By Jeff Adams, November 14, 2015
Hillary Clinton (Democratic Presidential candidate) released her health care plan recently. This is an objective analysis of the components of that plan.
1. Hillary’s plan would modify and add on to Obamacare, not repeal it.
Given the alternative proposals currently being presented by presidential candidates, modifying Obamacare seems to make more sense than repealing it and starting from scratch. The key point is that Obamacare must be modified as it has many issues but is still better than the alternatives. Obamacare gives coverage to millions who were previously uninsured. It also has components that may help reduce costs of health care and increase quality of care, but the effectiveness of these components will only be determined over time. One huge weakness of Obamacare is that the cost management components do not do nearly enough to control future increases in health care costs, arguably the biggest problem facing the United States today as funding for defense, infrastructure, education, and other important programs are redirected to cover health care costs. Increasing health care costs will also substantially increase the number of uninsured people in the United States as coverage becomes unaffordable for employers, individuals, Medicare enrollees, and even those with subsidies through the health insurance exchanges. Not repealing Obamacare may be a good thing as long as substantial additional measures are taken to increase quality of care and efficiency in our health care system.
2. The first three sick visits a year would not be subject to the deductible.
This seems like a reasonable approach as it allows individuals to see a doctor if they are sick without having to worry about paying for the visit if the individual has a large deductible. Although it would increase health care costs, it would also help improve the individual’s health status. The three visit limit before copays and deductibles apply would help control the cost of excessive doctor visits. Just a note though that the reason why deductibles are so large is that health care costs have been out of control for decades, and employers cannot afford the better benefit plans that they used to have for their employees in the past. Hillary’s plan does little to help rein in high health care trends.
3. Tax credits up to $2,500 individual and $5,000 family would be given if out-of-pocket health care costs exceeded 5% of income.
This is another reasonable approach to offset the cost of health care expenses. Currently, medical expenses exceeding 10% of income are deductible if the individual is itemizing deductions. The tax credit would allow a tax credit for even those who do not itemize deductions.
4. The ability to strengthen or modify “unreasonable” rate increases will be strengthened.
I have mixed feelings about this approach, but if used correctly, it can slow the growth in health care costs slightly. In today’s environment, an “unreasonable” rate increase is defined as a rate increase that exceeds 10% in a given year. Keep in mind that normal claims cost trends are 10% and higher for many benefits. This means that insurers may need to have rates approved if they are seeking rate increases that only cover normal trend increases. It is probably a good thing to have somebody looking over the shoulder of the insurance companies and making sure rate calculations are correct and assumptions are reasonable.
The major problem with the strengthened review approach is that under this type of rate review, the rate review authority often arbitrarily cuts back on rate increases, possibly due to political reasons or in the hopes that the insurance company can cut its costs. However, insurance companies use over 80% of the premium dollars to cover claims payments to hospitals, doctors, pharmaceuticals, and other health care vendors. Insurance companies have limited ability to negotiate fee payment schedules with these health care providers and virtually no negotiation leverage with pharmaceutical manufacturers, who can set prescription drug prices at a level of their own choosing. Health insurers can also try to control costs through reduction in the 30% of all health care costs that are fraud, waste, and abuse, but this is extremely difficult to do and generally met with cries of “rationing health care” and other arguments that we saw when HMOs became prevalent in the 1980s.
We probably need rate review for large rate increases, but there needs to be checks and balances so that we do not see a significant number of bankruptcies in health insurers as we sometimes see in states where rate review gets political.
5. Pharmaceutical manufacturers would not be able to deduct “marketing” expenses as a business expense.
On the surface, this might sound like a good idea, but its impact would only be higher health care premiums as pharmaceutical manufacturers would just raise the price of their drugs to cover the lost deductions. If there were even limited restrictions on drug prices, then eliminating the deduction for marketing expenses might have an impact but the reality is that it would not change the pharmaceutical manufacturers’ behavior, just increase drug prices. There needs to be some mechanism put in place to restrict the huge increases in prescription drug prices.
