A look at healthcare changes in 2015 and beyond

Healthcare — a sector that accounts for one-sixth of the U.S. economy, contributes an almost permanent point of tensions between economics and politics, and remains a concern for millions of families — is an enduring topic of discussion in America. That was true in 2015 and will continue to be so in 2016.

Here are some key story lines:

Obamacare continued to mature, but its role is still evolving.

The Affordable Care Act has brought down the percentage of uninsured Americans to about 11.5% this year from 18% in early 2013 — that’s more than 16 million adults, according to the Gallup organization. The figure corresponds to an estimate from the Department of Health and Human Services that some 17.6 million Americans have gained coverage since 2010 via the law’s provisions, which include the expansion of Medicaid eligibility for low-income residents, the creation of individual insurance exchanges and the provision for youths to remain on their parents’ health plans until age 26.

Just prior to the Nov. 1 start of open enrollment, HHS projected that 10 million customers would obtain coverage through the end of 2016 via the federal and state insurance marketplaces. The growth in enrollment appeared to be slowing, HHS said, in part because the easy sales have been done.

Many still cite cost concerns for their failure to enroll — though many may still be unfamiliar with the ACA’s subsidies for premiums, deductibles and co-pays, or with the increased penalties for failure to carry insurance. These will rise in 2016 to $695 per adult and $347.50 per child, or 2.5% of family income, whichever is higher.

It now appears that HHS might have been too conservative. The agency announced last week that 8.25 million people had selected health plans for the coming year via the federal exchange, Healthcare.gov. That suggests that 11 million people have signed up for 2016 coverage nationwide. Some 29%, or 2.4 million federal enrollees and 3.2 million nationwide, were previously uninsured, HHS said. And 41% of the federal enrollees were younger than 35 — a sign that the ACA is attracting younger, presumably healthier, enrollees in greater numbers.

Medicaid is still advancing, if slowly.

Second only to the individual mandate itself, Medicaid expansion is the most controversial element of the Affordable Care Act. The act required states to make Medicaid available to adults in households earning up to 138% of the federal poverty limit, or about $42,000 a year for a family of four, and provided a federal grant of 100% of the additional cost through 2016 and no less than 90% permanently thereafter.

The Supreme Court, however, made expansion optional. More than 3 million Americans fall into the Medicaid “coverage gap,” according to the Kaiser Family Foundation. These are people shut out of coverage because their states have refused to expand the program.

Of the 28 states that originally resisted, almost all of which were in the Deep South or under control of conservative Republican governors or legislatures, eight eventually came around, including six that have been permitted to tweak Medicaid standards by charging small premiums, imposing co-pays or limiting or eliminating some benefits.

Other dominoes are beginning to fall. Louisiana Gov.-elect John Bel Edwards, a Democrat, promised during his campaign to reverse Gov. Bobby Jindal’s rejection of expansion; Republican governors in South Dakota and Wyoming have set the state for expansion in the coming year; and Virginia’s Democratic Gov. Terry McAuliffe is pressing to overcome the Republican legislature’s resistance to expansion. If all four states fall into line, another 350,000 Americans would gain coverage.

Drug pricing is moving to center stage.

The big news in the drug business during the week before Christmas was the arrest of Martin Shkreli on federal fraud charges. His company, Turing Pharmaceuticals, won infamy for acquiring the rights to Daraprim, an anti-parasite drug that can be crucial for cancer and HIV patients and the elderly, and jacking up its price by 5,000%, to $750 from $13.50 per pill.

Shkreli’s arrest had nothing to do with drug pricing, and the Turing case is a sideshow compared to the stratospheric pricing of more mainstream drugs.

Consider the price of Harvoni, a very effective drug for hepatitis C marketed by Gilead Sciences at nearly $100,000 for a 12-week course of treatment. A Senate subcommittee determined that the price was based chiefly on what the market would bear. Gilead expected that price resistance from insurers or government health programs would be overcome by pressure from patients, who would be paying a tiny fraction of the price out of their own pockets. In the end, many insurers obtained relatively minor discounts, but had to cover the drug anyway.

No simple options have emerged for stemming such profiteering, which threatens to drain state and federal health budgets. The Senate panel expressed outrage but declined to recommend specific remedies. Those could include allowing patients to buy drugs abroad (where they’re cheaper); requiring Medicare, the nation’s biggest drug buyer, to negotiate prices; or even imposing price controls. Some states may take matters into their own hands: A voter initiative on California’s November 2016 ballot would limit Medi-Cal to paying no more for a drug than the U.S. Department of Veterans Affairs. The VA typically pays as much as 40% below Medicare’s costs.

Merger mania is sweeping the hospital and insurance sectors.

Over a period of just a few weeks this summer, three mergers valued at a total of nearly $100 billion were announced by six large health insurers. Aetna is proposing a $37-billion merger with Humana, Anthem is hoping to acquire Cigna for $54 billion and the managed-care company Centene has made a $6.8-billion bid for Woodland Hills-based Health Net. The deals were prompted by the gusher of cash thrown off by the Affordable Care Act, but critics fear that industry consolidation could undermine the goal of more competition.

Hospital groups, meanwhile, are looking for merger partners so they can counter the consolidated insurers with which they may have to negotiate reimbursements. Whether consumers will benefit from combat between big providers and big insurers is an open question, but some experts aren’t optimistic.

Thomas Greaney, a healthcare antitrust expert at St. Louis University, labels the idea that insurers have to get big to counter the pricing power of “must have” medical centers and specialty physician groups the “sumo wrestler theory.” But as he wrote at Health Affairs this summer, “a showdown between the Sumo Wrestlers may result in a handshake rather than a serious wrestling match,” in which a dominant insurer may bargain successfully with a dominant provider, but feel no incentive to pass its savings on to consumers.

Only one of the five largest for-profit health insurers, UnitedHealth Group, remains on the outside looking in. It may not be the odd firm out for long, especially if regulators fail to place effective restrictions on the market power of its newly consolidated rivals. Expect the merger market to stay hot through 2016.

Customers are shifting their attention from premiums to deductibles and co-pays, and insurers are testing new cost-sharing designs.

“Consumers haven’t been used to shopping” for the most cost-effective plans, says Tim McBride, a healthcare economist at Washington University in St. Louis. They may be getting better, as they discover that low premiums typically are achieved through higher deductibles and co-pays, leaving them exposed to higher costs during the year if they experience a health crisis. Insurers are experimenting with how to make deductibles and co-pays more effective in keeping costs down.

A promising approach is “value-based” insurance design, in which insurers identify high-risk customers — say, those with diabetes or heart conditions — and use cost-sharing incentives to goad them into taking better care of themselves. Aetna, for instance, is experimenting with a plan that provides diabetics with free blood sugar test strips and monitoring supplies, keeps co-pays for diabetes specialists low and offers online lifestyle coaching and gift cards for semiannual blood tests. The Affordable Care Act encourages such novel methods of managing care, but they’re still in their infancy. All that can be said for sure is that in the next year, they’ll get a little older.

Michael Hiltzik’s column appears every Sunday. His new book is “Big Science: Ernest Lawrence and the Invention That Launched the Military-Industrial Complex.” Read his blog every day at latimes.com/business/hiltzik, reach him at [email protected], check out facebook.com/hiltzik and follow @hiltzikm on Twitter.

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