There are multiple opportunities for the new Congress to pass bills improving health policy this year. Congress can expand health coverage, shrink prescription drug costs, and reform federal health programs in ways that protect extraordinary taxpayer investments in American health care. Along with new opportunities, though, come threats to the health system that not only would eliminate health care choices for taxpayers but would also increase their tax burden.
Health Coverage Opportunities
Expanding HSAs (Health Savings Accounts) would make it much easier for more consumers to save for their health expenses in a tax-advantaged way. HSAs are accounts that an individual or family can put money into when they have a high deductible health plan (HDHP) to save for health costs. The money in this account doesn’t get taxed, making it a great option for many families to save on health care costs. However, this type of account also has limits on how much can be saved, along with restrictions on the kinds of plans that are HSA-eligible (such as minimum deductibles and maximum out-of-pocket amounts).
Limits on HSA contributions for 2021 from the IRS are $3,600 for an individual and $7,200 for a family. HSAs also have minimum deductibles, which are $1,400 (for an individual) and $2,800 (for a family). The limits on maximum out-of-pocket amounts are $7,000 for an individual plan and $14,000 for a family.
HRAs (Health Reimbursement Arrangements) are another great savings account option for consumers, from which an employer reimburses an employee for their health expenses. Neither the employer nor the employee pay taxes on HRA distributions. This type of savings account is important because it gives the employee more choice in their health coverage than an employer would otherwise provide. However, there are also limits on HRAs. For 2021, according to the IRS, employers can offer $5,300 per year for an individual and $10,700 per year for a family. Raising the limit for certain HRAs and codifying some unique HRA offerings into law could further benefit American workers.
Threats to Health Coverage
The biggest threat to private health coverage in America today may be the recent push for “Medicare for All.” Some senators on the left side of the political aisle argue that health care is a human right and use that claim as a justification for Medicare for All. The government can protect rights, but cannot create goods or services on its own. Unfortunately, declaring something a “right” doesn’t generate supply, and there are significant concerns that a single-payer health care system in America would generate supply concerns. Health care is a product. It is an exchange between the doctor who is giving the care and the individual who is receiving it. This has been the exchange of a market-based health care system that has delivered innovative products and services to American patients for decades. While concerns abound about access and cost, single-payer care would take the system in the wrong direction.
Medicare for All proponents also have yet to answer several fundamental questions when it comes to implementing their plan:
- How much would doctors get paid under a single-payer plan?
- If cuts to doctors’ reimbursement rates create supply constraints, does the government have a plan to incentivize participation in medical school? Will this result in additional expenses for taxpayers?
- How will quality of care be affected under this plan? What if efforts to control drug costs mean that some individuals don’t have necessary prescriptions covered by Medicare for all?
There are many unanswered questions about this expansive proposal.
Despite all the unanswered questions, one thing that is certain is the burden for taxpayers is enormous. According to a study done by the Heritage Foundation:
“‘Medicare for All’ legislation...would leave most households financially worse off. Workers would have to pay additional taxes—21.2 percent of all wage and salary income—raising the total federal payroll tax rate to 36.5 percent for most workers.”
Medicare for All is not a cure-all for the health care system in this country.
Prescription Drugs
Operation Warp Speed was a relatively successful part of the federal government’s COVID-19 response last year, leading to the approval and distribution of COVID-19 vaccines in under a year. This was done in part by taking some of the financial risk of the clinical trials out of the equation and developing robust public-private partnerships. The U.S. government reached agreements to purchase vaccines from a number of America’s leading biopharmaceutical companies. Instead of waiting out one vaccine, hoping for strong results, and then trying a different vaccine if one didn’t work out, Operation Warp Speed helped allow multiple pharmaceutical companies to produce multiple vaccines at once. As a result several vaccines were developed in record time, and overwhelming evidence indicates they are safe and effective for patients. This could be a helpful model for future endeavors in American health care. Public-private partnerships could be very useful in furthering the welfare of the American people, and policymakers should take note as they consider excessive or punitive measures like those mentioned above and below.
