Donald Trump will be the next president of the United States, and that means that big changes are on deck for Obamacare, the national insurance program established under President Obama.
Trump has called Obamacare a "disaster," and repealing it is part of his action plan for his first 100 days in office. Obamacare's repeal has been sought by Republicans since its passage in 2010, so it's not surprising that it's a priority for the newly elected President. However, Trump may not want to focus all of his attention on Obamacare. According to a study performed by the Kaiser Family Foundation in October, Americans are far more concerned with fixing drug prices than they are with dismantling the Affordable Care Act.
The Affordable Care Act established state health-insurance exchanges through which individual Americans could purchase health-insurance plans offered by private insurers.
In most cases, individuals signing up for Obamacare plans received federal tax subsidies that reduced their out-of-pocket premiums to less than $100 per month. Obamacare also includes a provision that allows individual states to opt into Medicaid expansion. About 11 million Americans got their health insurance through the state marketplaces in 2016, and over 15 million people have enrolled in Medicaid since Obamacare's passage.
A key criticism of Obamacare is that it has fallen short on controlling healthcare premiums. Despite many marketplace plans providing coverage that includes historically large deductibles, plan premiums have continued to climb unchecked, mostly because insurers have struggled to turn a profit on them.
UnitedHealth Group, the nation's largest insurer, announced earlier this year that it is losing hundreds of millions of dollars per year on its exchange plans, and those losses would force it to stop selling plans in most states next year. UnitedHealth Group, however, isn't the only big private insurer to cite runaway plan costs as a primary reason to abandon Obamacare. Aetna and Humana, for example, have also significantly reduced their exposure to the program in 2017.
A major reason insurers have failed to make money on the exchanges is that patients who are enrolling in these plans have been sicker than anticipated, and that's causing insurers to fork out more money for care. Runaway drug costs, however, are another big reason insurers are losing money on the exchanges, and Kaiser's findings indicate it's the high price of medicine that weighs most on Americans' minds.
A big problem
According to Kaiser, Americans are split over whether Obamacare should be repealed or expanded, but they're overwhelmingly in agreement that drug prices are out of control.
Shrinking the cost of drugs for chronic illnesses, including HIV and cancer, was viewed as a "top priority" by 74% of the country; the majority of people agreed on the importance of this issue, regardless of their political affiliation. Furthermore, 63% of Americans say addressing prices on all prescription medicines is a top priority, including nearly half of all Republicans.
Runaway drug prices have come into focus over the past year for a number of reasons. Last year, the revelation of massive drug-price increases on long-used heart medicines made by Valeant Pharmaceuticals led to public outrage, Congressional hearings, and the exodus of Valeant's longtime CEO. Scrutiny over cancer-drug prices has increased following pushback from oncologists, including those employed at the highly regarded Memorial Sloan Kettering Cancer Center. Most recently, Mylan has drawn fire from patients and policy makers because of a long history of price increases on the EpiPen, a lifesaving shot commonly prescribed to people with severe allergies.
In the wake of triple-digit price increases, six-figure medicines, and what can only be described as "tone-deaf" executives at drug companies, it's little wonder that a separate Kaiser study conducted in September found that 77% of Americans think drug prices are flat-out "unreasonable."
Making matters worse for Americans is the fact that rising drug prices have led insurers to significantly change policies regarding what drugs they cover and how patients pay a portion of the cost. One of those changes has been the widespread adoption of drug formularies with multiple reimbursement tiers. Drugs covered in higher tiers require greater patient cost-sharing, and unfortunately, many of those drugs treat life-threatening conditions. Insurers have also stepped up their preapproval requirements on many high-priced drugs to reduce their use.
An eye on the future
President-elect Trump has said that he'll replace Obamacare with a better solution, and apparently "better," in the view of most Americans, includes putting a lid on drug prices. Trump has said he favors reimportation of drugs from developed countries, such as Canada, where medicine is cheaper. He's also advocated for quicker FDA approval of drugs to boost competition. Whether or not those policies can put the brakes on drug price increases isn't clear, but Americans who are paying higher more for their medicine sure hope so.
Todd Campbell has no position in any stocks mentioned. Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned. Like this article? Follow him on Twitter where he goes by the handle @ebcapital to see more articles like this.
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