How we pay for our health care is a mystery to most of us. We get our Medicare and insurance bills and they are hard to decipher. We pay money for premiums and when we go to the doctor, the hospital and buy are medicines, but the reason things cost what they do is often a mystery. When we hear the politicians talk about changes to Medicare, they use words and descriptions that are often unfamiliar. What we do know is that when Medicare is changed it often affects us directly, either by access to care or cost. My goal with this blog is to try, and I emphasize TRY, to simplify how the different players in our health care system interact and the forces that influence how they operate. I will also seek to explain the different tools that are used and how each one of them affect your health care access and your cost. My goal is to help you become a more knowledgeable constituent, one that understands your health care today and the ramifications of possible future changes.
I realize this is a long blog, believe me it could have been many times longer. My hope is that this blog gives us a base of understanding, a reference place, that we can use when we get into a detailed discussion concerning possible regulatory and legislative changes.
There are four major players in how we receive our Medicare health care benefits:
• Providers (doctors, hospitals, prescription drug manufacturers, etc.)
• Payers (the government, insurance companies and patients)
• Middlemen (pharmacies, pharmacy benefit managers [PBMs], etc.)
All of them have regulations, legislation, costs and
competitive forces that affect them.
• Many of you have seen out-of-pocket costs go up while access to care has become more complicated.
• Doctors are inundated with regulations that require ever expanding administrative costs and require them to spend more and more time on non-patient contact tasks. Malpractice insurance costs continue to rise which encourages them to protect themselves by ordering more tests, procedures and specialist appointments.
• Hospitals have huge fixed costs and are required to treat the uninsured.
• Drug manufacturers face the risk and cost of research and development that has raised the cost of developing a new drug to two billion dollars. They are faced with required discounts on drugs while paying ever increasing rebates to insurance companies and PBMs.
• The government has seen health care prices rise while the population lives longer, drawing on a fund that is dwindling each year.
• Insurance companies must keep premiums low to compete, but costs continue to spiral up.
• Patients, especially the sicker ones, are saddled with paying a higher percentage of their health care costs.
• Pharmacies are squeezed with paying after the sale rebates and providing a myriad of uncompensated services.
• PBMs are faced with a changing business model that may impact their relevance.
This is certainly a complicated business; it is a balance of the free market with a highly regulated environment. It is convoluted and, in many places, inefficient, but it is where we are today.
As the players work to improve our health care, they have tools that they use to offer choices, control costs and direct access. My goal in the explanations below is to define how these tools operate and, more importantly, how their use will impact you, either in access to care or cost.
Deductible – The patient is responsible for 100% of health care costs until this amount is reached. It is used to control unnecessary health care usage. It is a big out-of-pocket expense for patients and should be considered as health care plan choices are made.
Co-pay – An amount the patient pays each time they use a product or service. Payers use this to give the patient some cost to pay to help limit unnecessary usage. It operates a little like a deductible and adds to a patient’s out-of-pocket costs. Co-pays are often higher when seeing a specialist.
Co-insurance – Unlike a co-pay, co-insurance is not a set amount, it is a percentage of the cost of the product or service. This tool can have a big impact on a patient’s costs and its use by insurance companies has increased over the last few years. For instance, there is co-insurance in Medicare’s prescription drug benefit, Part D. If your out-of-pocket costs in 2020 exceed $6,350 dollars you are only responsible for 5% of the cost of the drug. 5% may sound small but with some of the costs of medicines today it could be a large amount. For instance, if you are taking a drug that costs $10,000 a month your out-of-pocket costs for the year would be $8,187. You would reach your $6,350 very quickly and would pay 5% of the drug’s list price after that ($500 a month). That is a lot different than paying a $3.00 co-pay once a month. By the way, the $6,350 maximum out-of-pocket in 2020 increased $1,250 dollars from 2019 rather than the approximately $100 a year increase in the years prior. This happened because of legislation that accompanied Obama care. Many senior advocacy groups fought this unwarranted increase.
Out-of-pocket maximum – Many of you are acquainted with out-of-pocket maximums, it is almost a universal benefit in private insurance. Medicare DOESN’T have an out-of-pocket maximum. Many supplemental and Medicare Advantage plans do, however, offer an out-of-pocket maximum. The Part D drug benefit also doesn’t have an out-of-pocket maximum. This is an area that many people say needs to be changed. We’ll no doubt talk more about this in later blogs.
The following tools are used primarily in the use of prescription drugs that are covered under Medicare Part D and Part B. Part B drugs are usually injected at a doctor’s office or at the hospital.
Step Therapy – This treatment requirement is used by insurance companies to ensure that a doctor has tried the least costly medicine or procedure before prescribing a more expensive solution. This usually applies to medicines and is also called fail first, meaning the medicine must not work on the cheaper option before the more expensive option is tried. This treatment regulation is also used to negotiate with drug manufacturers to lower their price so they can be the medicine first tried in the step therapy requirement. This approach raises a barrier to timely access when the doctor, who knows a patient will not respond to the cheaper medicine must still delay the treatment that works while the patient fails on the first medicine. Another access barrier occurs when a patient changes insurance companies and must repeat the step therapy/fail first protocol before they get access to the medicine that had preciously proven to work for them. It is also important to mention that doctors sometimes receive payments for using specific, often expensive, medicines. This is one tool the insurance companies use to control costs.
Drug tiers – This tool puts different medicines in different tiers or categories, historically 3 or 4 but the number of tiers seems to be increasing. These tiers usually go from least expensive to more expensive, with increasing amounts of patient co-pay or co-insurance as the tier gets higher. It is a way to encourage a patient to use the least costly medicine. It also is used to negotiate with drug manufacturers to lower the cost to the insurance company for inclusion on a lower, i.e. higher usage, tier. Identifying which tier your medicine is in can make a huge difference in your out-of-pocket costs.
Importation – There is a disconnect between the price of drugs in America and the price of drugs in some other countries. This is one of the most complicated areas of health care. Some have proposed importing drugs from Canada. Some states have even passed legislation to allow the importation of medicines. There are safety issues and supply issues involved with this approach. Canada itself has said it couldn’t authorize, support or guarantee the safety of drug importation into the U.S. This is a tough issue that will take some big changes to rectify. This is another area we will pursue in later blogs.
International Reference Pricing – This government authored approach seeks to solve the problem described in importation of other countries paying less for medicines. It uses drug prices from some selected countries to set the maximum price for those drugs in America. This solution, which seems simple, is fraught with many questions and problems. We will delve into those questions and problems in a later blog.
Non-interference/government negotiations – This part of the initial Part D legislation left the negotiations of drug prices to the forces of the free market. While it seems like allowing the government to use its force of the millions of Medicare beneficiaries to negotiate lower prices would be beneficial, it isn’t supported by studies and projections. The main barrier is the need to restrict the formulary (the list of drugs available under Part D) to generate any leverage on drug prices. It would be a recipe for access restrictions for life saving medicines. This is another area for future discussion on this blog.
These are just a few of the tools and just scratches the surface of the complexities of our health care system. Hopefully it will give us a base for better understanding any proposed changes in the regulations and legislation that govern Medicare.