The Future of Health Reform - VII - Device / Drug Manufacturer

As more of the US population is insured, Obama's theory was that the medical device and pharmaceutical industries would benefit from more customers. Thus, these industries should help finance the law through taxes.

However, is the situation facing the drug / device manufacturers similar to the one for doctors, where an increase in covered patients means a commensurate increase in business for these manufacturers? Not quite.

Most medical devices are sold to people on Medicare. The passage of Obamacare doesn't change the size of this population. Thus, medical device companies haven't seen the growth in patients necessary to offset the taxes that they must pay.

Some also justified the medical device tax as a way to "punish" medical device companies for excessive pricing. However, a study showed that medical devices only increased at a rate of 1% from 1989 to 2013 vs. 4.5% for the "medical consumer price index" vs. 2.7% for the overall consumer price index.

What's worse, the 2.3% tax is applied to a medical device companies' sales, not profits. This makes the effective tax rate especially high for startups. For example, Signus Medical, a Minnesota-based startup, ended up paying a 79% effective tax rate.

Pharma companies escaped with just a tax on branded drugs. However, Obama and company regard the lack of controls on pharmaceutical drug pricing as their biggest miss of the PPACA. Six years ago when PPACA was being conceived, pharmaceutical drug prices were not as much of a focus as they are now.

So, the benefit of Obamacare on Medical Devices looks to be net negative due to the medical device tax, but the impact on pharma companies is less clear.


Sources:

Let's Repeal The Dumbest Levy Of All Time: The Obamacare Excise Tax On Medical Devices

Medical Device Makers See Opening In Repeal Of Obamacare Tax

The Future of Health Reform - VI - Providers

Similar to the story of other health care players, providers have benefited from millions of more patients entering the system. At the same time, this patient influx has been difficult to handle. So have providers benefited, on the whole? Let's find out.

Positives

Business is better for providers as more patients are in the system. This means more consultations and procedures, and thus more revenue for hospitals.

In 2010, 60% of patients without health insurance didn't seek care due to cost. Now that the uninsured rate is lower, we would expect these individuals to seek more care.

For the most part, doctors can keep their patients (this issue is normally phrased as, "can patients keep their doctors?"). However, if a patient is on a plan that is no longer deemed suitable in Obamacare, then the patient must get a new plan which has a new network. That could result in some loss of patients for a doctor.

In addition, Medicaid payments have been brought to parity with Medicare payments in states that have expanded Medicaid. The increased Medicaid payments are funded by the federal government, and are intended to make it more attractive for providers to treat Medicaid patients.

Primary care doctors and general surgeons who practice in medically under-served areas will also receive a 10% bonus.

Negatives

Not all hospitals are setup to handle the influx of new patients, and that has resulted in lower quality of care for patients.

Also, as mentioned above, some patients might not be able to stay with their doctor if they have to change their plan.

However, most physician complaints relative to the new payment system that the PPACA institutes:

• While Medicaid payments have risen in states that expanded Medicaid, Medicare payments will be reduced in some situations as more payments are "bundled". Bundled payments are intended to create incentives for quality treatment at lower cost.
• A further action to control Medicare spending is the creation of the Independent Payment Advisory Board (IPAB), a 15 member board that looks to cut costs in the Medicare system without affecting coverage or quality.   
• In addition to the IPAB, the PPACA has facilitated the creation of the Relative Value Update Committee (RUC). This is a private group of 31 specialty physicians who can advise on how to value a physicians' work. 
• Both the IPAB and RUC could be perceived by physicians as excessive bureaucracy affecting their practices.  
• Physicians also complain that hospital payments have risen 35% over the last 10 years, while physician payments have only increased 3%. 
• Perhaps the most troublesome provision of PPACA is the need to provide care for patients even if they haven't paid their premiums. An estimated 20% of patients sign up for an Obamacare plan and don't pay their premium and lose their coverage after 90 days. In that 90 days, they often seek treatment, but it doesn't get paid for. The onus is placed on physicians to determine who has paid their premium. This aspect, or loophole, of the PPACA is the primary reason why 2/3 of doctors don't accept Obamacare plans. 
• Physicians also complain about the administrative burden placed on them with electronic health records. 
• Also, as PPACA removes a small portion of funding to hospitals that have higher re-admittance rates for Medicare patients, some providers will be negatively impacted as they treat more challenging patient populations. 

Net

Physicians largely support or oppose Obamacare based on their party affiliation. Clearly, more patients in the system is good for business. However, Obamacare care increases administrative burdens and changes the payment scheme to providers. However, overall, the net effect seems to be positive for most providers' businesses. Claims of 'death panels' seem exaggerated. Yes, the government is playing a bigger role in how physicians are paid, but as they are collecting taxes to fund Medicare and Medicaid, they have every right to rationalize the payment system.


Sources:

Do Doctors Loathe Obamacare?

Obamacare Doctors

The Future of Health Reform - V - Insurance

Insurance companies often said, in the early days of Obamacare, that the PPACA brought in a lot of patients into the insurance system, but it prevented them from making any money off of them. Is that accurate? Let's find out.

