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Can We Afford “Blank Check” Healthcare?

Can We Afford “Blank Check” Healthcare?

In a health reform seminar my company sponsored recently, our keynote speaker, a renowned employee benefits attorney (and one of the few people who’ve actually read the 2,400+ pages of the Patient Protection and Affordable Care Act), made a curious comment that gets to the disconnect between what people think should be covered by health insurance versus how healthcare is actually delivered in the United States.

The attorney was addressing the fact that the Affordable Care Act (ACA) removes both annual and lifetime maximums on health insurance benefits and what a noble cause and valuable reprieve this “long-overdue” correction represents.  However, what the good intentions of these legislative changes ignore are the practical aspects of limiting healthcare expenditures for any one patient – not the least of which is the self-limiting influence a care budget exerts on the behavior of both providers of healthcare and producers of healthcare products such as pharmaceuticals and durable medical equipment.

It is important to note that, since the advent of these provisions, annual and lifetime maximums have routinely been suspended by health insurance carriers for clinically appropriate care in a variety of situations.  These extensions of coverage were not always for purely altruistic reasons, of course – a health insurance company’s desire to avoid “bad press” was a strong motivator as well.  And in some circumstances, an encouraging call from the state insurance administration helped insurance company executives come to the “right” decision.

But these decisions were made on an exception basis so healthcare providers couldn’t count on them and, therefore, had to budget accordingly.

The Affordable Care Act (ACA) however ushers in a new era of “blank check” healthcare.  No longer will physicians need to temper their treatment plans and decisions based on an overall budget.  Similarly, pharmaceutical companies now have no financial incentive to limit the cost of newly developed drugs – particularly those that treat rare conditions.  Why limit the total cost of a drug when patients are only responsible for paying a portion of the first dollar costs since patient out-of-pocket expenditures are limited?  [ACA prohibits out-of-pocket maximums greater than the limits placed on qualified High Deductible Health Plans (HDHPs) which, for 2013, are $6,250 for Single coverage and $12,500 for Family coverage.]

Illustrating this concern, Matthew Herper of Forbes recently wrote an article entitled “The First Drug With A $1 Million Price Tag May Already Be On The Market” in which he highlights several drugs that currently cost hundreds of thousands of dollars per patient per year (PPPY), including Soliris ($500,000 PPPY), Elaprase ($375,000 PPPY) and what is likely to become the record-breaker:  Naglazyme which costs about $350,000 PPPY today but which may cost $1.3 million PPPY as the patients it treats get older.

We must also remember that physicians, drug researchers and biomedical engineers are all scientists at heart – scientists driven by a desire to solve problems, make discoveries and apply the latest technologies and medical advances – and thank God they are.  But all of these can come at a significant cost.  And in the era of rapidly escalating healthcare costs, can we afford to give healthcare providers ACA’s blank check?

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  • Jeff Seidman

    Interesting article.  I am not sure if this is relevent but the general strategy in business today regarding healtcare is to make the employees better consumers of their healthcare dollars.  So is the premise that the consumer will be pushed to spend more because of a blank check approach?

    • Jeff, your observation is absolutely relevant. The issue of “consumerism” in healthcare will be the topic for another blog post at some point – it could be the subject of an entire book given it’s complexity.
      For our discussion, however, consumerism is only relevant to a point – which relates to the premise of my post: When the cost of care exceeds a certain dollar threshold, under ACA rules, the “blank check” effect will drive excessive expenditures. Once the patient has exceeded their out-of-pocket maximum, their price sensitivity is severely diminished. Why “shop” for the lowest cost if you are no longer responsible for any share of the cost. Consequently, the effect of consumerism may be a factor for many high volume, low cost healthcare services; however, it is far less of an effect for low volume, high cost services typically provided in complex medical cases – the very cases that healthcare providers will be most likely to seek advanced, expensive care to treat.
      Thank you for your comment.

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