Amidst Changing Healthcare Landscape, A Defeated Reform Resurfaces

It was a tumultuous summer for the Affordable Care Act. First, insurers on the exchanges requested massive premium rate increases, citing multi-hundred-million-dollar losses and devastating cost-premium ratios. These same insurers then started pulling out of various markets, leaving millions of consumers with limited insurance options. The most recent health plan to leave, AETNA, is a particular blow to the ACA, as the company changed its tune from bullish on the exchanges as an area of investment, to bearish given the difficulty of turning a profit there. Elsewhere, studies show that the effort to enroll young Americans to grow the risk pool fell a quarter short of its goal, achieving a rate of only 28% younger enrollees. A federal judge recently ruled that the administration failed to adequately isolate funding to offset reduced cost-sharing. On top of all this, a recent National Bureau of Economic Research paper found that the ACA may be failing to achieve one of its biggest goals: eliminate job lock caused by health coverage. As murmurs of the potential death-spiral circulate and critics of the bill pounce on these events as evidence of the law’s failure, proponents of the law are finding it harder to find cause for optimism.

Regardless of these dark clouds on the horizon, the question at the end of the day must remain: what is the impact on patients?

Attempting to answer this crucial query is the RAND Corporation. A study they conducted using a massive healthcare utilization dataset found that individuals who gained insurance coverage as a result of the ACA were much more likely to get their prescriptions filled than those who did not gain coverage, and did so at lower personal cost. This makes sense, as insurance is designed in part to shield individuals from the full costs of their healthcare utilization and thereby incent them to purchase more socially-optimal amounts of healthcare. These findings make sense, and are encouraging in that the ACA appears to be helping people get the drugs they need.

Unfortunately, access to and use of patient-needed therapy is not synonymous with getting healthier. The authors of the RAND study were unable to conclude that those who gained coverage had improved health outcomes relative to those who did not gain new coverage. This question has long-plagued healthcare economics. A landmark study from a previous MEDICAID expansion in Oregon found that there was insufficient evidence to conclude that the health of those who gained coverage had improved by objective measures. On the other side, a previous RAND study found that lower utilization was, on average, harmful for low-income individuals. While it seems natural to assume that people who are getting more care will have better health, further research is needed to precisely document the effect on measurable outcomes like mortality rates and disease incidence.

While this news may be mixed for those hoping that the ACA will improve the overall healthcare system in the USA, one group for whom this recent RAND study should be encouraging is the pharmaceutical industry. Increased rates of prescriptions being filled means that manufacturers’ products are reaching patients at higher rates, increasing revenues, as well as their ability to combat disease.

The pharmaceutical industry has been a supporter of healthcare reform, including the 2010 ACA. In light of these recent challenges facing the law, pharmaceutical firms may rightfully be concerned that this expansion of coverage that has helped them achieve their goals of providing medicines to more patients could be in jeopardy. If large payers leave the exchanges, subsidies are blocked, or coverage becomes less comprehensive, meaning that the high costs of many therapeutic products will prevent many Americans from accessing them. These firms’ stake in the continued success of the exchanges is large, and warrants their investment to ensure the marketplace remains intact and growing. For this reason, it is particularly relevant that the past month has seen a surge in activity and interest around a policy solution that could heal some of the current ailments of the ACA while expanding coverage even further than is currently demonstrated: the public option.

This idea of a MEDICARE-like insurance offering could be on the rise. The policy would enable the federal government to offer its own health insurance option on the existing exchanges, as private health insurers do now, with premiums and cost-sharing as a normal plan would provide. The advantages are potentially large: a public option in every county means that nobody would be left without at least one option to gain coverage. A public plan, without the profit incentives of a private corporation, could potentially hold down costs and increase competition within the exchanges. Patients get coverage, costs go down, and on top of that the pharmaceutical industry gains access to millions of new patients – simple, effective, and efficient.