The individual mandate, employer mandate, subsidies on government run exchanges, and expansion of Medicaid drove millions of people to obtain insurance coverage. However, all of the provisions increasing the quality of insurance coverage have increased costs for insurance companies. From the first article in the series:

II. Increasing Quality of Insurance Coverage

A. Essential Health Benefits - all health insurance must provide essential health benefits to its covered members. https://en.wikipedia.org/wiki/Essential_health_benefits

B. Contraceptives & Women's Reproductive Health must be covered

C. Risk management for insurance companies - temporary reinsurance, temporary risk corridors and permanent risk adjustment.

D. Elimination of lifetime coverage caps on essential health benefits

E. Can't drop policy holders when they get sick

F. Out of pocket expenses must be capped

G. Same premium to members based on age, not gender or pre-existing conditions

H. Preventive care, vaccinations and medical screenings cannot be subject to co-payments, co-insurance or deductibles.

I. 4 tiers of insurance coverage: bronze, silver, gold, and platinum.

J. 80-85% of premium costs must go to health care coverage. Rebates must be issue if this is violated.

To understand how insurance companies have fared, let's start with a quick view of the stock prices of major carriers over the last 10 years.

Cigna:

Aetna:

United Health Group:

Pretty good, I'd say.

The fortunes that insurance companies have made me go against the news you have recently been hearing about regarding rising insurance premiums, and insurance companies pulling out of government exchanges.

For many insurance companies, the plans they offer on the exchanges are money-losers. The individuals buying health care on the exchanges are often a higher risk than those receiving insurance through other means. However, due to the restrictions placed on the insurance companies in PPACA, insurance companies are pursuing their options:

1. Raise their premiums to offset the bills they are paying.
2. Leave the exchange altogether in certain states.

When the insurance company leaves the exchange in a certain state, it reduces competition and the remaining companies can increase their premiums as a result.

In 2016, an average of 5.4 insurance companies participated in the exchanges on healthcare.gov. In 2017, 3.9 companies on average are expected to participate in these exchanges.

Overall, health insurers don't want a full scale elimination of the PPACA. Net, it looks positive for these companies. Most importantly, they don't want the new administration to dismantle the wrong elements of the law - i.e. the individual mandate or employer mandate. However, they would be open to seeing a different implementation of the exchanges, which are not as profitable for the insurers as they would desire.



Sources:

Health insurers list demands if Obamacare is repealed

Exchanges three years in: Market variations and factors affecting performance

Why Some Obamacare Insurers Are Making Money, But Many Are Losing Big

No, Obamacare isn't killing the insurance industry

The Future of Health Reform - IV - Patients

From a coverage standpoint, patients (in select states) have been the big winner of the PPACA. Let's look at how.

First, and most importantly, the PPACA has delivered on its promise to get more people covered through health insurance.

This graph from Obamacarefacts (a pro-Obamacare website) shows the percentage of uninsured in the US by quarter from 2008 to 2015. The uninsured rate dropped from an average of ~16% before the PPACA went fully into action to ~11% with the insurance provisions in full effect.

The graph below shows the uninsured rate on a longer timescale, going back to 1963 when Medicare and Medicaid were introduced. Medicare and Medicaid brought the uninsured rate from 25% to ~15%, which has of course dropped down to 11% after PPACA.

Now, over the course of a middle class person's life, his insurance coverage will be as follows:

• As a student and up until age 26, he will be covered under his parent's insurance
• In his working years, he will be covered through insurance provided through work. If he is in a small company (less that 50 full-time employees), he will get insurance through an exchange.
• In his retirement years, he will receive Medicare after age 65. 

For a lower class person who has trouble gaining and keeping employment, he will be covered by Medicaid. Medicaid has expanded eligibility going up to 133% of the Federal Poverty Line.

According to a Forbes article, the newly insured come from various sources:

• 9.6 million from employer sponsored plans (42%)
• 6.5 million from an expansion in Medicaid  (28%)
• 4.1 million from individual plans on state exchanges (18%)
• 1.2 million from individual plans not on state exchanges (5%)
• 1.5 million from other insurance sources (7%)

The article suggests that the gains in the employer sponsored plans could simply be due to a recovering economy. In addition, the articles suggests that the individual mandate is haven't the desired effect.

With the state exchanges making health care insurance more affordable, the expansion of Medicaid eligibility, combined with the penalties imposed on businesses and individuals for not having insurance, I wonder why the insured rate hasn't dropped down further than 11%. I would expect that only those people who pay the penalty for not having insurance would not be covered. Let's examine the uninsured population in an Obamacare world.

According to a Kaiser Family Foundation article, the main reasons for lack of insurance are:

• High cost of insurance
• No job and therefore no insurance through work
• Poor adults in states that didn't expand Medicaid
• People who didn't know about the subsidies available to them 
• Undocumented immigrants aren't eligible for insurance

In a later article, we'll discuss the implementation of Obamacare, in particular which states expanded Medicaid and which set up their own health care exchanges.

Sources:

Obamacarefacts - Uninsured Rates

Forbes - has Obamacare reduced the insured by 16 million?

Kaiser Family Foundation - Who are the Uninsured?