GOP Candidates and Health Spending: Our Experts Pull Back the Curtain

The Republicans have yet to reveal many specifics, but as they slug it out for the nomination, all want to repeal the ACA.

Editor’s note: This article continues FRMC’s coverage analyzing what the presidential candidates are say­ing about health care spending. We take a look at a number of the key positions offered by the Republicans.

Anyone keeping up with the presidential campaign knows that the Republican candidates are squarely focused on issues such as terrorism, gun control, the economy, and jobs. No wonder we’ve not heard much about their plans to address health care costs. To be sure, some have offered a few details, whereas others have provided little more than sound bites.

Despite the lack of detail, there is enough out there for FRMC’s experts to comb through and analyze. Our panel notes which of the candidates’ positions seem to have value—and where things come up short. Plus they provide their take on the missing details that could make the proposals work. We start with a frank assessment of the call to repeal the Affordable Care Act.

 “GINNING UP THE BASE”

Just about every candidate is calling for a repeal. Our experts agree that pulling that off will be next to impossible. ­ In fact, some candidates are using it as campaign rhetoric, as they know full well the challenge of pulling the rug from under a program that insures 17 million people.

“They’re ginning up the base,” said Norm Smith, president of Viewpoint Consulting, Inc, which surveys managed markets decision-makers for the pharmaceutical industry. “Full repeal is easy [for the electorate] to understand, but it will be impossible to pull off.”

Barney Spivack, MD, a member of the FRMC editorial advisory board (EAB), agreed, calling repeal “pure fantasy. Plus I have not seen anything they have developed as a viable option to replace it.”

Mr Smith, also member of the a FRMC EAB, said he thinks that once you cut through the rhetoric, what most candidates really mean is that they plan to “unbundle the ACA—take [out] the parts that they believe are most onerous.”

“A smart candidate will say, ‘Look, we learned a lot from the ACA, now let’s take what we learned and make the system better,’” concurred Arthur F. Shinn, PharmD, president of Managed Pharmacy Consultants, LLC, and also a member of the EAB.

REPEALING MANDATES = ADVERSE SELECTION

Jennifer Christian, MD, chair, work fitness and disability section, American College of Occupational and Environmental Medicine, called the ACA “far-reaching legislation. You can’t fully foresee what will happen, which is why you need to go back and adjust it. To just throw it out strikes me as the wrong idea.”

Even still, Dr Christian said that amending the ACA could be problematic—depending upon which parts are amended. She pointed to the Senate’s December passage of a reconciliation bill repealing portions of the ACA. The bill can serve as a preview to how a Republican president would deal with the ACA.

For example, the bill would repeal the mandates for individuals to obtain coverage and employers to provide it. Dr Christian pointed to the negative impact this would have on the insurance risk pool. “It turns into giant adverse selection.”

Also under the bill, the ACA’s reinsurance programs would not be able to make payments or collect contributions in 2016. “That’s just incentive for every insurer to do their best not to sign people up,” noted Dr Christian, who is also president of Webility Corp.

Mr Smith agreed that eliminating the individual mandate is problematic. Not only that, he said that the GOP’s call for full repeal could come back to bite those who have their heels dug in on the issue.

“There are some elements that people really like, such as the ability for children to remain on their parents’ plan until age 26,” noted Mr Smith.  Indeed, added Dr Christian, some polls show that while a majority do not care for the ACA, paradoxically, they tend to like a number of its features.

MORPHING INTO THE NEXT PHASE

This leads Gary Owens, MD, president of Gary Owens Associates, a medical management and pharmaceutical consultancy firm, to conclude that it may be best for GOP candidates to simply let the ACA naturally morph into its next stage. He agreed full repeal will be nearly impossible, but added that “we are entering into a phase where the chickens may be coming home to roost.”

Dr Owens, also a member of the FRMC EAB, said the Affordable Care Act is a misnomer. “There is nothing in it that addresses affordability, or the rise in the cost of medical care. It should really be called the Accessible Care Act...Those who need the most care are signing up on the exchanges, resulting in an actuarial spiral. Unless something is done, the ACA will implode under its own weight.”

So what’s the answer?

Like a teenager who needs to learn the value of a dollar and the limits that come with it, Dr Owens suggested that it is time for health care consumers to grow up and realize that it is impossible for the government to afford it all.  “I think the ACA exchanges will have to be modeled to offer just catastrophic coverage to those who want that, vs a mandatory benefits package” that some find cost prohibitive. 

CATASTROPHIC CARE AND TAX CONSIDERATIONS

Affordable policies for catastrophic care will at-tract more healthy young people and distribute the risk, said Dr Owens. Such a move would likely keep insurers from leaving the exchanges. If consumers can come to terms with the realization that something has to give, then maybe the unbundling that Mr Smith referred to earlier can start to occur. He believes the so-called Cadillac tax on employers’ high cost plans might be a place to start. He does not believe the tax will be abolished, “but I do think you will see some smoothing out” that will help protect the middle class from plan cost hikes.

