentivized to start selling short-term policies in order to shift and maintain their healthy enrollees in those plans. Indeed, the Trump administration expects that as many as 500,000 individual market enrollees will migrate to short-term plans in 2019. Because they will be relatively healthy, their departure will cause premiums in the individual market to increase by a projected 5 percent. This increase will come on top of other projected increases resulting from the repeal of the ACA’s individual mandate penalty and the expansion of association health plans.
Looking Forward
The final rule allowing short-term policies to be sold for longer durations puts enrollees at financial risk, as they unknowingly enroll in the skimpier policies that do not meet their health needs. In turn, the shift of large numbers of healthy consumers to the short-term market will increase prices for those remaining in the individual market. As a new market of long-term short-term plans emerges, states need to understand their short-term market in order to protect consumers and maintain a stable individual market. This can begin with an assessment of which insurers are actively marketing in the state. States also may want to ensure that any short-term plan sellers seeking to offer coverage that mimics the 12-month duration of ACA-compliant coverage submit plan designs, rates, and marketing materials for review and approval, as Vermont has done recently. Doing so will allow states to have a firmer understanding of the insurance products being sold to their residents, and will better position them to reduce consumer confusion and monitor for potential fraud.
Trump’s undermining of Obamacare violates the Constitution, new lawsuit charges
ASHINGTON — After congressional Republicans repeatedly failed last year to repeal the Affordable Care Act, President Donald Trump promised to “let Obamacare implode” on its own.
A new lawsuit being filed Thursday argues that Trump’s efforts to make good on that promise violate the U.S. Constitution.
Trump has “waged a relentless effort to use executive action alone to undermine and, ultimately, eliminate the law,” the complaint charges, according to a draft obtained by NBC News. The lawsuit is being filed in Maryland federal court by the cities of Baltimore, Chicago, Cincinnati and Columbus, Ohio.
Since Trump’s first executive order directing federal agencies to claw back as much of the Affordable Care Act as possible, his directives have increased health coverage costs and depressed enrollment, the complainants say.
Specifically, the suit argues that Trump is violating Article II of the Constitution, requiring the president to “take care that the laws be faithfully executed.”
“There’s a clear case of premeditated destruction of the Affordable Care Act,” said Zach Klein, Columbus city attorney.
This includes making it easier for individuals and trade groups to purchase coverage outside the law’s insurance markets; threatening to eliminate cost-sharing reduction payments; cutting funding for “navigators,” or those who help individuals enroll in the program; and using federal funds Congress dedicated to implementing the law toward making videos criticizing it.
On Wednesday, Health and Human Services Secretary Alex Azar announced a plan for cheaper, short-term insurance plans, the latest example of actions that critics say will drive up costs on Obamacare exchanges.
During a call-in appearance on Rush Limbaugh’s radio show Wednesday, Trump took credit for all but ending the Affordable Care Act.
“I have just about ended Obamacare. We have great health care,” he said. “We have a lot of great things happening right now. New programs are coming out.”
The suit also relies on a list of Trump’s tweets indicating his intent to unravel the law, according to a lawyer involved in the case.
Constitutional scholars have long debated the extent to which the chief executive must “faithfully” execute U.S. laws under Article II — from Franklin Roosevelt’s objections to legislative veto provisions and Harry Truman’s seizure of steel mills.
Citing the same “take care” clause, Republicans took issue with President Barack Obama’s executive orders on immigration as well as his delayed implementation of the health law.
This case stands apart from all others, says Abbe Gluck, a Yale University law professor and expert on Article II, because it’s not about the extent to which Trump is “faithfully” implementing a law. Rather Trump has been frank that he is sabotaging the law, she said.
“That’s what makes this case novel, first of its kind and really important,” Gluck said. “No scholar or court has ever said the president can use his discretion to implement a statute to purposely destroy it.”
“If there’s ever going to be a violation of the ‘take care’ clause, this is it,” she said.
If successful, the suit would strike down aspects of a Trump rule designed to undercut insurance markets; render a judgment he’s violating his constitutional obligation to enforce the statute; and issue an injunction that he implement the law faithfully.
LOCAL IMPACT
The suit also cites Trump scaling back oversight of insurance issuers, cutting open enrollment in half, urging a federal court to throw out Obamacare’s protections for pre-existing conditions and undermining the individual mandate.
All of these actions, they say, undercut confidence in the program and enrollment, the keys to its success. The whole concept of insurance, whether it’s for cars, homes or people, is to minimize risk by creating a diverse pool — in this case of healthy and unhealthy, young and old participants.
John Yoo, a law professor at the University of California, Berkeley, and former Bush Justice Department official, said a president can’t refuse to enforce a law just because he disagrees with it.
