2010 Business Agenda : Reform in Healthcare

2010 Business Agenda : Reform in Healthcare

India should formulate a healthcare plan

Dr Ajit Dangi, President & CEO Danssen Consulting analyses key elements of the proposed Affordable Healthcare for America Act, and suggests that a country like India should begin to formulate a comprehensive strategic plan to make healthcare affordable and inclusive to our teeming millions

Despite unanimous opposition from the Republicans (and also some Democrats) President Obama has been able to push the contentious Healthcare Reform Bill on Christmas Eve which promises near universal healthcare coverage to US citizens. This is a historic milestone no other US administration has ever been able to reach. The Affordable Healthcare for America Act thus, will soon be a reality. Democrats however are not in a celebratory mood and are worried that the party may get a thrashing at the next year`s congressional elections for ramming through a contentious piece of legislation. The ordinary American citizen is either sceptical about these reforms or opposed to them as the changes envisaged will not be visible till 2013 -14. The bill will extend the healthcare coverage to more than 30 million currently uninsured Americans covering over 94 percent of the US population. These reforms have five key elements:

1. Health Insurance – The bill would bar insurance companies from excluding citizens with pre-existing diseases and prevent them from dropping policy holders arbitrarily. It would also allow insurance companies to charge higher premiums to older people than the younger policy holders. One key requirement is; insurance companies must spend at least 85 percent of the premium paid on medical care, thus indirectly capping their profitability.

2. Financing – The biggest challenge for the US government is to finance these reforms in an economy, which is showing little signs of recovery. The only choice is to raise taxes for high income groups. The bill thus proposes to impose 5.4 percent surcharge on tax paid by individuals earning $500,000 a year and a couple making more than $1 million. It also proposes to raise money by imposing 2.5 percent excise tax on medical devices.

3. Coverage for Abortion – Another controversial policy change is to bar the use of federal funds for abortion. The senate plan envisages anyone with abortion coverage to pay two separate premiums one for the abortion and another for the rest. This is not going to go down well with younger policy holders.

4. Penalty Tax – The bill proposes to impose a penalty on those who fail to get insurance coverage. A 2.5 percent penalty tax on income up to the average cost of insurance policy is proposed.

5. Healthcare Fraud, Abuse and Waste — The Bill contains a number of provisions to increase the government’s efforts to monitor and control frauds, abuse and waste in the healthcare system with enhanced fines and criminal liability for defaulters.

Obviously, in such a complex piece of legislation there would be some winners and some losers.

Winners:

Pharmaceutical Companies – Drug companies overcame an attempt by consumer groups to import cheaper drugs from other countries like Canada.

Biotech Companies – Biotech companies will get 12 year exclusivity for their branded research biologics before facing competition from generic rivals. This will obviously favour research based pharma companies.

Cosmetic Drug Manufacturers – A five percent proposed tax on elective cosmetic procedures such as Botox for erasing wrinkles, breast augmentation, tummy tucks etc. has been dropped.

Beverage Manufacturers – Consumer NGOs have lobbied strongly to raise taxes on sodas such as Coke and Pepsi and other sugary drinks. However, this has not gone through, favouring the Coca Colas and Pepsies of the world.

Losers:

Health Insurance Companies – Will face higher regulation and Government intervention, higher taxes and profit caps.

Pharmacy Benefit Managers – They will have to inform Department of Health and Human Services, information about the rebates they get from drug companies for medicines sold through retail and mail order pharmacies.

Nursing Homes – Will have to wait till 2011 for the new payment system that would affect how they classify patients and receive reimbursements.

Undoubtedly, a comprehensive legislation of this magnitude will have significant impact on the business models of pharma and healthcare companies.

Therefore, only time will tell whether the new US Act manages to balance the interests of the patients with those of the providers.

A country like India where over 80 percent population pays from its own pocket for medicines and less than 40 percent have access to essential medicines, should seriously ponder over our broken healthcare system and begin to formulate a comprehensive strategic plan to make healthcare affordable and inclusive to our teeming millions.