Axios Vitals

A briefcase with a red cross on the front.

April 19, 2019

Situational awareness: Around $150 billion of market value was wiped out of the S&P 500's health care index this week, Bloomberg reports.

1 big thing: How Medicare may encourage higher drug costs

Data: CMS; Chart: Harry Stevens/Axios
Data: CMS; Chart: Harry Stevens/Axios

Taxpayers are picking up more and more of the tab for Medicare's prescription drug coverage, because more seniors are racking up bills big enough to enter the program's "catastrophic phase," where government subsides are the highest.

  • Some experts say the program's basic structure encourages this spending growth and needs to be reformed.

How it works: Medicare Part D has a ridiculously complicated financing structure, with different parties responsible for varying portions of each patient's bill throughout the year.

  • Insurers pay a large portion of seniors' initial drug costs.
  • But once patients spend a certain amount, they enter the catastrophic phase. Then the government pays 80% of the costs, through a reinsurance program. The insurer pays 15% and the enrollee pays 5%.
  • Higher reinsurance spending is driven by the number of enrollees who reach the catastrophic phase and the costs they each incur.

What they're saying: "The insurer is basically off the hook" once patients reach the catastrophic phase, said Doug Holtz-Eakin of the American Action Forum.

  • “The insurance guys don’t have strong incentives to negotiate too hard and pharma has every incentive to have high prices," Holtz-Eakin added.

Yes, but: There's no government-funded safety net in private insurance, but even in that market, insurers aren't always able to negotiate lower prices.

  • Even in a restructured Part D program, insurers still might struggle to get lower prices for drugs that have no competition, or that Medicare requires them to cover.
  • "We should increase their incentive to negotiate, but we also need to be realistic about how much they can negotiate for those products," Vanderbilt's Stacie Dusetzina said.

2. Trump administration releases 2020 ACA rules

Insurers will still be allowed to "silver load" on the individual market next year, the Trump administration announced yesterday.

  • Silver loading was insurers' solution to the administration's decision to cancel the Affordable Care Act's cost-sharing subsidies for low-income enrollees. It essentially keeps insurers from losing money without raising the financial contribution from subsidized enrollees.
  • There'd been concern that the administration would ban the practice, and it asked for comments on the change, but "it's good news for consumers that the Administration is not implementing" it, Avalere's Chris Sloan said.
  • The administration also declined to end automatic re-enrollment, which was estimated to lead to lower enrollment and higher premiums.

The administration's rule does allow insurers to use "copay accumulators," which exclude drug manufacturer cost-sharing assistance from counting toward patients' out-of-pocket maximums.

  • This assistance wouldn't be counted when a patient is taking a branded drug for which its generic is available, which is "likely to drive higher generic utilization," Sloan said.

3. Drugmakers putting list prices online

Drug companies are making good on their vow to post their prices online, part of an attempt to keep the Trump administration from imposing even more stringent rules on price transparency, Bloomberg reports.

  • This is a response to the administration's proposal to require drugmakers to include list prices in TV ads.
  • Some experts say that making patients go online is not the equivalent of requiring TV ad disclosures.

Key quote: “If your aim is transparency, those prices need to be upfront and not require additional action from the patient,” Connecture's Jim Yocum told Bloomberg.

4. Most Medicaid dollars go to health insurers

Data: CMS via Health Management Associates. MCOs are managed care organizations. Chart: Axios Visuals
Data: CMS via Health Management Associates. MCOs are managed care organizations. Chart: Axios Visuals

States and the federal government paid health insurance companies $307 billion in 2018 to run Medicaid programs, according to the latest numbers obtained by consultancy Health Management Associates.

  • That was 52% of all Medicaid spending — up significantly from 2007, when private insurers handled 20% of Medicaid spending, Axios' Bob Herman reports.

The big picture: This shift has occurred, and will continue, because more states are privatizing their Medicaid programs and because the ACA expanded Medicaid eligibility to more low-income people. However, costs and quality concerns linger over Medicaid managed care.

5. McConnell is pushing to raise the smoking age

Senate Majority Leader Mitch McConnell announced yesterday that he's planning to introduce a bill that would raise the legal smoking age to 21, adding momentum to an already-growing effort.

  • The bill will cover all tobacco products, including e-cigarettes.
  • "I hope my legislation will earn strong, bipartisan support in the Senate. I’m confident many of my colleagues will agree that protecting our young people from starting tobacco use at an early age can have remarkable, long-term health benefits for Kentucky and the country," McConnell said in a statement.

My thought bubble: McConnell isn't the first Republican to support this, but he's ahead of most of the party and has more power when it comes to making new law than the rest of the early GOP supporters combined.

Go deeper: The growing push to raise the smoking age to 21

Happy Friday! Congrats to all of us for making it through the week.