Wednesday, November 2, 2016

Divided on Obamacare, Trump and Clinton Both Threaten Medical Innovation

(A version of this column was published by Forbes.)

The recently announced 25 percent rise in Obamacare health insurance premiums has brought renewed attention to health policy. As this is my last column before Election Day, it is time to review how the presidential candidates would address the continuing challenge of skyrocketing health costs.

We should not kid ourselves that Obamacare’s failure is enough to cause the next President or Congress to act energetically to fix the problems Obamacare exacerbated. The interest groups which brought us Obamacare have cut bait and moved on. The health care sector – interests for which the $3.35 trillion spent on health care counts as revenue rather than cost – has bigger fish to fry.

Although insurers are losing money in Obamacare’s exchanges, they are far more concerned with employer-based group benefits, Medicare Advantage, and Medicaid managed care than Obamacare exchanges. Obamacare exchanges cover fewer than 13 million people at any time during the year; and only about four million stick with Obamacare coverage throughout the year. Those poor souls comprise a powerless political constituency, unlike employers or seniors on Medicare.

Although health insurers advocate publicly for more taxpayer funding of Obamacare, this is not a realistic goal. Hillary Clinton has promoted a “public option” to rescue Obamacare. While insurers could profit from a public option by contracting with the government to process claims, it is unlikely Republicans in Congress would vote to appropriate funds. Nobody is forecasting a filibuster-proof Democratic majority in the U.S. Senate, so Republicans would block the public option.

Donald Trump has promised to repeal Obamacare and allow all individuals to deduct premiums for health insurance from their taxes. It appears this would allow people to choose health insurance free of their employers’ control. This would be a step in the right direction. However, it is not clear Mr. Trump is prepared for the resistance the employer community would mount against such a proposal.

A more likely reform is proposed by Evan McMullin, the independent conservative who has thrown a wrench in to the presidential election by coming within striking distance of winning Utah’s electoral votes. McMullin proposes a tax credit that individuals without employer-based coverage could use to buy medical care directly or pay premiums. This approach has many advantages.

First, it takes a small but important step towards integrating our broken coverage, which is irrationally fragmented among employer-based benefits, individual coverage, Medicaid, Medicare, et cetera. Second, it should gain bipartisan support. Obamacare contains a tax credit, and a better designed one would avoid its negative consequences for labor markets.

Although Obamacare has likely poisoned the well of payment reform for the time being, there is another area of health reform - medical innovation - that has been ripe for bipartisan action. The 21st Century Cures Act, which would dramatically streamline and improve regulations for new medicines (both pharmaceutical and digital) that would benefit the sickest patients, was passed 344 to 77 in the House of Representatives.

However, it got hung up in the Senate and now a crew of liberal groups led by the Center for American Progress has attempted to take this important reform hostage until Congress imposes price controls on the innovative pharmaceutical industry.

Unfortunately, both Hillary Clinton and Donald Trump favor punishing research-based drug makers. Mrs. Clinton has proposed direct price controls, while Mr. Trump advocates the dangerous policy of making it illegal for drug makers to manage their own global supply chains.

Called “re-importation” or “parallel trade” the policy makes manufacturers unable to ensure safety and stability of supply. Counter-intuitively, it would increase prices abroad rather than decrease U.S. prices, and encourage counterfeit medicines to enter our country.

Neither candidate appears to recognize we can benefit from better therapies at lower prices if the federal government allows more innovation, rather than imposing more controls. No wonder the innovative drug makers’ trade association has increased its members’ dues to raise $100 million more for its lobbying war chest. Both of the leading candidates for president pose significant threats to medical innovation.

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