Implications of a Trump Administration for the Healthcare Sector
President-elect Donald Trump has variously proposed plans for healthcare policy reform aimed at (1) the repeal of Obamacare, (2) enhancing private insurance competitiveness by national control of insurance that will provide heath insurance coverage and affordability; and (3) controlling drug prices.
Trump has a strong mandate to negotiate a solution with Congress; first because of his strong showing among middle class voters and, second, because of his unexpected ‘coat-tails’ that saved Republican seats in the Senate. He is also not tied to the conservative or ‘Tea Party’ side of the Republican party and thus, has the potential opportunity to reach across the aisle to achieve compromise solutions. He has a strong position to implement healthcare plans through both executive and Congressional action.
In short, while drug companies are producing remarkable innovations such as cures for hepatitis C and drugs that enlist the immune system to combat cancers, the healthcare sector faces an uncertain but potentially significant change in cost-containment pressures. This memo describes Trump’s key healthcare proposals.
The U.S. healthcare system is unique in its size (~16.5 percent of GDP, versus an OECD average of nine percent) and its structure. While governments around the world play the central role in healthcare, the U.S. system is highly segmented, with private insurers playing an important role. Traditionally, U.S. government programs provide for the poor (Medicaid), veterans (Veterans Affairs) and the elderly (Medicare). The majority of Americans outside government programs obtain (tax- favored) private insurance through their employers. Providers negotiate with insurers, producing a wide diversity in prices and coverage. This approach has produced the world’s most expensive healthcare system, but also the most innovative and successful for patients with coverage, with spillover benefits for patients around the world.
The Affordable Care Act (Obamacare), passed in 2010, expanded healthcare to previously uninsured Americans. That law (1) mandated that all Americans obtain insurance, (2) created state-based exchanges where individuals could purchase policies whose coverage was regulated, (3) made changes that impaired Medicare profitability for providers, and (4) provided subsidies for moderate income Americans. Additionally, during passage of Medicare drug coverage (Part D), the Center for Medicare and Medicaid Services (CMS) was barred from negotiating drug prices. Over the past two years, consumers and providers in all sectors have complained about rising premiums, shrinking coverage, and drug costs.
Trump has argued for abandoning the mandate for insurance as well as state regulation of health insurance companies which would increase competitiveness. He has also promised to expand insurance coverage and affordability in part based on increased competitiveness among insurance companies. If the move to federal regulation of health insurance does not achieve increased coverage and affordability, given his mandate and his failure to commit to “no new taxes,” we see a potential for eventual increased federal funding of private health insurance through patient vouchers or other means of patient support.
Trump’s campaign promises also include constraining prices for innovative and generic drugs.
Negotiated Prices for Innovator Medicines
His ideas for reducing the cost of drugs include a number of items previously proposed by Democratic officials, including:
- Importation — Trump has stated support for a proposal that Americans should be allowed to import drugs for personal use from foreign nations whose safety standards are as strong as those in the United States.
- Medicare price negotiations — Trump has called for a special session of Congress to repeal Obamacare (although Congress initiates the session before the President is inaugurated). As part of anticipated repeal of Obamacare and/or changes to other aspects of health insurance, the current restraint on federal negotiation of drug prices could be removed. In the past, the Center for Medicare and Medicaid Services (CMS) has used negotiations with providers to reduce and control hospital reimbursement (Part A) and physician fees (Part B). Given the freedom to do so, there is a potential that CMS also attempts to negotiate drug prices (Part D). Given his lack of specifics, his coat-tails, lack of ties to conservative elements of the Republican party, historically more liberal positions, and a base that includes more liberal blue collar workers, he likely has freedom to institute any plan, including price negotiations.
The innovator industry has successfully resisted these and similar proposals in the past, but the new environment will be challenging.
Trump has not taken a specific stand on generic drug pricing. However, there are ways in which regulatory agencies could use a Trump mandate to restore competitiveness and decrease generic prices without instituting direct control of private enterprise. Such avenues include proposals to accelerate generic approvals by FDA or the current law that could address drug shortages through recruitment by FDA of generic competitors.