Politics and Healthcare

Healthcare policy and politics are deeply intertwined, with government actions significantly influencing the financing, delivery and quality of healthcare. As such, the control of government is a powerful determinant of health policies, making elections a crucial factor in shaping health policy. The president, the majority party in the House and Senate and state-level leadership all play pivotal roles in directing legislative efforts. However, when political power in Washington is divided, progress on healthcare legislation often stalls. Despite this, the president can influence health policy through administrative measures.

As the presidential election approaches in November, understanding the implications of healthcare policies on employer health plans is vital. Federal gridlock often prompts states to take more decisive action, so it’s also important to be aware of any state-level legislation targeting healthcare benefits.

The Erosion of ERISA Preemption

The landscape is changing, especially concerning the Employee Retirement Income Security Act (ERISA), which has historically shielded multi-state plans from varying state regulations. However, we are witnessing a concerning trend: the erosion of ERISA preemption. While ERISA has traditionally allowed employers to comply solely with federal rules, numerous state-level proposals are emerging that challenge this protection, particularly regarding PBM services.

As employers, it’s crucial to stay abreast of legislative updates affecting employee benefits for several reasons:

1. Compliance: State laws may introduce specific requirements on employer-sponsored health plans. Staying updated ensures that employers remain compliant and avoid potential legal penalties.
2. Cost Management: Changes in state legislation can impact the cost of providing healthcare benefits. Being aware of these changes allows employers to anticipate and manage costs effectively.
3. Benefit Design: State laws may mandate certain benefits or coverage levels. Understanding these requirements helps employers design benefit plans that meet legal standards and employee needs.
4. Risk Mitigation: Awareness of state legislation helps employers identify and mitigate risks associated with noncompliance, such as fines, lawsuits or reputational damage.

State-Level Legislative Developments

• California: Proposed regulations include licensing requirements for PBMs by the state board of pharmacy and limitations on network structures, including restrictions on mail and specialty pharmacies. A PBM analysis suggests these changes could increase plan spend by over 20%.
• New York: Proposed legislation would mandate PBM reimbursements to pharmacies at National Average Drug Acquisition Cost (NADAC) pricing. It would also require a considerable dispensing fee, which far exceeds the national average of roughly $2. The financial impact could reach clients with employees in New York.

The momentum for similar regulations is not limited to one end of the political spectrum; similar measures are emerging across numerous states. For example, Kentucky has set higher dispensing/administration fees, and Louisiana has recently passed laws impacting pharmacy reimbursement.

It’s worth noting that changes in costs associated with pharmacy benefits are not absorbed by PBMs; these costs are ultimately passed on to plans and members.

Employers may wish to stay informed about these developments and consider engaging with local legislators to share their perspectives.

• Stay Informed: Monitor proposed legislation in your state, its potential impacts, and the key legislators involved.
• Reach Out and Speak Up: Utilize letter templates to communicate with local representatives. If employers remain passive, only PBMs will advocate against these laws, perpetuating the notion that these initiatives are solely anti-PBM while adversely affecting employers and members.

The Federal Landscape

In addition to state legislation, federal healthcare policies, particularly those related to Medicare and Medicaid, may have indirect effects on commercial healthcare plans. A notable example is the Inflation Reduction Act (IRA) and its provisions for Medicare Drug Price Negotiations:

1. Medicare Drug Price Negotiations: The IRA allows Medicare to negotiate prices for certain high-cost drugs, starting with 10 drugs in 2026. This is expected to lower costs for Medicare beneficiaries and reduce overall drug spending by the federal government.
2. Market Influence: The negotiated prices for Medicare could set a precedent, potentially influencing drug pricing strategies across the broader market, including commercial health plans. Pharmaceutical companies might adjust their pricing models to align with the negotiated rates to maintain consistency and avoid significant price disparities.
3. Increased Competition: By encouraging lower prices through negotiation, the IRA may foster increased competition among drug manufacturers. This could lead to more competitive pricing in the commercial sector as well.
4. Rebates and Penalties: The IRA imposes penalties on drug companies that raise prices faster than inflation. This could discourage excessive price hikes, benefiting both Medicare and commercial health plans by stabilizing drug costs.
5. Administrative Actions: The IRA grants the Secretary of Health and Human Services the authority to negotiate prices, which could lead to administrative actions that impact the broader healthcare market.

Overall, while the direct effects of the IRA’s Medicare drug pricing negotiations are focused on Medicare, the ripple effects could lead to more competition and potentially lower drug prices for commercial health plans as well.

The First 10 Drugs of the Medicare Drug Price Negotiation Program

The new prices will go into effect for people with Medicare Part D prescription drug coverage in 2026:

Source: “Medicare Drug Price Negotiation Program: Negotiated Prices for Initial Price Applicability Year 2026,” CMS, 2024.

In conclusion, healthcare and politics are closely linked, and upcoming elections could reshape health policies. Employers should stay informed about state legislation and federal initiatives, which may affect costs. Engaging with legislators and participating in policy discussions will be essential for protecting employer interests and ensuring a favorable benefits landscape moving forward.

Sources:

• Kelly Brantley (Moderator). “Election 2024: What’s at Stake for Healthcare?” Avalere, 2024.
• CMS. “Medicare Drug Price Negotiation Program: Negotiated Prices for Initial Price Applicability Year 2026,” CMS, 2024.
• Joe Markland. “Benefits Think How Health Insurance May Change, Regardless of Who Wins the Election,” EBN, 2024.
• Tricia Neuman, Julliet Cubanski, Larry Levitt. “The First-Ever Government Negotiation Process for Drugs Has Finished, but the Politics Are Ongoing,” Health Affairs, 2024.
• Bill Hammond. “State Regulators Propose a $10 Fee for Filling Prescription,” Empire Center, 2023.
• California Pharmacists Association. “SB 966 (Wiener) CPhA-Sponsored Bill: Pharmacy Benefits Managers: Regulation,” CPA, 2024.