Still, Obamacare was written in a way that gives great leeway to the executive, said Yoo.
“Is there something specific in the statute that he is refusing?” he said, adding that funding reductions don’t qualify. “That’s the constitutional standard,” said Yoo.
In 2017, there was a 37 percent average increase in premiums nationwide, and 3 million more people lacked health insurance than did in 2016. In Columbus, city-subsidized health centers saw almost 3,000 more uninsured patients in 2017. As the uninsured rate increases, Columbus must also pay more for ambulance transports, draining millions of dollars from localities.
“The accumulation of these (acts) has cost Americans thousands of dollars more, and it was done in a way that can be clearly traced” to Trump’s orders, said Andy Slavitt, former acting administrator of the Centers for Medicare and Medicaid under Obama.
The budget strain is also hampering efforts to address the opioid crisis. Ohio has the second-highest drug overdose death rate, according to the Centers for Disease Control and Prevention, with the city of Columbus averaging nine or 10 Naloxone administrations a day to prevent deaths.
“The time for criticism is over,” Klein said. “We have no ability to recoup that money. We just have to eat it due to the Trump administration’s efforts to sabotage the law.”
HEALTH CARE POLITICS
The plaintiffs deny politics play a role in the timing of the suit, which they say they have been building for the past year.
But it will likely serve as a reminder to voters of Trump’s hand in rising premiums just as they are set to skyrocket. Trump’s 2016 campaign platform was built in part on greater economic security for working-class Americans.
Insurance companies are hiking rates in the individual market, citing decisions being made in Washington. And premiums are set to surge in 2019, with a majority of states proposing increases over and above the previous year.
After several elections in which Republicans used Obamacare to attack Democrats, the party says it’s regained the advantage on the health care issue. In the past few years, the Republican-led Congress has voted dozens of times to try and repeal the law, failing each time. “People got to see they (the GOP) have no better alternative,” said Slavitt.
“Most Democrats are saying ‘look we never said the ACA is perfect, but the other person is trying to take away your coverage,” said Slavitt.
Trump’s former Health and Human Services Secretary Tom Price has also faulted Congress’s repeal of the individual mandate for coming premium increases. Further, Trump’s Justice Department is taking aim at Obamacare’s most popular provisions: a ban on insurance companies’ discriminating against individuals with pre-existing conditions.
CONSTITUTIONAL OBLIGATION
The suit seeks to force Trump to adopt policies intended to expand rather than shrink enrollment; reduce rather than increase premiums; and promote instead of attack the ACA.
Among the specific rules plaintiffs seek to reverse are allowing exchanges to strip individuals of tax credits without notification and reducing oversight of insurance agents and brokers, as well as oversight of the law in general.
“What’s insidious here is the administration is doing it knowing that confidence in the act is key to its success,” said Adam Grogg, senior counsel at Democracy Forward and the lead litigator on the case. The fewer Americans who enroll in the program, the more volatile the market, he said.
“The overall picture here is one of sabotage that drives up the rates of uninsured and underinsured and leaves cites and counties holding the bag,” Grogg said.
Four cities are charging that the president is failing to execute the law by actively undercutting the Affordable Care Act.
SHORT-TERM HEALTH PLANS ALLOWED UP TO 3 YEARS
https://www.healthleadersmedia.com/finance/short-term-health-plans-allowed-3-years
A final rule expands access to non-ACA-compliant plans, which the Trump administration has touted as cheaper alternatives to full coverage.
KEY TAKEAWAYS
Only about 200,000 people are expected to exit the ACA exchange market as a result of the final rule.
Gross premiums for marketplace plans are expected to rise 1% next year attributable to this policy change.
The administration notes that ‘these products are not for everyone,’ so buyers should review their options carefully.
Beginning this fall, consumers will be allowed to buy short-term limited-duration health plans renewable for up to three years, the Trump administration announced Wednesday morning with a newly finalized rule.
The policy change expands access to lower-grade coverage options the Obama administration had restricted to three months, without a renewal option, in light of the Affordable Care Act. The looser rules finalized Wednesday allow terms up to 12 months, renewable up to 36 months.
While critics contend the short-term options will pull younger healthier beneficiaries out of ACA-compliant exchange plans, driving up premiums for sicker populations left behind, the administration says any negative effects will be minimal and outweighed by the market benefits of having more options.
James Parker, MBA, a former Anthem executive who serves as director of the Health and Human Services Office of Health Reform and as one of four key senior advisors to HHS Secretary Alex Azar, said the administration doesn’t expect a mass exodus from the ACA exchanges to these short-term options.
