At this stage of the election cycle, it’s malpractice for the Democrats seeking the White House to provide too much detail about their proposed plans. It’s much easier the talk in generalities and attack opponents branding their proposals ill-conceived or counter-productive. That’s especially true for healthcare.
In Detroit tomorrow and Wednesday, the 20 Democrats seeking the Presidency will talk about healthcare as a right, not a privilege. They’ll blast insurers and drug company profits and rail against healthcare affordability. And each will promise to make the system more equitable, accessible and affordable. But they’re unlikely to provide insights on four issues that loom large in healthcare circles these days:
1. New Players and Old Rules
CVS, Optum, Apple and others are now in the business of healthcare delivery competing directly with local physicians, hospitals and ancillary providers. More than 300 health systems now sponsor health plans. Each of the major investor-owned health insurers owns a PBM (pharmacy benefits management company) and operates a wide range of subsidiaries.
Consolidation and vertical integration are the norm in healthcare today but the rules and regulations under which the industry operates harken back to an era when each sector stayed in its own swim lane. Competition is much more complicated: the scope of services offered by the major players is significantly broader and the scale of operations span regions or, in some cases, national markets.
In sum, the landscape in healthcare is changing dramatically but the regulatory climate has not kept pace. The President has the power to change the regulatory climate in healthcare.
2. Personal Accountability
According to the Center for Disease Control and Prevention, the average American can expect to live to 79, but only 63 of those years will be healthy. Unhealthy lifestyle is a staple of our society: our sedentary lifestyles cost $24 billion/year in direct medical spending and account for 300,000 annual deaths. There’s more: 62% of our population is overweight or obese contributing to rising rates of heart disease, diabetes, cancer and strokes; 14% smoke; only 5% exercise 30 minutes or more daily; the average adult consumes 3400 calories daily vs. a goal of 2300; 6% abuse alcohol, 88,000 died last year from drunk driving and 5% suffer from a severe form of mental illness (depression, stress, anxiety, et al).
Per Healthy People 2020, the major determinants of health include policymaking i.e. local/state/federal rules and regs), access to medical care, genetics, social factors (social determinants of health that correlate to 40% of costs) and individual behavior i.e. the lifestyle choices made by individuals. Individual accountability is still a factor. In the Affordable Care Act, the only lifestyle choice singled out for attention is smoking (insurers are able to charge higher premiums) but other decisions merit attention as well.
Addressing social determinants of health is getting needed attention from policymakers today. But improving consumer lifestyle choices is not.
3. The Role of Employer Sponsored Insurance
Health insurance is different: it is unlike other forms of coverage designed to protect policyholders from financial ruin resulting from major unforeseen events—an automobile crash, a house fire, or even flood damage. For 70 years, the private health insurance industry has operated under a unique regulatory concession: in the federal tax code, premiums paid for employer-sponsored health insurance are excluded from taxable income, reducing the amount workers owe in income and payroll taxes by about $250 billion annually. Thus, employers control insurance coverage for 156 million Americans (49% of our population).
In 2018, annual premiums for employer-sponsored family health coverage were $19,616, up 5% from 2017. Workers on average paid $5,547 toward the cost of their coverage (28%) which includes an annual deductible of $1,573. Per Kaiser Family Foundation, 56% of small ﬁrms and 98% of large ﬁrms oﬀer health beneﬁts to at least some of their workers, with an overall oﬀer rate of 57%.
Increasingly, employers are shifting health costs to their employees. They think it unfair that their premiums include pay a mark-up of up to 260% of what Medicare pays for the same services so hospitals and physicians can make up for under-payments by Medicare and care provided the 13% who lack coverage.
Employers and private insurers think escalating health costs are an existential threat to the viability of our economy. They are taking matters into their own hands. Employers want to keep their tax exclusion, provide health coverage to their employees and have flexibility in the design of their benefits rewarding active employee involvement and shared risk arrangements with providers. The current regulatory environment for employers limits their ability to execute their plans as aggressively as they’d like.
In 2018, The U.S. health system spent $3.67 trillion in 2018. Forecasts are for spending to increase at 5.5% annually for the next decade—far higher than economic growth, wages and overall inflation. Since 2008, the government funding has increased from 30% to 39% of total; private insurance has decreased from 63% to 54% and consumer and out of pocket has remained constant at 7%. That reflects a notable trend: government is replacing private payers as the major source of funding.
Demand for healthcare is increasing. The costs of care for the most health system-dependent populations—1% who account for 21% of total costs and 5% who account for 50%–are escalating while margins for providers who take care of them are shrinking. That’s why 18% of hospitals currently face risk of closure and all are cutting costs.
Funding healthcare is an issue. Some candidates indicate they’ll pay for ‘Medicare for All’ by cutting payments to doctors and hospitals. Others say they’ll eliminate tax concessions for individuals and companies authorized in the Tax Cuts and Jobs Act. All promise to make care more accessible and affordable.
The current funding formula for U.S. healthcare is unusually complicated and on a death spiral: fewer and fewer consumers and employers are bearing more and more of the costs disproportionately. Something’s gotta give.
These are complicated issues. Solutions don’t lend themselves to soundbites.
I am sick of partisan brinksmanship about healthcare: neither party owns the franchise to its future. Neither is advancing meaningful solutions to these issues.
Let’s talk about the health system as adults. Let’s put all the facts on the table and discuss trade-offs, intended and unintended consequences.
Let’s start this week by getting the Democratic candidates to address these issues and Republicans to do the same.
P.S. Thursday, the Senate Finance Committee advanced its drug pricing legislation to the full Senate 19-9 with pushback from Republican Senators who objected to its constraints on drug company pricing constraints. The bill includes more than 30 different proposals aimed at limiting price increases, caps seniors’ annual out of pocket costs at $3100 and align drug purchasing policies and strategies for Medicare and Medicaid. The Congressional Budget Office estimates the bill as a whole could save the federal government $10 billion/year taxpayers $3.2 billion/year for the next decade but its passage by the full Senate is not guaranteed.