Key Obamacare Actions for Rx Manufacturers in 2015

At first glance Obamacare developments for the American Rx industry in 2015 appear fairly benign. However, digging deeper suggests that each, in its own way, could cause various actions with potential for substantial uncertainty for the U.S. pharmaceutical industry next year. If your response to this profound observation was, “Really, what’s new?” - read on.

Here are three examples of the key changes that I see which may lead to significant, yet uncertain impact on the American prescription drug business:

1) The Personal Mandate

The personal mandate requiring all Americans to have insurance went into effect on January 1, 2014. It directed that all citizens present proof of having a “minimum essential healthcare coverage” on their 2014 IRS filing.

So on April 15, 2015, for the first time, all individuals must pay up, one way or the other. If citizens don’t have valid “minimum essential healthcare coverage”, they face the followingpenalties:

In 2014, the penalty for not having a qualified health insurance plan is 1% of your annual income or $95 per adult, whichever is higher. If you have children, the penalty for uninsured children in 2014 is $47.50 per child, with a maximum per-family penalty of $285.

And, if you don’t sign up by February 15, 2015…These are the penalties that await you in your 2015 IRS filing:

In 2015, the penalty increases to the higher of 2% of your annual income or $325 per adult.

By 2016, the penalty goes up to 2.5% of income or $695 per adult, and max $2,085 per family.

So, given the rising formula of the Obamacare penalty, we can anticipate that only the most ardent Obamacare resistors will not decide to join the program this year or next.

What does this mean for U.S. Rx care?

Well, as the penalties cause the number of Obamacare participants to grow, (and likely the bulk of these who are now joining will be less well off, younger citizens), the statistics show that most of the new, lower income Obamacare patients will be signing up for the lower cost “Silver Plans”. It makes sense. These are “minimum” healthcare insurance products that charge lower premiums, but the plans do exact very high utilization copays from those new patients who select them.

In these new 2015 Silver Plan offerings, Rx care needs to be very carefully evaluated by all new Obamacare sign ups. As Kev Coleman, head of Research & Data at HealthPocketpointed out more than a year ago:

“About 70 percent of Americans use prescription drugs, and they are going to need to pay very, very close attention to what plans offer to minimize out-of-pocket increases for medications…”

“When it comes to drug costs and changes in our newly reformed health care system, the fine print really matters.”

Indeed, if most new patients are signing up either for the lowest cost “Bronze Plan”, or in the majority of cases, for the Silver Plan options, the formulary offerings of these programs will very likely drive the new patients to almost exclusive use of generics. At the best, they would access the limited number of “preferred” brand name drugs, and even these will carry substantial, additional copay costs. All other indicated products provided to these new Obamacare signups are going to demand prohibitively high copays. Some “specialty drugs” copays are listed as high as 40% of the retail cost, according to Healthpocket.

All of this, of course, is not really unique news for the American brand name industry.  This trend towards almost 100% generic offerings in health insurance plans has been growing for several years.

Therefore, as the impact of the Obamacare individual mandate and penalties are fully felt on April 15, 2015, and millions of the lower income, younger, healthier Obamacare patients are swept into the program, the likelihood of the success for American innovator Rx’s in Obamacare for 2015 will only get more difficult.

2) Comingling or Separate Medical/Rx Deductibles?

A separate, but related private market challenge that Obamacare presents in 2015 is the new, mandated implementation of higher Maximum Out of Pocket (OOP) charges. Although this applies to both the public and private sector, the impact of this rule appears to be having a greater in the more established private sector plans. Here’s why:

Beginning on January 1, 2015, all “minimum essential health benefits (EHB)”, including Rx’s, must operate within these mandated OOP limits:

The maximum deductible/OOP costs for an individual is $6,600.  The total for a family is $13,200.

All of this seems straight forward enough, and, yes, there are going to be substantial variations in the way that employers go at this. But, generally, what is not clear is how the PBMs and private health plans are actually going to cooperate in administering this. According to the law, the PBMs and health plans can either “comingle” or “separate” the application of the medical and Rx deductibles. And ultimately, this determination will be made by the private employer who is paying for the bulk of the premium for the health plan.

So, what could this mean to the industry in 2015? Given the numerous iterations this could take, here are some general possibilities:

Comingling

In the case of the “comingle” approach, any combination of OOP utilization of EHB’s, whether for Rx care or other EHB medical services that gets the individual to the new maximum deductible, is acceptable.  The only requirement is that the total OOP cap be $6,600.

So this could mean that, in a purely theoretical example, OOPs for drug usage could be designated to go all the way to the $6,600.00 maximum deductible if the employer directed that to occur. If this were to occur, given that the 2013 estimated average for annual individual Rx deductibles was about $800, this would definitely not be great news for the patient. Even at half the maximum OOP deduction of $3,300 for drug copays, it would be big trouble for the patient…

Why? Because the patient would end up paying out thousands more in OOPs to meet his overall maximum deductible as compared to his earlier private healthcare plans. We can anticipate that the patient, faced with these huge OOP costs, will opt for the lowest cost Rx possible and that will lead them to generic products for every script.

For the innovator brand company, this result is obvious. If the patient is strapped with massively higher Rx copays, this would likely preclude the use of new, higher cost Rxs.

Now, will employers actually go for 100% Rx OOPs to meet their deductibles? I doubt it, but even if they set the Rx OOPs maximums at, say, $1500, considering HealthPocket’s $800 average, that would be nearly a 100% increase in OOP cost versus that which the patient had previously been managing.

Separated Maximums

However, in the case of separated Rx and medical services maximums, it could be interesting. Let’s say, hypothetically that an employer, working with a medical plan decided the firm would go with a $1000 Rx OOP max, and $5,600 for all other EHB medical services.

For the Rx marketers, such an outcome is probably about the best that can be hoped for since the patient’s OOP would be satisfied much more quickly, would likely be much more predictable and the prospect for at least partial reimbursement for the use of higher priced drugs may be much better.

All and all, the new Obamacare mandates on maximum allowable OOP EHB costs presents a growing unknown for the Rx industry which is compounded many times over by the thousands of deals that employers, health plans, and PBMs are concluding at as they attempt to meet the new $6,600.00 mandated OOP limit.

Clearly, Rx managers trying to “plan” estimated sales and Rx charges in the midst of this new OOP mandate face a daunting task.

3) The Number of Obamacare Insurers Increased by 25%

In the second full year of Obamacare coverage, the number of insurance offerings hasincreased by 25% with some 77 insurers now participating in the state exchange and federal exchange coverage. This includes the greatly enhanced presence of United Health Care, thelargest healthcare insurer in the country. This fact alone must be viewed as a significant competitive development for Obamacare.

Obviously, more insurers will lead to competition, which is good for the Obamacare patients. But this increase in competition no doubt will also put increased pressure on Rx manufacturers to provide ever lower prices on individual and, in particular, bundled product offerings that they provide to the 77 insurers.

Summary

Particularly for those Rx firms hoping to access the Bronze and/or Silver markets, the combination of increasing numbers of younger patients signing up for these coverages, the increased maximum OOPs, and the large increase in the number of insurers participating in the market, can only translate into heighten pricing tensions for the Rx industry. Getting your drug accepted on just about any formulary in this environment is going to present serious challenges in 2015.