Threats to Prescription Drug Policy
Although Operation Warp Speed was a successful health care endeavor during COVID-19, price controls are a looming threat to prescription drug costs. When a maximum price for prescription drugs is set by the federal government, the inevitable inefficiencies (and added costs for pharmaceutical companies, forced to sell their product for less than it is worth) could be pushed onto other patients in the system. These price controls could also seriously threaten the development of new and promising drug products. The market should continue to set the prices of drugs and the federal government should enact policies that increase competition between drugmakers because that is the best way to drive the costs down. If a pharmaceutical company is told they are only to sell drugs at a certain price, they will either make less of that product or push the added costs onto some other part of society.
Federal Health Programs Opportunities
2021 brings a great opportunity for policymakers to redesign Medicare Part D. Medicare Part D is one of the more successful recent government programs, because it allows private health plans and pharmacy benefit managers to negotiate costs with drug manufacturers. There is by and large little government involvement in pricing, allowing Part D to function more like health coverage in the private market than other government programs. However, in recent years Medicare Part D spending has increased significantly, pointing to the need for reform.
Medicare Part D has four tiers for cost-sharing between the patient, the plan, drug manufacturers, and taxpayers funding Medicare. In the first tier, the individual pays all costs up to a $415 deductible. In the second tier, the individual pays 25 percent and the private plan pays for 75 percent. In the third tier the individual still pays 25 percent, but the plan pays for just five percent. This leaves 70 percent of the cost for the drug manufacturer in the form of a mandatory price “discount.” In the fourth and so-called catastrophic tier, individuals pay five percent of the cost and the plan picks up 15 percent. This means the government pays 80 percent of the cost, borne by taxpayers. Because of the structure of the fourth tier, it makes sense Part D spending is increasing. Policymakers should reduce the amount of cost the government has to bear in the fourth tier, and there are bipartisan plans to do so that would save taxpayers money and create the first-ever out-of-pocket cap in Part D.
Redesign of 340B Drug Pricing Program would also be a good opportunity for lawmakers. The 340B program was originally designed, according to the HRSA (Health Resources and Services Administration), to “enable covered entities to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services. Manufacturers participating in Medicaid agree to provide outpatient drugs to covered entities at significantly reduced prices.” Some of these “covered entities” include nonprofits and children's hospitals. However, in recent years 340B pricing has grown substantially. According to the HRSA, discounted 340B purchases were $29.9 billion in 2019. This is 23 percent higher than the year before, and 330 percent higher than 2014. With the increase in cost and entities participating in a program that was originally supposed to be small, 340B needs to be reformed.
According to a letter from NTU last year:
“The 340B program is still operating under unclear and confusing rules, designed for a much smaller program that was first created in 1992. Numerous independent audits and investigations have found that the Health Resources and Services Administration (HRSA), which oversees the 340B program, not only lacks the authority to conduct necessary and proper oversight and enforcement of 340B rules but also falls short on its existing oversight responsibilities.”
Reforming 340B would be a much-needed fix in federal health programs.
Threats to Federal Health Programs
Expanding the Affordable Care Act’s premium tax credits (PTCs) would be problematic for taxpayers.
As NTU wrote last year:
There are three major issues accompanying the expansion of PTCs: 1) expansion is expensive (with a $212 billion deficit impact), 2) targeting generous PTCs to households making six figures or more is a poor use of limited taxpayer dollars, and 3) PTCs are not designed to bend the cost curve for private health coverage, and will only increase in cost as premium hikes outpace wage increases.
This tax credit is not only bad for innovation in health coverage, but it’s also bad for the taxpayer who ultimately bears the burden of badly run government programs that lack efficiency.
Conclusion
In the coming years, there will be many opportunities for lawmakers to work together on forward-looking health policy in a bipartisan fashion. Unfortunately, several harmful proposals lurk in the background (and occasionally at the forefront), threatening innovation and access to care. Policymakers should always consider, first and foremost, how their health policy proposals might impact consumers and taxpayers.