“What we do believe, however, is that there will be significant interest in these policies from individuals who today are not in the exchange and, in many cases, have been priced out of coverage as insurance premiums have significantly increased over the past four to five years,” Parker said during a call with reporters Tuesday evening.
Randy Pate, a deputy administrator of the Centers for Medicare & Medicaid Services who oversees individual and small-group markets as director of the Center for Consumer Information and Insurance Oversight, said the administration expects about 600,000 people to enroll in the short-term plans next year as a result of the expanded access. Only an estimated 200,000 will leave the exchange market as a result of the final rule, he said.
This shift is expected to increase gross premiums for marketplace plans by 1% next year, with net premiums decreasing by 6%, Pate said during the call.
- The wrong direction? When the administration announced its plans earlier this year to expand access to short-term coverage options, American Hospital Association President and CEO Rick Pollack called it “a step in the wrong direction for patients and health care providers.” If consumers are unaware of the limits on their skimpy coverage, it could ultimately drive bad debt for hospitals, he said.
- Disclosure requirements beefed up: The final rule includes additional language to make sure consumers know what they are buying, Pate said. “We fully recognize these products are not necessarily for everyone, but we do think they will provide an affordable option to many, many people who have been priced out of the current market under the Obamacare regulation,” he said.
- There’s an opportunity for insurers. As consumers gain interest in their short-term options, insurers will have an opportunity to meet the rising demand. “The impact is going to vary depending on the insurer, whether this is a business they have been in in the past and whether they have been longing to get back into it when consumer interest reached an acceptable level,” Christopher Holt, director of healthcare policy with D.C.-based think tank American Action Forum, told HealthLeaders Media. “There also could be some who see it as a new opportunity to claim a share of the marketplace they’re not reaching.”
- But insurers have some skepticism. Matt Eyles, president and CEO of America’s Health Insurance Plans, wrote a letter to HHS in April. “We are concerned that substantially expanding access to short-term, limited duration insurance will negatively impact conditions in the individual health insurance market, exacerbating problems with access to affordable comprehensive coverage for all individual market consumers,” Eyles wrote.
- Trump administration boosters: Beyond simply opening a door to longer short-term plans, the Trump administration has touted these and other non-ACA-compliant options as viable rescue mechanisms for individuals squeezed by rising premiums. Navigators, who have been tasked in past years with helping people sign up for exchange coverage, will now be encouragedto provide information on short-term and association health plans as well.
- States can block: The final rule released Wednesday addresses the federal government’s definition of short-term limited-duration health insurance, but states retain the authority to impose stricter regulations, Pate said. They can limit or even ban the plans altogether.
While lawmakers seem to have backburnered their aspirations for broad healthcare reform in the near-term, Parker said the administration will continue taking incremental steps to improve affordability of coverage.
Individual market enrollment dropping amid premium increases
Individual market enrollment dropping amid premium increases
Enrollment in the individual health insurance market — the market for people who don’t get coverage through work — has declined 12 percent in the first quarter of 2018, compared to the same period last year, according to a new analysis released Tuesday.
The analysis from the Kaiser Family Foundation showed enrollment in the individual market grew substantially after the implementation of the Affordable Care Act (ACA) and remained steady in 2016, before dropping by 12 percent in 2017.
There were 17.4 million people enrolled in the individual market in 2015, compared to 15.2 million in 2017 and 14.4 million in the first quarter of 2018.
The study notes that much of the decline is concentrated in the off-exchange market, where a number of enrollees are not eligible for ObamaCare subsidies and therefore not protected from significant premium increases in 2017 and 2018.
In this market, enrollment numbers dropped by 38 percent from the first quarter of 2017 to the first quarter of 2018.
The Trump administration last year canceled key ObamaCare subsidies for insurers, leading insurers to increase premiums substantially.
The anticipation of the repeal of ObamaCare’s individual mandate has also contributed to premium increases.
While ObamaCare enrollees who receive subsidies are mostly shielded from these increases, those who don’t are left to pay the full price.
“While the vast majority of exchange consumers receive subsidies that protect them from premium increases, off-exchange consumers bear the full cost of premium increases each year,” the analysis notes.
“In 2017, states that had larger premium increases saw larger declines in unsubsidized ACA-compliant enrollment, suggesting a relationship between premium hikes and enrollment drops.”
Despite the rises in premiums, enrollment in the ObamaCare exchanges has remained stable. There were 10.6 million people on the exchanges in the first quarter of this year, compared to 10.3 million in the first quarter of last year.
States sue Trump administration over AHP expansion
https://www.healthcaredive.com/news/states-sue-trump-administration-over-ahp-expansion/528875/
Dive Brief:
- Attorneys general from 11 states and Washington, D.C. are suing the Trump administration in hopes of putting the brakes on association health plan expansion.
