Challenge and Challenges

Dec 01, 2008

Jill Wechsler
During the campaign, President-elect Barack Obama promised to change Washington policies and practices. His strategy is to expand federal and local government programs that provide healthcare for adults and children, and require employers to "play or pay" to support insurance for workers. While Obama stopped short of backing a mandate for universal coverage as advocated by many Democrats, his proposals raise the prospect of increased government involvement in the nation's healthcare system.

Expanded coverage also fits the goals of pharma manufacturers. Third party payment for healthcare services and products could boost drug utilization by shielding consumers from the real cost of medicines; millions of seniors joined the system with the establishment of the Medicare drug benefit four years ago. The Part D program has been a boon to pharma, but has also shined a spotlight on drug costs and value while prompting Congressional scrutiny of drug pricing, marketing, safety, and effectiveness.

Children First

Early initiatives for the new administration include expansion of the State Children's Health Insurance Program (SCHIP) and increased federal support for state Medicaid programs. Bush twice vetoed legislative proposals to expand SCHIP, prompting Congressional leaders to hold off on further action until after the election. But SCHIP must be reauthorized by April, putting it at the top of the health policy agenda.

Expanding SCHIP and Medicaid would help Obama fulfill his campaign promise to provide healthcare for every American child, and offer coverage to some 25 million of the nation's uninsured. But other reform proposals may take longer. During the campaign, Obama talked about mandating large employers to support insurance for workers or pay a fee. Individuals without work-based coverage and small employers would gain access to private insurance options and a government-sponsored national plan through a newly created National Insurance Exchange. Under this plan, all insurers would have to issue coverage to all applicants without regard to pre-existing conditions.

Cutting Costs

Congress Gets Ready
These changes will be challenging—and expensive. Obama's reform proposal is pegged to cost between $1.2 trillion and $1.6 trillion over 10 years (2010 to 2019), depending on various models. But the plan also includes initiatives to reduce federal spending for healthcare. Health information technology, including electronic prescribing, could net $100 billion in savings over 10 years, and additional savings from expanded disease management programs, coordinated care models, and pay-for-performance initiatives are also forecast.

Obama has also jumped on the comparative effectiveness (CE) bandwagon, predicting that an institute producing research on the relative effectiveness of alternate treatments would save money by reducing unnecessary treatment. However, analysis by the Lewin Group puts the savings from CE at a modest $40 billion, based on low expectations that providers and patients will adhere to new medical guidelines.

Because these strategies yield little in the way of near-term savings, a more popular tactic is to cut government outlays for prescription drugs. Democrats believe they will save millions by revoking the Medicare "non-interference clause," a controversial policy that prevents the Secretary of Health and Human Services (HHS) from directly negotiating payments for drugs covered by Medicare drug plans.

Part D relies on private insurers to hold down costs by demanding low prices and rebates from pharma companies. That approach has worked to some extent, as shown by the recent announcement from the Centers for Medicare and Medicaid Services (CMS) that Medicare drug spending totaled just $44 billion for fiscal 2008—much less than the $74 billion predicted. However, Medicare drug plans do pay more for medicines than federal healthcare programs offered by the Veterans Administration and the Department of Defense, and state-administered Medicaid programs reduce outlays for drugs by collecting additional rebates from manufacturers.

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