6. A minimum amount of money would be required to be spent by drug manufacturers on research and development.
I cannot really comment on this as I do not know the details of the plan. I think requiring a certain percentage of revenue on drug research and development is a good idea. Only requiring a set dollar amount would do little good as it would be a hardship for small pharmaceutical manufacturers and not impact large pharmaceutical manufacturers. A combination of minimum dollar and minimum percentage of revenue is also possible.
7. Prescription drug out-of-pocket maximums would be limited to $3,000 a year.
This would have a somewhat minimal impact and ignores the major problem in health care costs. Obamacare already has a total out-of-pocket maximum of $6,500, so if a person in a plan with this $6,500 maximum allowed out-of-pocket had non-drug out-of-pocket expenses of $3,500, then this proposal would have zero cost anyway. In reality, most plans have maximum out-of-pockets less than $6,500. This maximum drug out-of-pocket would only assist those with out-of-pocket drug expenses over $3,000 but who had limited other medical expenses, which is not a large number of people. This idea would increase premiums very slightly overall.
This idea also does nothing to help control the total cost of prescription drugs. Health care is arguably the fastest growing sector of our economy and has been so for decades. Prescription drugs are one of the fastest-growing components in health care and have been so for decades despite a slowdown in drug costs from around 2005 through 2014. Reducing out-of-pocket drug costs with no other changes would actually increase health care trends and compound the drug cost problem.
8. The sales exclusivity period for biotech drugs would be reduced from twelve years to seven years.
This is a reasonable step in order to cut prices on a few particular drugs, but its impact overall would not be substantial. Currently, pharmaceutical manufacturers have few restrictions on the prices that they can charge for their drugs, so reducing the sales exclusivity period may decrease costs only for those drugs that have been around for eight to twelve years if the manufacturer does not push through a “new-and-improved” drug to replace the drug whose sales exclusivity period is expiring. Pharmaceutical manufacturers will more quickly replace drugs whose sales exclusivity period is ending and pull the old drug off the market, leaving the new drug in an environment with no competition. Again, the key here is that there are no restrictions on how much pharmacy manufacturers can charge for their drug products, so the issue of costs during the sales exclusivity period is a subset of the overall problem of absolutely no controls over prescription drug prices.
9. Medicare would be given the ability of negotiating drug prices with pharmaceuticals.
Medicare should be given the ability to negotiate drug prices. It would have some, but not a lot, of leverage in negotiations with the pharmaceutical manufacturers. Some type of price restraint on drug prices is imperative. Additionally, these negotiated drug prices would serve as a guide for non-Medicare plans as to what drug prices may be reasonable.
Hillary Clinton’s health care plan has some decent ideas but falls far short of the type of policy required to help fix our broken health care system. There is little in her plan that addresses the main problems in our health care system—primarily that costs are out of control and have been for many decades. During the next eight years (two presidential terms), there will be a substantial policy change involving Medicare as the Federal government will not be able to afford increasing Medicare funding to keep up with normal health care trends. The Democrats and Republicans have different perspectives on how to fix Medicare, but both will result in its destruction. The only way to save Medicare is to fix our entire health care system, but this needs bipartisan cooperation, which is not likely to happen any time soon.
Employer and health insurance exchange coverage will face major issues also due to high trends. More and more employers have been dropping coverage for their employers for decades, and this trend will continue. Health insurance exchange premiums will increase substantially, and individuals will start to drop coverage due to high premium rates, including those with premium subsidies.
Currently, fixing our health care system is one of the “third-rail” issues as attempts to control cost are cited as job-killing proposals or rationing of health care. I am one of the growing number of people (and have been for many years) who think high health care costs are our country’s biggest problem. You can read my article Are Rising Health Care Costs the US’ Biggest Problem and Should I Care? for more.