- Expanding AHPs is a key plank in President Donald Trump’s healthcare platform, but critics call the plans “junk insurance” that will sidestep Affordable Care Act regulations.
- Meanwhile, the House of Representatives passed two bills last week that look to lower restrictions on health savings accounts (HSAs).
Dive Insight:
Trump, who repeatedly calls the ACA a “disaster,” said AHPs and allowing anyone to get catastrophic health insurance will offer flexibility and reduce health insurance costs.
In announcing the final rule last month, the Department of Labor said the regulation included anti-discrimination protections similar to those for large employers. It also allows states to regulate AHPs.
Though supportive of those protections, AHP critics are still concerned about the plans. They charge that AHPs will offer fewer consumer protections, lead to higher premiums in individual and small-group markets and result in fraudulent companies in the AHP market.
Tempting people with lower-cost offerings, AHPs and catastrophic plans could cause millions to flee the ACA exchanges. A recent report from the Society of Actuaries predicted between 3% and 10% of those in ACA marketplace plans will leave for AHPs. Those people are more likely to be young and healthy. Leaving the marketplace plans will result in an unstable risk pool with higher premiums in the exchanges.
A recent report from Avalere predicted individual rates would increase by between 2.7% and 4% and small group by between 0.1% and 1.9% with AHP expansion. Avalere said 130,000 to 140,000 more people will become uninsured because of the premium increases in the individual market by 2022.
Millions of people and small employers once got coverage through AHPs. However, the ACA instituted consumer protections for AHPs and said they should be regulated the same as individual and small-group market plans, such as requiring them to cover people with pre-existing conditions. The consumer protections increased the costs of AHPs, and many of them folded. The Kaiser Family Foundation said only 6% of employers with fewer than 250 employees offered health insurance through AHPs in 2017.
The Trump administration wants to make AHPs a low-cost solution with fewer regulations and consumer protections. However, the lawsuit involving 11 states and Washington, D.C. alleges the Department of Labor’s rule to expand AHPs violates the Administrative Procedures Act. The suit said that allowing for more AHPs “increases the risk of fraud and harm to consumers, requires states to redirect significant enforcement resources to curb those risks and jeopardizes state efforts to protect their residents through stronger regulation. The rule is unlawful and should be vacated.”
Meanwhile, the Republican-led House of Representatives is promoting more use of health savings accounts, which are a crucial part of high-deductible health plans and the drive toward consumerism.
One bill the House passed would allow members more flexibility to use their HSA until meeting their deductible. It also lets spouses contribute to an HSA and loosens restrictions on how members can use the account. The second piece of legislation would let people set aside more money for their HSA. That bill would also reduce the health insurance tax for two years, a change supported by the insurance lobby. The ACA created the tax as a way to pay for coverage improvements, but payers say it increases premiums.
Cartoon – High Cost of Living
Medigap Enrollment and Consumer Protections Vary Across States
Medigap Enrollment and Consumer Protections Vary Across States
One in four people in traditional Medicare (25 percent) had private, supplemental health insurance in 2015—also known as Medigap—to help cover their Medicare deductibles and cost-sharing requirements, as well as protect themselves against catastrophic expenses for Medicare-covered services. This issue brief provides an overview of Medigap enrollment and analyzes consumer protections under federal law and state regulations that can affect beneficiaries’ access to Medigap. In particular, this brief examines implications for older adults with pre-existing medical conditions who may be unable to purchase a Medigap policy or change their supplemental coverage after their initial open enrollment period.
Key Findings
- The share of beneficiaries with Medigap varies widely by state—from 3 percent in Hawaii to 51 percent in Kansas.
- Federal law provides limited consumer protections for adults ages 65 and older who want to purchase a supplemental Medigap policy—including, a one-time, 6-month open enrollment period that begins when they first enroll in Medicare Part B.
- States have the flexibility to institute consumer protections for Medigap that go beyond the minimum federal standards. For example, 28 states require Medigap insurers to issue policies to eligible Medicare beneficiaries whose employer has changed their retiree health coverage benefits.
- Only four states (CT, MA, ME, NY) require either continuous or annual guaranteed issue protections for Medigap for all beneficiaries in traditional Medicare ages 65 and older, regardless of medical history (Figure 1). Guaranteed issue protections prohibit insurers from denying a Medigap policy to eligible applicants, including people with pre-existing conditions, such as diabetes and heart disease.
- In all other states and D.C., people who switch from a Medicare Advantage plan to traditional Medicare may be denied a Medigap policy due to a pre-existing condition, with few exceptions, such as if they move to a new area or are in a Medicare Advantage trial period.
