NRO Critical Condition Blog
April 30, 2010
by Hanns Kuttner
After Obamacare, many decisions now made in the private sphere will be made in the public sphere, assuming it is implemented as the law currently provides. The government will be defining key terms, and government-set uniformity will supplant the diverse results that arise from private parties interacting.
One example of this comes from yesterday’s FDA decision to approve Provenge, a breakthrough therapy for the treatment of prostate cancer. Provenge isn’t a drug, it’s an immune therapy that involves extracting immune cells from a patient’s blood, exposing those cells to a protein found in prostate cancers, and returning the cells to the patient’s bloodstream.
Removing cells, treating them, and returning them to the body is a complex process. Published accounts suggest it won’t be cheap: $93,000 per patient.
Each private health-insurance plan must decide whether to cover Provenge and under what terms. That may not be true under health-care reform.
Health-care reform introduces the concept of “essential health benefits.” One of the many rules the secretary of Health and Human Services must write to fulfill her responsibilities under the new law is a rule defining what “essential” means. One of the unknowns of health-care reform, punted by Congress to the executive branch, is how detailed a definition of “essential” the government will enforce. The law provides some examples of things that must be covered that pass the common-sense test (e.g., hospitalization, emergency-room visits). These examples, however, are only the starting point. The secretary has to come up with a definition of “essential” that is “equal to the scope of benefits provided under a typical employer plan.” That cuts off the bottom of the distribution. If it’s “typical,” it’s “essential.”
If the secretary says it’s essential, then every health plan that wants to remain “qualified” will have to cover it. If a plan is not qualified, those who get public subsidies can’t buy it and employees who buy it can’t enjoy the tax-code subsidy for buying health insurance.
Even if the secretary doesn’t want to get herself in the middle of every tough call on what’s “essential” and what’s not, she’s pushed that way by another concept in the new law: actuarial value. The “it” that employers have to provide to their employees (or face penalties) or that people must buy (or face penalties) has to meet a test of actuarial value, an amount that arises from calculating the cost of providing “essential health benefits” to a “standard population.” The necessity of calculating actuarial value requires an understanding of what a plan covers and what it does not. (Otherwise a plan could compete by not covering certain drugs or treatments — an outcome that would go against the ethos of making competition among health insurers “fair” by removing opportunities for variation.)
The secretary already has a lot of sway with what the coverage rules will be for Provenge — as many as 75 percent of those who can benefit are enrolled in Medicare. With health-care reform, she may be making decisions for the entire population.
Hanns Kuttner is a Visiting Fellow at Hudson, working on the Institute's Future of Innovation Initiative.
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