Volume 7, Issue 1

This paper describes three prototypical systems of therapeutic reference pricing (RP) for pharmaceuticals—Germany, the Netherlands, and New Zealand—and examines their effects on the availability of new drugs, reimbursement levels, manufacturer prices, and out-of-pocket surcharges to patients. RPfor pharmaceuticals is not simply analogous to a defined contribution approach to subsidizing insurance coverage. Although a major purpose of RPis to stimulate competition, theory suggests that the achievement of this goal is unlikely, and this is confirmed by the empirical evidence. Other effects of RPdiffer across countries in predictable ways, reflecting each country’s system design and other cost-control policies. New Zealand’s RPsystem has reduced reimbursement and limited the availability of new drugs, particularly more expensive drugs. Compared to these three countries, if RP were applied in the United States, it would likely have a more negative effect on prices of on-patent products because of the more competitive U.S. generic market, and on research and development (R&D) and the future supply of new drugs, because of the much larger U.S. share of global pharmaceutical sales.

This paper investigates a possible predictor of adverse selection problems in unsubsidized stand-alone prescription drug insurance: the persistence of an individual’s high spending over multiple years. Using Medstat claims data and data from the Medicare Survey of Current Beneficiaries, we find that persistence is much higher for outpatient drug expenses than for other categories of medical expenses. We then use these estimates to develop a simple and intuitive model of adverse selection in competitive insurance markets and show that this high relative persistence makes it unlikely that unsubsidized drug insurance can be offered for sale, even with premiums partially risk adjusted, without a probable adverse selection death spiral. We show that this outcome can be avoided if drug coverage is bundled with other coverage, and we briefly discuss the need either for comprehensive coverage or generous subsidies if adverse selection is to be avoided in private and Medicare insurance markets.

The traditional focus of disability research has been on the elderly, with good reason. Chronic disability is much more prevalent among the elderly, and it has a more direct impact on the demand for medical care. It is also important to understand trends in disability among the young, however, particularly if these trends diverge from those among the elderly. These trends could have serious implications for future health care spending because more disability at younger ages almost certainlytranslates into more disability among tomorrow’s elderly, and disability is a key predictor of health care spending.Using data from the Medicare Current Beneficiary Survey (MCBS) and the National Health Interview Study (NHIS), we forecast that per-capita Medicare costs will decline for the next fifteen to twenty years, in accordance with recent projections of declining disability among the elderly. By 2020, however, the trend reverses. Per-capita costs begin to rise due to growth in disability among the younger elderly. Total costs may well remain relatively flat until 2010 and then begin to rise because per-capita costs will cease to decline rapidly enough to offset the influx of new elderly people. Overall, cost forecasts for the elderly that incorporate information about disability among today’s younger generations yield more pessimistic scenarios than those based solely on elderly data sets, and this information should be incorporated into official Medicare forecasts.

The ratio of controller-to-reliever medication use has been proposed as a measure of treatment quality for asthma patients. In this study we examine the effects of plan-level mean out-of-pocket asthma medication patient copayments and other features of benefit plan design on the use of controller medications alone, controller and reliever medications (combination therapy), and reliever medications alone. The 1995–2000 MarketScanTM claims data were used to construct plan-level out-of-pocket copayment and physician/practice prescriber preference variables for asthma medications. Separate multinomial logit models were estimated for patients in fee-for-service (FFS) and non-FFS plans relating benefit plan design features, physician/practice prescribing preferences, patient demographics, patient comorbidities, and county-level income variables to patient-level asthma treatment patterns. We find that the controller-to-reliever ratio rose steadily over 1995–2000, along with out-of-pocket payments for asthma medications, which rose more for controllers than for relievers. After controlling for other variables, however, plan-level mean out-of-pocket copayments were not found to have a statistically significant influence on patient-level asthma treatment patterns. On the other hand, physician/practice prescribing patterns strongly influenced patient-level treatment patterns. There is no strong statistical evidence that higher levels of out-of-pocket copayments for prescription drugs influence asthma treatment patterns. However, physician/practice prescribing preferences influence patient treatment.

Over the last decade, managed-care companies have been consolidating on both a regional and national scale. More recently, nonprofit health plans have been converting to for-profit status, and this conversion has frequently occurred as a step to facilitate merger or acquisition with a for-profit company. Some industry observers attribute these managed-care marketplace trends to an industry shakeout resulting from increased competition in the sector. At the same time, these perceived competitive pressures have led to questions about the long-run viability of nonprofit health plans. Furthermore, some industry and government leaders believe that some nonprofits are already conducting themselves like for-profit health plans and question the state premium tax exemption ordinarily accorded to such plans. This paper examines related health policy issues through the lens of a case study of the proposed conversion of the CareFirst Blue Cross Blue Shield company to a for-profit public-stock company and its merger with the Wellpoint Corporation. Company executives and board members argued that CareFirst lacked access to sufficient capital and faced serious threats to its viability as a financially healthy nonprofit health care company. They also argued that CareFirst and its beneficiaries would benefit from merger through enhanced economies of scale and product-line extensions. Critics of the proposed conversion and merger raised concerns about the adverse impacts on access to care, coverage availability, quality of care, safety-net providers, and the cost of health insurance. Analyses demonstrate that CareFirst wields substantial market power in its local market, that it is unlikely to realize cost savings through expanded economies of scale, and that access to capital concerns are largely driven by the perceived need for further expansion through merger and acquisition. Although it is impossible to predict future changes in quality of care for CareFirst, analyses suggest that quality appears to be somewhat lower in for-profit national managed-care companies. Additional research is needed to assess the viability of true nonprofits, the potential effects of nonprofits and for-profit national managed-care plans on the evolution of local insurance andprovider markets, and methods for effective oversight of nonprofit healthplans.