The Government and Health Care: A Volatile or Necessary Mix? (Part I)

In this Breaking Down Health Care conversation, John Hennessy, MBA, and Michael Kolodziej, MD, cover the US federal government’s role in health care—Medicare, Medicaid, and the Affordable Care Act. They discuss the benefits, challenges, and potential room for improvement in government-sponsored health care in the United States.

Read the transcript:

John Hennessy, MBA: Welcome to Breaking Down Health Care, where we'll be discussing evolving topics in health care in the United States. I'm John Hennessy; I'm a principal at Valuate Health Consultancy. And for this video series I'll be in conversation with Michael Kolodziej, an oncologist and currently an advisor to ADVI and Canopy, an ePRO startup. We're also going to be talking about his new Substack, Decoding Health Care. We're using our expertise to dive into some nuances of the health care industry in the United States.

Mike, you wrote about government-sponsored health care, Medicare and Medicaid. And you know, sometimes we hear people, you know, with their pitchforks and torches marching on City Hall, saying, “Get the government out of my health care.” Is that something that's realistic? And if it isn't, why not?

Michael Kolodziej, MD: Oh, it's ridiculous! It's ridiculous because, well, gosh, if we let the health insurance companies do whatever they wanted, I'm not sure anybody can envision a better world. In fact, I'll tell you this: Despite all the rhetoric, often partisan, with the Affordable Care Act, the absolute beauty of the Affordable Care Act was that it reformed private health insurance in a way that made it better for almost everybody. No preexisting conditions; cap on out of pocket; keeping your kids on your health plan.

Now, just a question. You think the insurance companies would have done that on their own? Are you nuts? No way, not a chance. So, I would say, the idea that the government is going to be out of health care, and that we should just let the free market—that is nuttiness. That's just nuttiness.

And that's before we talk about Medicare and Medicaid, which are the kind of government-run health insurances that pay for care for 40% of Americans.

Hennessy: So, when we think about government-sponsored health care, the first one that comes to mind is Medicare. So, if someone were to be in “Intro to Medicare 101,” what are the 3 or 5 things that you want to just fundamentally understand about Medicare?

Dr Kolodziej: A couple of things. One, Medicare hasn't been around forever. Of course, Medicare started in the early 1960s. Lyndon Johnson got it done. FDR actually wanted to do it. He couldn't; he got distracted by the depression and the war.

Medicare was developed because old people don't work; they don't have employer-sponsored health insurance, and they use more health care resources. Money had to come from somewhere, and LBJ didn't want a bunch of old people that were destitute. It was a good thing. And people like Medicare. People like Medicare.

Now, that's one thing. Second thing is, Medicare is not one thing, right? Medicare is Part A, Part B, Part C, Part D. Part A is the hospital benefit, Part B is the outpatient benefit, Part C is Medicare Advantage, and then Part D is a pharmacy benefit. Each of them have different rules. That's number two.

Number three is, Medicare is not free. Medicare is not free unless you are destitute. And what I mean by that is the way we pay for Medicare Part A is we pay our premium while we're working via payroll deduction, and so we have to work basically 10 years in order to get Part A, and if you don't, then you’ve got to pay a premium just like your health insurance.

Part B, you pay a premium. That premium is indexed to your income—starting level about a $160-$170 a month. If you have a significant income, it can go as high as $500 a month. Plus you pay 20% unless you have something like a secondary insurance to pay for that copayment, which is 20% of every bill.

Part C is, of course, Medicare Advantage. And Medicare Advantage is like having Medicare pay your private health insurance premium. It's a very managed way to receive your Medicare benefit.

And Part D, which is only about 15 years old now, is the is the prescription benefit. And that's also administered largely by private health insurance companies.

So, Medicare's not free. It's complicated because there are different things responsible for different benefits.

The last thing that we should mention about Medicare is that Medicare Part C, which is the managed Medicare, if you will, now represents more than 50% of beneficiaries in America. Now, that is very interesting, because all those things that people complain about with commercial health insurance they basically sign up for it willingly with Medicare Advantage.

Now, Medicare Advantage has some interesting twists and challenges, etc. But the story goes that people have gotten so accustomed to working within the confines of a health plan that they're okay accepting the Medicare Advantage benefit because they get more without paying a lot.

