What's Up in Washington?

Before we get started with today’s topic, I'd like to take a moment to wish you all a happy belated National Employee Benefits Day. I hope you all celebrated responsibly and have recovered from the festivities!

During my free time over the last few weeks (when I haven’t been planning National Employee Benefits Day parties), it’s been a struggle to keep all the employee benefits-related news headlines straight. At the risk of making this blog even more boring, I thought it might be worth surveying some of the recent political stories circulating and look at how they impact employer-sponsored benefits.

Democratic Presidential Candidates and Single Payer

The current storyline most potentially consequential to employee benefits as we know them is the resurgence of the single payer healthcare concept. Over the years, we’ve seen this concept pop up several times – most recently, during the Clinton administration. It certainly seems that single payer is having a moment again. Of the Democrats that have declared their candidacy for President, over ten of them have declared their support for some variation of single payer. Leading the charge over the last few years has been Bernie Sanders, who advocates for blowing up the current system of health insurance (i.e., private insurance built on a foundation of employer-based coverage) in favor of a government-run system. This time around, this single payer approach is commonly being called “Medicare for All.”

Some candidates are more measured. Amy Klobuchar, for instance, does not want to eliminate private insurance, and wants to begin by expanding access to Medicare to those over 50 years of age. Other plans suggest pitting Medicare against private insurance plans in the interest of creating competition. While these plans may seem more palatable to proponents of the current system, any of them will ultimately lead to the elimination of the current system over time, in my opinion. Medicare (i.e., the government) doesn’t play by the same rules as insurers. (Refer to my previous post about reference-based pricing to understand what I mean.) I believe these half-measures – while possibly well-intentioned – are really just a stepping stone to single payer.

Whether you are a proponent or opponent of government-run healthcare, it’s clear that we’re going to be hearing lots about the topic leading up to the 2020 presidential election. Remember, healthcare accounts for about 20% of the U.S. GDP – making wholesale changes to how we finance the system won’t come without significant drama.

Trump Administration and Affordable Care Act Lawsuit

As I’ve mentioned previously in the blog, the Trump administration has taken the historically unusual position of not defending the ACA in court. The recent headlines indicate that the administration is doubling down on its position – the Justice Department now saying that they believe the ACA should be invalidated in its entirety. I suppose it should be no surprise that there are still partisans that would do anything it takes to eliminate the ACA. But this one strikes me as short-sighted in a couple of ways. First, as mentioned earlier, there are elements of the ACA that are supremely popular with both Democrat and Republican voters – things like the elimination of pre-existing condition exclusions and the expansion of dependent coverage to age 26. Second, well, let’s move onto the next headline…

Trump Administration Announces No ACA Replacement Proposal Until After 2020 Elections

The only thing more puzzling – from a political perspective – than eliminating hugely popular healthcare policies is eliminating them after the President announces that we’ll have to wait a couple years to learn what the administration proposes replace the ACA. Listen, I think we all agree – regardless of which side of the aisle you prefer – that the Republicans simply cannot reach consensus on any type of sweeping healthcare policy to replace the ACA… and this announcement seems like further evidence of it. But eliminating the ACA without any plan for how to protect millions of people who rely on ACA provisions seems like political suicide.

Gridlock may sustain the current system in the short term, but long term, it seems to me that by continuing to undermine the ACA (rather than work on fixes), Republicans run the risk of (perhaps unwittingly) putting us on the path to single payer. Because when the system collapses – or when public sentiment is triggered by millions of losses of coverage – the government will be the logical choice to pick up the pieces. The system is broken, and everyone knows it. Playing politics and not addressing the root issues plaguing the system is just as detrimental as anything the ACA has done.

Association Plans

Association plans are a topic that has also been covered on this blog, and they were in the news again last week. As you will recall, in the first half of 2018, the Trump administration issued new regulations that relaxed some previous rules for offering health plans through associations – in other words, how employers can band together to buy health insurance. The recent news is that a Federal judge in the District of Columbia has invalidated those rules, saying that the Trump administration overstepped its bounds.

It is difficult to say how much impact this ruling will have. The main impact I saw when the new rules were announced was an increase in interest by existing associations that would have already been considered bona fide associations under the old rules. But as previously discussed, there are reasons these association plans are not prevalent. Regardless of the future of the Trump administration’s rules, I think it will still be a bit of a tough road for these arrangements.

Pharmacy Pressures

Pharmacy has been front and center in the news recently, for all the wrong reasons. Most of the coverage has been devoted to the opioid crisis and the role of companies like Purdue Pharma. But the Trump administration and Congress have been active in this area as well, hauling pharma executives to Capitol Hill to talk about opaque pricing.

This leads to one key area that may impact employers – prescription drug rebates. Today, nearly all employers with a self-funded health plan work with a pharmacy benefit manager (PBM) to administer their drug coverage. The true cost of a drug to an employer is in many ways just as much a mystery as the true cost of an MRI. Sure, you’re going to see the cost the plan paid for the drug – and incidentally, that is the price that was probably used to calculate the member’s deductible/coinsurance/copay responsibility. But part of the pricing model for employers includes rebates that the drug manufacturers pass to the PBMs when their drugs are purchased. These rebates – which arguably distort the ability of a member to be an effective consumer – are figured into the pricing model by the PBM. Sometimes the PBM holds back some of the rebates so that they can price their services lower to the employer. Sometimes the price of their services are higher, but the rebates are passed largely or completely through to the employer. Regardless, you see what I mean by opaque. And these aren’t small numbers, either – for a typical self-funded employer, these rebates can easily reach into the six figures annually.

The Trump administration is proposing a prohibition on the rebate system for Medicare and Medicaid programs effective January 1, 2020. In general, I like this idea because I am a strong proponent of creating more transparency in healthcare pricing. Most predict that if these rules go into effect, we will see similar rules applied to the commercial/private insurance market as well. I think this transparency would be welcomed by plan sponsors who today struggle to understand how to find the best prescription drug pricing.

Do you find the policy side of healthcare – and its intersection with employee benefits – interesting? Then boy, do we have a broker for you. Drop us a line at bayoubenefits@gmail.com