Medigap is a key source of supplemental coverage for people in traditional Medicare
Medicare beneficiaries can choose to get their Medicare benefits (Parts A and B) through the traditional Medicare program or a Medicare Advantage plan, such as a Medicare HMO or PPO. Roughly two-thirds of Medicare beneficiaries are in traditional Medicare, and most have some form of supplemental health insurance coverage because Medicare’s benefit design includes substantial cost-sharing requirements, with no limit on out-of-pocket spending. Medicare requires a Part A deductible for hospitalizations ($1,340 in 2018), a separate deductible for most Part B services ($183), 20 percent coinsurance for many Part B (physician and outpatient) services, daily copayments for hospital stays that are longer than 60 days, and daily copays for extended stays in skilled nursing facilities.
To help with these expenses and limit their exposure to catastrophic out-of-pocket costs for Medicare-covered services, a quarter of beneficiaries in traditional Medicare (25 percent) had a private, supplemental insurance policy, known as Medigap in 2015 (Figure 2). Medigap serves as a key source of supplemental coverage for people in traditional Medicare who do not have supplemental employer- or union-sponsored retiree coverage or Medicaid, because their incomes and assets are too high to qualify. Medicare beneficiaries also purchase Medigap policies to make health care costs more predictable by spreading costs over the course of the year through monthly premium payments, and to reduce the paperwork burden associated with medical bills.1
Medigap policy benefits were standardized through the Omnibus Budget Reconciliation Act of 1990, which also included additional consumer protections discussed later in this issue brief.2 Of the 10 standard Medigap policies available to beneficiaries, Plan F is the most popular, accounting for over half of all policyholders in 2016, because it covers the Part A and B deductibles (as does Plan C), and all cost-sharing for Part A and B covered services.3
The share of all Medicare beneficiaries with Medigap coverage varies widely by state—from 3 percent in Hawaii to 51 percent in Kansas in 2016 (Figure 3, Appendix Table). In 20 states, at least one-quarter of all Medicare beneficiaries have a Medigap policy. States with higher Medigap enrollment tend to be in the Midwest and plains states, where relatively fewer beneficiaries are enrolled in Medicare Advantage plans.4
Medigap coverage is substantially more common for Medicare beneficiaries ages 65 and older than it is for younger Medicare beneficiaries, many of whom qualify for Medicare because of a long-term disability. Only 5 percent of traditional Medicare beneficiaries under age 65 had Medigap in 2015—considerably lower than the shares in older age brackets (Figure 4). The low enrollment in Medigap by beneficiaries under age 65 is likely due to the absence of federal guarantee issue requirements for younger Medicare beneficiaries with disabilities (discussed later in this brief) and higher rates of Medicaid coverage for people on Medicare with disabilities who tend to have relatively low incomes.
Federal law provides limited consumer protections for Medigap policies
In general, Medigap insurance is state regulated, but also subject to certain federal minimum requirements and consumer protections. For example, federal law requires Medigap plans to be standardized to make it easier for consumers to compare benefits and premiums across plans. Federal law also requires Medigap insurers to offer “guaranteed issue” policies to Medicare beneficiaries age 65 and older during the first six months of their enrollment in Medicare Part B and during other qualifying events (listed later in this brief). During these defined periods, Medigap insurers cannot deny a Medigap policy to any applicant based on factors such as age, gender, or health status. Further, during these periods, Medigap insurers cannot vary premiums based on an applicant’s pre-existing medical conditions (i.e., medical underwriting). However, under federal law, Medigap insurers may impose a waiting period of up to six months to cover services related to pre-existing conditions, only if the applicant did not have at least six months of prior continuous creditable coverage.5 As described later in this brief, states have the flexibility to institute Medigap consumer protections that go further than the minimum federal standards.
Federal law also imposes other consumer protections for Medigap policies. These include “guaranteed renewability” (with few exceptions), minimum medical loss ratios, limits on agent commissions to discourage “churning” of policies, and rules prohibiting Medigap policies to be sold to applicants with duplicate health coverage.6 (For further details on these requirements and a history of federal involvement in the Medigap market, see Medigap: Spotlight on Enrollment, Premiums, and Recent Trends, April 2013.)
When does federal law require guaranteed issue protections for Medigap?