So, those are the big things about Medicare. All this discussion about Medicare for All—and again, that's a topic for another day—is what people don't want is Medicare for All; that's not what they want. They want national health insurance. National health insurance without out of pocket; national health insurance with uniform enrollment. That's what they want. That's not Medicare for All; that's national health insurance.

Hennessy: So, we talked a little bit about Part C and Part D. We work in oncology and Part D's been often sort of a gift, and also a bane of our existence, right? The sort of out-of-pocket costs forever that have been structurally part of Part D are changing in the next year or two. Talk a little bit about how significant that is, and how significant it is to, you know, the patients you used to see, that there would be an out-of-pocket cap on, particularly, oral antioncolytics.

Dr Kolodziej: Yeah. So, Medicare Part D was not part of original Medicare. When that care was passed in the sixties, oral drugs didn't cost that much, so there was no reason for oral prescription coverage.

And then in the Bush administration, 2005/2006, there was a bipartisan agreement that we should develop some sort of oral prescription drug benefit. Now, boy oh, boy, was it complicated. I mean, there was the initial out of pocket, the doughnut hole, and then catastrophic coverage. And how much the individual had to pay varied, depending on where they were in their spend year, right? And cancer patients, the ones we're most familiar with, always blew through those first few phases, and they were always in catastrophic coverage.

Now, catastrophic coverage meant that 95% of the cost of the prescription was picked up mostly by the government. But, the beneficiary—the Part D beneficiary was responsible for 5% of the cost of the prescription through the end of that benefit year.

Now let's say, for the sake argument, you're on a drug that costs, oh, I don't know $15,000 a month—or, let's say, $20,000 a month, and those, as you know, that's not huge at all in oral oncology. $20,000 a month means that you have to come up—you, the patient—have to come up with a $1,000 every month through the end of the year. And since you blow through the benefit in the first month, that means you’ve got to pay a minimum of $12,000 a year out of your pocket, out of your pocket, in addition to your premium, in addition, how much you have to pay for the first part.

That is just crazy, right? Now, there was something called the low-income subsidy. So, you could qualify for having the government pick up that 5%. But most Americans didn't qualify for the low-income subsidy.

So, the oral cancer drugs—and remember, now we're nigh on somewhere between one-third and one-half of all cancer therapies are oral drugs now. Many, many patients were being hurt badly by that out of pocket. So, the Inflation Reduction Act—a misnomer if there ever was one—which was passed under the Biden administration a year ago, reformed Part D completely. And I will say that you can't not like what they've done.

And what they've done is very simple. They've capped your max out of pocket at $2,000. $2,000! Great. Everything that was that catastrophic phase that you used to have to pay for basically gets split by the pharmaceutical company and the health plan. Bravo! Good legislation! Make the people bear the cost who can afford to bear the cost. So, this is going to change things.

Now, when you say that the health plan is going to be at risk for a higher cost, you know very well that they're going to scrutinize every prescription that you send them. There's no doubt about that. But you know, they have to cover these oral cancer drugs because they're in something called “protected classes.” So, they can't say, “Oh, we're not going to pay for that. That’s too expensive.” They’ve got to cover. They’ve got no choice. But they can make the doctor's life kind of miserable in terms of getting the prescription to the patient. But for the patient it's gorgeous.

Hennessy: So, let's talk briefly about the other form of government-funded health care that we’re familiar with, which is Medicaid. I grew up in California; we call it MediCal out there. But it's something that is sort of grown in importance, certainly during the pandemic, we've seen expansion. We're seeing a little bit of contraction now but talk a little bit about where that fits in the ecosphere of health insurance or health payers.

Dr Kolodziej: Yeah. So, Medicaid came into existence at the same time as Medicare, but it came into existence by a completely different mechanism. It came into existence as an amendment to the Social Security Act. And so, it wasn't really designed primarily as health insurance; it was designed as a safety net for the poor.

And we see that factor, that fact, continue to this point in time. Because, for example, fully one-third of Medicaid's budget is paying for custodial nursing home care for people who are indigent. Anybody who’s had a family member who's had to stay in a nursing home knows very well that they have to pay for it out of pocket unless they have no money, and you can spend down your resources to the point that Medicaid would pick it up. So, one-third of Medicaid's budget is custodial nursing care.

