A briefcase with a red cross on the front.
Mar 8, 2019

Axios Vitals

Good morning ... Did somebody forward this email to you? First, do something equally kind for them — a new car would be appropriate, I think — and then subscribe for yourself here.

1 big thing: Employers' outsized role in U.S. health care

Illustration: Sarah Grillo/Axios

Democrats' Medicare for All debate has turned into a referendum on the existence of private health insurance. But simply having private health insurance isn't the weird thing about the U.S. system — the weird thing is how we go about it.

Employer-based insurance is the biggest source of coverage in the U.S. And that arrangement persists not necessarily because it's a great way to finance a health care system, but because it's a great tax break for businesses.

  • The exclusion for employers' health care costs is the single biggest expenditure in the entire U.S. tax code. Last year alone, it allowed employers to hang onto $280 billion that the government otherwise would have collected, per the Tax Policy Center.

"In other countries [employers will] contribute, but not be responsible for providing the insurance," said Irene Papanicolas, a health economist at the London School of Economics.

The best comparison for the U.S. might be the Netherlands, which has universal coverage through heavily subsidized private insurance.

  • In the U.S., the government gives employers a tax subsidy so that they will subsidize your purchase of a health care plan. In the Netherlands, the government just collects tax revenues and subsidizes your purchase directly.
  • It's similar to what the Affordable Care Act was going for, and though it's one of the more expensive systems in Europe, it's still a lot cheaper than the U.S. It also covers more of its population than we do and provides more stability for people changing or leaving jobs.

Yes, but: Polls consistently show that people like their employer-based insurance and don't want to lose it. I asked Ashish Jha, the director of Harvard's Global Health Institute, whether that's a real endorsement or a form of status-quo bias. He chose the latter.

  • "One of the distortions in the market is the tax advantage. Whether employers want to be in this business, the evidence is mixed," he said.

Go deeper.

2. Hospitals may have to post their real prices

The Wall Street Journal reports that HHS is thinking about forcing doctors and hospitals to publicly disclose how much they get paid from insurance companies — not just the list prices they start out with.

Why it matters: WSJ sums it up nicely — this move "would expose for the first time the actual cost of care."

Between the lines: The rates negotiated between insurers and hospitals are highly prized secrets for both parties.

  • If you're an insurer who has negotiated a good rate, you don't want to tell your competitors what it is — then they'd be able to demand something similar and begin competing with you more aggressively on price.
  • And if you're a hospital, you don't want that lower rate revealed for basically the same reason — to keep your highest payments coming in.

Hospitals were already miffed at the administration for making them post their list prices, or "chargemasters." Expect to see even stronger industry pushback against this latest idea.

The intrigue: HHS actually released this proposal a month ago, but no one noticed until now because it was tucked into a 724-page rule on health information technology.

3. How we pay for prescription drugs
Expand chart
Adapted from Peterson-Kaiser Health System Tracker; Chart: Axios Visuals

My colleague Caitlin Owens flagged this data, from the Peterson-Kaiser Health System Tracker, which shows that while the U.S. pays more than other industrialized countries for drugs, the discrepancy in out-of-pocket spending is a lot smaller.

  • Total U.S. drug spending is about 70% higher than the average of similar countries. Our out-of-pocket spending is only about 18% above the average.
  • That means the higher overall costs in the U.S. are mostly reflected in insurance premiums.

Yes, but: As insurance deductibles rise, Americans are paying more out of pocket than we used to — for everything, including drugs.

4. The employer power of Sutter Health

Here’s a subtle reminder of why hospitals wield such power in their communities: They provide stable, well-paying jobs.

By the numbers: Sutter Health, a giant not-for-profit hospital system in California that has been accused of anticompetitive practices, just filed audited financials for 2018. Axios' Bob Herman breaks it down:

  • Sutter had a $201 million surplus last year, before accounting for investment losses, and spent almost $6 billion on employees' salaries and benefits.
  • Sutter had 53,000 full- and part-time employees last year.
  • That means the average Sutter employee's compensation was more than $110,000 (the average cost of family health insurance would be about $20,000 of that).

Go deeper: Health care is still a reliable job creator

5. Martin Shkreli runs his company from prison

Photo: Drew Angerer/Getty Images

Martin Shrkeli is still trying to build a pharma empire, even though he's locked away in prison for the next five-plus years. WSJ has all the glorious details:

  • With the help of a contraband cell phone and fellow inmates who protect him physically, Shrkeli is still the "shadow power" at Phoenixus AG — his privately held drug company, based in Switzerland but operating out of Manhattan.
  • "His back-of-the-commissary-envelope calculation indicates that Phoenixus could be worth $3.7 billion by the time he is due to be freed in 2023, according to a person familiar with his thinking," the Journal reports.
  • "His plan involves acquiring more rare drugs in various stages of development and plowing money into an ambitious research-and-development agenda."

Despite the public uproar that surrounded Shrkeli's price hikes, he was able to keep control of his company and install a friendly board before his conviction, enabling him to keep calling the shots from behind bars.

  • Phoenixus had roughly $38 million in cash at the end of last September.

When he's not firing his CEO or looking for new deals, Shrkeli apparently "reads about research into fatty acids and the prevention of cardiovascular disease in the inmate computer lab or on his phone."

  • Fellow inmates "persuaded him to turn down a gig playing guitar in a prison band because the other members were locked up for child molestation."

Happy Friday.

Thanks for reading, and have a great weekend. Always feel free to send your tips, comments and questions to baker@axios.com.