Federal law provides guaranteed issue protections for Medigap policies during a one-time, six-month Medigap open enrollment period for beneficiaries ages 65 and older when enrolling in Medicare Part B, and for certain qualifying events. These limited circumstances include instances when Medicare beneficiaries involuntarily lose supplemental coverage, such as when their Medicare Advantage plan discontinues coverage in their area, or when their employers cancel their retiree coverage. Beneficiaries who are in a Medicare Advantage plan also have federal guaranteed issue rights when they move to a new area and can no longer access coverage from their Medicare Advantage plan. In these qualifying events, people ages 65 and older in Medicare generally have 63 days to apply for a supplemental Medigap policy under these federal guaranteed issue protections.
Federal law also requires that Medigap polices be sold with guaranteed issue rights during specified “trial” periods for Medicare Advantage plans. One of these trial periods is during the first year older adults enroll in Medicare. During that time, older adults can try a Medicare Advantage plan, but if they disenroll within the first year, they have guaranteed issue rights to purchase a Medigap policy under federal law. Another trial period applies to Medicare beneficiaries who cancel their Medigap policy to enroll in a Medicare Advantage plan. These beneficiaries have time-limited guaranteed issue rights to purchase their same Medigap policy if, within a year of signing up for a Medicare Advantage plan, they decide to disenroll to obtain coverage under traditional Medicare.
States have the flexibility to institute Medigap consumer protections that go further than the minimum federal standards, such as extending guaranteed issue requirements beyond the open enrollment period or adding other qualifying events that would require insurers to issue policies, as discussed later in this brief.
When does federal law not provide guaranteed issue protections for Medigap?
Broadly speaking, after 6 months of enrolling in Medicare Part B, older adults do not have federal guaranteed issue protections when applying for Medigap, except for specified qualifying events described earlier (Table 2). Therefore, older adults in traditional Medicare who miss the open enrollment period may, in most states, be subject to medical underwriting, and potentially denied a Medigap policy due to pre-existing conditions, or charged higher premiums due to their health status.
Medical Underwriting. Insurance companies that sell Medigap policies may refuse to sell a policy to an applicant with medical conditions, except under circumstances described above. The Text Box on this page provides examples of health conditions that may lead to the denial of Medigap policies, derived from underwriting manuals/guides from multiple insurance companies selling Medigap policies. Examples of conditions listed by insurers as reasons for policy denials include diabetes, heart disease, cancer, and being advised by a physician to have surgery, medical tests, treatments, or therapies.
Barriers for Beneficiaries Under Age 65 with Disabilities. Under federal law, Medigap insurers are not required to sell Medigap policies to the over 9 million Medicare beneficiaries who are under age of 65, many of whom qualify for Medicare based on a long-term disability. (However, when these beneficiaries turn age 65, federal law requires that they be eligible for the same six-month open enrollment period for Medigap that is available to new beneficiaries age 65 and older.)
Beneficiaries Choosing to Switch from Medicare Advantage to Traditional Medicare. There are no federal guarantee issue protections for individuals who choose to switch from a Medicare Advantage plan to traditional Medicare and apply for a Medigap policy, except under limited circumstances described in Table 2. In most states, therefore, beneficiaries who want to switch from their Medicare Advantage plan to traditional Medicare may be subject to medical underwriting and denied coverage when they apply for a Medigap policy because they do not have guaranteed issue rights, with some exceptions (e.g., if they have moved or if they are in a limited trial period). In states that allow medical underwriting for Medigap, Medicare Advantage enrollees with pre-existing conditions may find it too financially risky to switch to traditional Medicare if they are unable to purchase a Medigap policy. Without Medigap, they could be exposed to high cost-sharing requirements, mainly because traditional Medicare does not have a limit on out-of-pocket spending (in contrast to Medicare Advantage plans).7
Some states require guaranteed issue and other consumer protections for Medigap beyond the federal minimum requirements
States have the flexibility to institute Medigap consumer protections that go further than the minimum federal standards. While many states have used this flexibility to expand guarantee issue rights for Medigap under certain circumstances, 15 states and the District of Columbia have not, relying only the minimum guarantee issue requirements under federal law (Table 3).
Only four states require Medigap insurers to offer policies to Medicare beneficiaries age 65 and older (Figure 5). Three of these states (Connecticut, Massachusetts, and New York) have continuous open enrollment, with guaranteed issue rights throughout the year, and one state (Maine) requires insurers to issue Medigap Plan A (the least generous Medigap plan shown earlier in Table 1) during an annual one-month open enrollment period. Consistent with federal law, Medigap insurers in New York, Connecticut, and Maine may impose up to a six-month “waiting period” to cover services related to pre-existing conditions if the applicant did not have six months of continuous creditable coverage prior to purchasing a policy during the initial Medigap open enrollment period.8 Massachusetts prohibits pre-existing condition waiting periods for its Medicare supplement policies.