Medicaid was voluntary, but ultimately all the states signed on. And the way it was designed was sort of a shared responsibility between the Federal government and the state. So, the state had a lot of control about how it built their Medicaid benefit. And as people around the country know, Medicaid in New York is very different than Medicaid in Georgia or Florida, where I am right now. It's completely different.

Medicaid was always indexed, to a greater or lesser extent, to poverty. But that business about the states being able to fine-tune who they wanted to cover has resulted in wide variability across the country in what the Medicaid population looks like in every state. Every state uses Medicaid to pay for health care for the disabled. Every state uses Medicaid to pay for health care for children. Every state uses Medicaid to pay for health care for pregnant women.

But the able-bodied male, that's been a bone of some contention. So, states have done all kinds of stuff: work requirements, etc, etc.

So, Medicaid is a huge expenditure for the states. It's the number-one expenditure in the states, with number two being education.

As it stands now, the Federal government pays for about two-thirds of that health benefit, and the state pays about a one-third.

Hennessy: Mike, we've talked about Medicare and Medicaid, you know one of the ways that the government has been involved in healthcare is the Affordable Care Act and the creation of the exchanges. Talk a little bit of how that has sort of changed the environment, not just for patients or potential patients, but for providers as well. We've sort of introduced a new form of health insurance that I think gives a sense of access to patients they may not have had before.

Dr Kolodziej: Sure. So, prior to the Affordable Care Act, about 16% of Americans had no health insurance, which is by far the highest rate of uninsured in any developed country. And it was an embarrassment and inhumane, perhaps, at any rate.

The Affordable Care Act approached this in two fashions. The first was Medicaid expansion. Medicaid expansion was an attempt to induce the states—actually, force the states—to expand Medicaid coverage to everyone who was living below the federal poverty level.

And the idea was to take away some of the nonsense regarding, in this state you could do it, in this state you couldn't do it, etc, etc. So, it tried to have everybody cover the same population with Medicaid. The states who didn't want to do that, because of the cost, took it to the Supreme Court, and the Supreme Court threw it out.

And so, at least as it was written, the ACA Medicaid expansion could not be mandated. As of today, 40 States plus the District of Columbia have expanded Medicaid. Ten have not. Most of those are in the deep South, the biggest ones being Texas and Florida. The three that are not in the deep South are Wyoming, Kansas, and Wisconsin.

For the states that expanded, the Federal government agreed to pick up 90% of the bill as opposed to 65%. In the states that have adopted Medicaid expansion most recently, they've done it actually through ballot referendum, interestingly. So, the people in the state have voted for Medicaid expansion.

And, boy, my opinion is that we should find a way to get those 10 states on board. If we did, we could cut the uninsured in America by another 1%-2%.

Now, there are people who are still going to be uninsured if they're above the federal poverty level. And buying insurance as an individual was a pain in the neck. So, the government created these exchanges, which are government subsidized, private-paid health insurance you can apply to as an individual.

And they're a good thing. And for most of the people who apply, the premium was subsidized. I don't know if anybody's ever looked on the website—I have. And actually, yeah, it's not the best insurance, but it's insurance, and it's not unreasonable.

So, the exchanges were a big step in the right direction, and I think expansion of the exchanges, as we have done during the COVID crisis, could further reduce the uninsured in this country. It’s a good opportunity, I think.

Hennessy: So, an obvious question after this is, we've talked about Medicare, the subsidies there that are federally funded, talked about Medicaid, both state and federally funded, talked about subsidies for the ACA. Can we afford all of this? I mean, we've got costs rising. Is there a day of reckoning coming where at some point we hit a tipping point and something has to be done to avoid catastrophe?

Dr Kolodziej: John, it's just money! Come on.

No, seriously, the answer is, something needs to be done. Something needs to be done. We have not talked at all about how you control costs, and I would look forward to our next set of discussions about costs. Where are we spending the money? And I think we need to talk about four things. We need to talk about hospitals, insurance companies, pharmaceutical companies, and doctors. Each of them are contributing to the problem to a greater or lesser extent.

And there are solutions that we could implement to help with all of those four. So, I look forward to our further discussions.

Hennessy: Thank you for watching this installment of Breaking Down Health Care. We hope you enjoyed the conversation and learned something you didn't know about health care and how it works in the United States. If you have questions or topics you'd like me and Mike to discuss, you can use the Contact Us feature on the website. Tune in for future conversations because we're just getting started.