Business Week earlier this month reported on the pharmaceutical formularies (the list of drugs available and at what prices) for Florida Exchange plans. The article noted that there is a significant access problem to affordable drugs for individuals with expensive chronic conditions:
Before the Affordable Care Act, insurance companies could refuse to cover people with HIV or other costly conditions. Obamacare was supposed to end that by making insurers sell policies to all comers, regardless of preexisting conditions. Now advocates for HIV patients and others with chronic diseases say some health plans are making them bear a huge cost for life-saving medications—and that the strategy’s a backdoor method of discriminating against sick people.
The nonprofit AIDS Institute filed a formal complaint (pdf) with the federal government May 29 over how four insurance companies structured their drug coverage in Florida’s Obamacare exchange. “We found this pattern where every single [HIV/AIDS] drug for some plans was on the highest tier, including generics…”
Insurance companies are “making the plans for people with HIV absolutely unattractive so they don’t choose them,” he says.
One of the major challenges for Obamacare is transitioning the health insurance industry from being extremely competent at finding ways to not covering sick people towards finding ways to keep people from getting too sick. The biggest stick in this transition is the massive sea change in underwriting from exclusionary, statistical and experience underwriting to an inclusionary community rating system of underwriting. This change, as we have discussed ad nauseum, allows all people, including those with expensive pre-exisiitng conditions to get insurance. It is why the Exchange risk pools are sicker, on average, than the risk pools of the pre-Exchange underwritten individual insurance markets as those markets kept the sick people who could actually need services out of the market.
Insurers are required to accept and cover HIV patients. They don’t want to. So they are trying to avoid them by being fugly.
Insurance comnpanies still want to tilt their risk pools to be as healthy as possible while letting their competitors eat the costs of covering the known sick. This is despite some back-end risk adjustment mechanisms that are supposed to transfer money from health plans that are composed of overwhelmingly healthier than average members to health plans that are composed of sicker than typical members. Plans want to be as attractive as possible to healthy people and as unattractive to known sick people. This incentive structure creates an adverse selection mechanism collective action problem. We are seeing this problem emerge with AIDS/HIV drugs in Florida.
What do I mean by an adverse selection collective action problem?
Let’s assume that any given insurance company wants to minimize their HIV treatment costs and that they are also required to cover any HIV patient who signs up with them. The goal then for the insurance company is to make themselves as unattractive as legally possible to HIV patients. Futzing around with networks is possible, but since most HIV treating docs and facilities are common providers for lots of much healthier members, this will not be too effective. Additionally plans are required to contract with Ryan White AIDS clinics. The simplest legal way to target unattractiveness to HIV patients is to make the drugs as expensive as possible.
And that is what is happening. Even relatively inexpensive AIDS mediciation for the first insurance company with this idea would get put on the most expensive formulary where pre-authorizations, high co-insurance and high co-pays apply until the member reaches the out of pocket maximum. This anti-social but rationally based business model should make the plan very unnattractive to individuals with HIV. They will logically look at the market and look for a plan that does not completely fuck them over.
The same logic applies to diabetics, cancer survivors, transplant recipients and other high cost individuals.
And here is where problems emerge. Once one plan in a market decides to make themselves as unattractive as possible, every other plan has to either follow suit in making themselves unattractive or be willing to take on massive health costs as they become the preferred plan for HIV positive individuals. At that point, there is a local death spiral as the attractive plan has to raise premiums to cover costs which drives them away from the Second Silver subsidy determination point, which then drives away cost sensitive but fairly healthy individuals from the plan. So a region will see either the “nice” plan become a “nasty” plan as a self-defense measure or that “nice” plan will leave the market so the new baseline is “nasty”. It is Gresham’s law for health insurance.
What are the policy solutions?
The obvious one, if we want near universal coverage for people who need access to health care services, is to move to single payer so as to remove the incentive to cost and risk shift. That is not happening before my younger child can vote (he is at the guaranteed twenty minutes of no diaper naked time as a reward phase of life right now). Single payer has the incentive structure to get appropriate drugs to people at the earliest potential intervention point instead of holding off hoping that you become someone else’s headache.
A second and much more plausible solution is to take a regulation from Medicare Part D, “protected classes” and require all insurers to offer at least all chemical/bio-equivilant compounds for HIV, diabetes etc at a “reasonable” formulary tier. If there is a brand and a generic chemical available, the insurer could offer the generic at the “protected class” rate and the brand at a worse tier. The goal would be to force all insurers to not compete on avoiding the sickest people by forcing them to offer the same formulary at roughly the same rates of attractiveness for identified high cost diseases.
I am not sure if this is a legal fix or an administrative fix. If it is a legal fix, it won’t happen until at least 2017 with actual implementation in 2018 or beyond. If it is an administrative/rule making fix, we could see a “protected class” style rule for the 2016 benefit year.