Many other states have expanded on the federal minimum standards in more narrow ways by requiring Medigap insurers to offer policies to eligible applicants during additional qualifying events (Table 3). For example, 28 states require Medigap insurers to issue policies when an applicant has an involuntary change in their employer (retiree) coverage. (This qualifying event is more expansive than federal law, which applies only when retiree coverage is completely eliminated.) Nine states provide guaranteed issue rights for applicants who lose their Medicaid eligibility.9
As noted above, federal law does not require Medigap insurers to issue policies to Medicare beneficiaries under the age of 65, most of whom qualify for Medicare because of a long-term disability. However, 31 states require insurers to provide at least one kind of Medigap policy to beneficiaries younger than age 65 (typically through an initial open enrollment period).10
Some states provide stronger consumer protections for Medigap premiums than others
States also have the flexibility to establish rules on whether or not Medigap premiums may be affected by factors such as a policyholder’s age, smoking status, gender, and residential area. Federal law allows states to alter premiums based on these factors, even during guaranteed issue open enrollment periods.
There are three different rating systems that can affect how Medigap insurers determine premiums: community rating, issue-age rating, or attained-age rating (defined in the Text box below). States can impose regulations on which of these rating systems are permitted or required for Medigap policies sold in their state. Of the three, community rating provides the strongest consumer protection for Medigap policies because it does not allow premiums to be based on the applicant or policyholder’s age or health status. However, insurers in states that require community rating may charge different premiums based on other factors, such as smoking status and residential area. In states that allow attained age rating, older applicants and policyholders have considerably less protection from higher premiums because premiums may increase at unpredictable rates as policyholders age.
Premium rating systemsCommunity rating: Insurers must charge all policyholders within a given plan type the same premium without regard to age (among people age 65 and older) or health status. Insurers can raise premiums only if they do so for all policyholders of the given plan type. Insurers may still adjust premiums based on other factors, including smoking status, gender, and residential area. Issue-age rating: Insurers may vary premiums based on the age of the policyholder at the time of purchase, but cannot increase the policyholder’s premium automatically in later years based on his/her age. Additionally, insurers may charge different premiums based on other factors, including health status, smoking status, and residential area. Attained-age rating: Insurers may vary premiums based on the age of the policyholder at the time of purchase and increase premiums for policyholders as they age. Additionally, insurers may charge different premiums based on other factors, including health status, smoking status, and residential area. |
Currently, eight states (AR, CT, MA, ME, MN, NY, VT, and WA) require premiums to be community rated among policyholders ages 65 and older. This means that Medigap insurers cannot charge higher premiums to people because they are older or sicker, and therefore, must charge an 80-year old policyholder the same as a 70-year old policyholder regardless of health status (Table 4). Insurers may still adjust premiums based on other factors, including smoking status, gender, and residential area. A state’s community rating requirement does not, in itself, guarantee that applicants will be issued a policy in the state. However, as described earlier, four of the states that have community rating (CT, MA, ME, NY), have guarantee issue protections and require insurers to issue Medigap policies to eligible applicants either continuously during the year, or during an annual enrollment period.
The remaining 38 states and the District of Columbia do not require premiums to be community rated; therefore, Medigap premiums in these states may be subject to issue-age and attained-age rating systems, depending on state regulation. Medigap insurers are permitted to offer community rated policies in these states, but most do not.11 Additionally, Medigap insurers may increase premiums due to inflation, regardless of the premium rating system.12
Discussion
Medigap plays a major role in providing supplemental coverage for people in traditional Medicare, particularly among those who do not have an employer-sponsored retiree plan or do not qualify for cost-sharing assistance under Medicaid. Medigap helps beneficiaries budget for out-of-pocket expenses under traditional Medicare. Medigap also limits the financial exposure that beneficiaries would otherwise face due to the absence of an out-of-pocket limit under traditional Medicare.
Nonetheless, Medigap is not subject to the same federal guaranteed issue protections that apply to Medicare Advantage and Part D plans, with an annual open enrollment period. As a result, in most states, medical underwriting is permitted which means that beneficiaries with pre-existing conditions may be denied a Medigap policy due to their health status, except under limited circumstances.
Federal law requires Medigap guaranteed issue protections for people age 65 and older during the first six months of their Medicare Part B enrollment and during a “trial” Medicare Advantage enrollment period. Medicare beneficiaries who miss these windows of opportunity may unwittingly forgo the chance to purchase a Medigap policy later in life if their needs or priorities change.13 This constraint potentially affects the nearly 9 million beneficiaries in traditional Medicare with no supplemental coverage; it may also affect millions of Medicare Advantage plan enrollees who may incorrectly assume they will be able to purchase supplemental coverage if they choose to switch to traditional Medicare at some point during their many years on Medicare.