Republicans could also seek to alter the device tax, another source of ACA funding, said Mr Smith. Legislators on both sides of the aisle generally agree the tax is unfair, he said. Currently, the tax is 2% on gross sales of a device. “You might be able to get it changed to 2% of the profits,” he noted, adding that Congress will either have to find the difference elsewhere, or tell their constituents that they can’t have it all. 

Though some of the GOP candidates’ plans lack significant details, there are a few specifics in key areas: health savings accounts (HSAs), tax credits to purchase insurance, and streamlining the FDA.

HSA’S…WITH INSTRUCTIONS

HSAs are being pushed by  Jeb Bush, Ben Carson, and Marco Rubio. Messrs Bush and Rubio want to expand the current HSA program, whereas Dr Carson is proposing a reallocation of government funding from Medicare and Medicaid into HSAs. Experts generally agree that Dr Carson’s plan will never see the daylight. Even the more modest proposals need to come with better instructions, noted Dr Christian.

She acknowledged that HSAs work effectively to push decision-making to the consumer and save money in the short term. “But physicians are ill-equipped to have conversations with their patients about whether or not money should be spent on a procedure.” Dr Christian said that her husband recently inquired about the cost of a procedure in order to determine how much of his deductible it would eat into, and his physician admitted not knowing.

“My husband and I are educated health care consumers, and we couldn’t get the answer,” she explained. “How much worse is it for those who are naïve on these issues? The fact is, those are the people who end up using the system the most.” Giving them HSAs and leaving the decisions to them alone could end up costing the system more because they passed on a procedure and ended up more ill.

Instead, Dr Christian advised coupling HSAs with coaching from providers and price transparencies to “help patients prioritize in an informed way.”

As for tax credits to purchase insurance proposed by Messrs Bush and Rubio , Mr Smith said that “if it is an out-front tax credit, that sounds a lot like income redistribution.”

Dr Christian agreed, and added that if the Republicans are serious about a tax credit program, they should offer one that is simple to understand. “If there are too many choices, people will decide to do nothing.” She suggested an inexpensive default pro-gram that consumers would have to actively opt out of. Many 401k programs are now built this way, and have proven successful at increasing participation.

“Arrange the choices so people end up with some-thing,” she explained, “versus overwhelming them into doing nothing or picking a program that does not suit their needs.”

HAPPY TALK VS REALITY

Jeb Bush says he would streamline the FDA ap-provals process, which would theoretically bring drugs to market more quickly and remove certain costly compliance hurdles.

“There may be some truth to the notion that drug makers could spend less on drug development if they did not have to meet barriers put in place by the FDA,” offered Dr Spivack, adding that fast-tracking drugs that have been approved in certain other countries could help. He also thinks that reference drug pricing, whereby prices are set for specific drug classes, could help manage what insurance companies pay for newer, more expensive drugs that are considered interchangeable. “If what the patient wants carries a higher price, then the patient pays the difference.”

With that said, Dr Spivack acknowledged that although reference pricing could make a significant impact, there is no guarantee that greater fast-tracking capability would. “The current FDA fast-track program brings drugs to market sooner, but most are me-too drugs and not very innovative.”

Mr Smith agreed, and assessed Mr Bush’s plan to streamline the FDA bluntly: “It sounds like happy talk. Stimulating innovation? It’s great on paper, but not in the real world.”

Added Dr Owens: “I do not think [Mr. Bush’s FDA plan] would make a dent in rising drug costs. It’s laudable,...but also naïve to think that if regulatory costs go down, so will drug prices. Plus, what about the unintended consequences” of brining a drug to market too soon?

And yet drug costs rose by 12.6% in 2014, and voters in both political camps want Washington to address the issue. In an April 2015 poll by Kaiser, Republican voters revealed drug costs as its top concern (66%), even ahead of repealing the ACA (60%) and the individual mandate (52%). The same poll shows that 83% of all voters are open to allowing Medicare to negotiate drug prices. Clearly, the electorate wants Washington to respond. (In our next issue we will dive more deeply into the candidates’ positions on Medicare negotiating drug prices, and our experts talk about the positive and negative effects it can have.)

Dr Owens concluded on a sober note, reiterating that having it all is neither affordable nor sustainable. “Other countries have come to grips with the fact that not every drug treatment needs to be covered. We need to revisit the notion that people with end stage diseases be fully covered with last line treatments that have only a small chance of improving survival.

“The ‘life is worth any price’ philosophy in America is a precious concept, but like everything else there is a budget that we have to live within. For many, that is going to be a very bitter pill to swallow.”