Those hearing of the public option for the first time are probably wondering why it isn’t in place already, given its alignment as a solution to current woes. While it was included in original drafts of the ACA in 2009, and polls found public approval around 65%, a coalition of conservative forces, health insurers, and providers influenced its exclusion from the final version of the bill. They argued it would result in unfair competition, lower reimbursement rates for physicians and hospitals, and was likely to lead to greater socialization and rationing of medicine in America. Even in light of these critiques, the public option remains well-suited to the current problems facing the ACA, and is likely to remain in the reform conversation.

Supplementing the debate over the merits of a public option plan is an equally important discussion around how such a reform would become law. There are reasons to believe a public option may have a chance at making it to the president’s desk in the next administration, regardless of who ends up sitting to potentially sign it. Hillary Clinton and the Democrats have included access to a public option explicitly in their party platform. Clinton is an experienced policymaker in the healthcare field, but it is not clear how much of a priority healthcare would be for her administration. Some say the policy was included in the platform to appease the more progressive wing of the party, with issues such as gun control, immigration, and economic growth at the forefront of Clinton’s campaigning. Donald Trump has expressed a range of views on healthcare policy, leaving an air of uncertainty as to how and if he would support such a proposal. In the Republican wings, House leader Paul Ryan has at times expressed support for policies not incompatible with the public option. Back in 2011, Ryan introduced a competing bill to the recently-passed ACA that used a public option plan as part of a larger overhaul. His most recent catalog of Republican reforms included options for individuals to buy into MEDICAID at premiums, similar to the model run by vice-presidential pick Mike Pence as governor in Indiana.

In addition to at least lukewarm support from both parties, the public option is fortunate to fall in a category of privileged legislation that has been evaluated as deficit reducing. As America approaches USD 20 trillion in public debt, lawmakers are eager to implement measures that will avoid harsh austerity measures. In an evaluation in 2013, the nonpartisan Congressional Budget Office found that adding a public option to the insurance exchanges could total reductions in the deficit as great as USD 160 billion over ten years. This comes from a combination of factors. The public option would likely be one of the lower-priced plans, meaning that the benchmarking system within the ACA that determines tax credit levels would decrease outlays to individuals. At the same time, the appearance of more affordable plans may cause individuals and employers to pursue the exchange options over employer-sponsored coverage. The resulting shift in employee compensation from non-taxed health insurance to taxable income would boost federal income tax revenues.

The likelihood of these savings depends on the ability of public plans to keep costs down below private alternatives. Critics say this is extremely unlikely, and point to the failure of may co-op plans that were inserted into the ACA as an alternative when the public option was originally removed. These organizations opened in almost two-dozen states, yet twelve have already collapsed. Organizational autopsies cite administration and operational failures as the cause of their demise, and critics are quick to ask how a public option would differentiate itself from these plans.

The benefit of the public option being deficit-reducing is that the public option could be passed into law via the reconciliation process. This would allow sponsors of a public option to attach it to other legislation as an amendment, so long as it met certain germaneness criteria, circumventing the threat of a filibuster. While feasible, this route has only been used sparingly in the past, due to the controversial appearance of passing laws that would not otherwise clear the filibuster hurdle. Increasing the likelihood of this approach is that its use hinges on the Senate Majority Leader being strongly in favor of the amendment. With current polling placing the Democrats at a slight edge for Senate majority, and former fierce public-option advocate Chuck Schumer (D-NY) as the frontrunner for Democratic Leader, this seems plausible. A Democratic majority in the senate would also place mean favorable chairs of the responsible committees (Appropriations and Health, Labor, Education, and Pensions), likely Bernie Sanders (I-VT) or Patty Murray (D-WA) who both supported the public option in 2009. As November nears, the various Senate and House races will give greater clarity as to whether the coming years could see a public option with a legitimate shot at becoming law.

For the pharmaceutical industry, the public option could be a windfall. It could bring vitality back to floundering exchanges created by the ACA, and provide affordable options for millions more Americans. At a time when the pharmaceutical industry faces broadsides of negative press coverage, support for such a popular public policy could pay dividends in more ways than one.

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