Only four states (CT, MA, NY, ME) require Medigap policies to be issued, either continuously or for one month per year for all Medicare beneficiaries age 65 and older. Policymakers could consider a number of other policy options to broaden access to Medigap. One approach could be to require annual Medigap open enrollment periods, as is the case with Medicare Advantage and Part D plans, making Medigap available to all applicants without regard to medical history during this period. Another option would be to make voluntary disenrollment from a Medicare Advantage plan a qualifying event with guaranteed issue rights for Medigap, recognizing the presence of beneficiaries’ previous “creditable” coverage. For Medicare beneficiaries younger than age 65, policymakers could consider adopting federal guaranteed issue protections, building on rules already established by the majority of states.
On the one hand, these expanded guaranteed issue protections would increase beneficiaries’ access to Medigap, especially for people with pre-existing medical conditions. They would also treat Medigap similarly to Medicare Advantage in this regard, and make it easier for older adults to switch between Medicare Advantage and traditional Medicare if their Medicare Advantage plan is not serving their needs in later life. On the other hand, broader guaranteed issue policies could result in some beneficiaries waiting until they have a serious health problem before purchasing Medigap coverage, which would likely increase premiums for all Medigap policyholders. A different approach altogether would be to minimize the need for supplemental coverage in Medicare by adding an out-of-pocket limit to traditional Medicare.14
Ongoing policy discussions affecting Medicare and its benefit design could provide an opportunity to consider various ways to enhance federal consumer protections for supplemental coverage or manage beneficiary exposure to high out-of-pocket costs. As older adults age on to Medicare, they would be well-advised to understand the Medigap rules where they live, and the trade-offs involved when making coverage decisions.
Insurers warn of rising premiums after Trump axes Obamacare payments again
Health insurers warned that a move by the Trump administration on Saturday to temporarily suspend a program that was set to pay out $10.4 billion to insurers for covering high-risk individuals last year could drive up premium costs and create marketplace uncertainty.
The Affordable Care Act’s (ACA) “risk adjustment” program is intended to incentivize health insurers to cover individuals with pre-existing and chronic conditions by collecting money from insurers with relatively healthy enrollees to offset the costs of other insurers with sicker ones.
President Donald Trump’s administration has used its regulatory powers to undermine the ACA on multiple fronts after the Republican-controlled Congress last year failed to repeal and replace the law propelled by Democratic President Barack Obama. About 20 million Americans have received health insurance coverage through the program known as Obamacare.
America’s Health Insurance Plans (AHIP), a trade group representing insurers offering plans via employers, through government programs and in the individual marketplace, said the CMS suspension would create a “new market disruption” at a “critical time” when insurers are setting premiums for next year.
“It will create more market uncertainty and increase premiums for many health plans – putting a heavier burden on small businesses and consumers, and reducing coverage options. And costs for taxpayers will rise as the federal government spends more on premium subsidies,” AHIP said in a statement.
It could also encourage more insurers to bow out of Obamacare.
“This is occurring right at the time of year that people (insurers) are making decisions about whether to participate in the exchanges and what premiums to charge if they do,” said Eric Hillenbrand, a managing director at consultancy AlixPartners. “This will affect their thinking on both of those decisions.”
The Centers for Medicare and Medicaid Services (CMS), which administers ACA programs, said on Saturday that months-old conflicting court rulings related to the risk adjustment formula prevent them from making payments.
CMS was referring to a February ruling from a federal court in New Mexico that invalidated the risk adjustment formula, and a January ruling from a federal court in Massachusetts that upheld it.
CMS administrator Seema Verma said in a statement the administration was “disappointed” in the February ruling and that CMS has asked the court to reconsider and “hopes for a prompt resolution that allows CMS to prevent more adverse impacts on Americans.”
But supporters of the ACA criticized the CMS announcement as the latest move by the Trump administration to undermine Obamacare.
“We urge the Trump administration to back off of this dangerous and destabilizing plan, and instead begin working on bipartisan solutions to make coverage more affordable,” said Brad Woodhouse, the executive director of Protect Our Care, a progressive group that supports Obamacare.
The administration has made several other moves in recent years to scale back or halt implementation of certain aspects of the ACA.
Late last year, it said it would halt so-called cost-sharing payments, which offset some out-of-pocket healthcare costs for low-income patients.
It has also scaled back the advertising budget for Obamacare healthcare plans during the open-enrollment period by about 90 percent.
“What you are effectively doing is dismantling pieces of [the ACA] without replacing them,” Hillenbrand said. “It moves us back to some extent to the status quo where people with pre-existing conditions found it very difficult to get insurance.”
HENRY KOTULA 