The Trump administration is making good on its latest effort to lower out-of-pocket drug costs for Medicare recipients, but its approach could also limit drug options or even risk eliminating coverage of some prescriptions.
The Centers for Medicare and Medicaid Services proposed late Monday changes to Medicare Advantage and Medicare Part D. Among the changes, it would allow insurers to stop covering certain "protected" classes of drugs used to treat common ailments like depression, cancer and HIV.
When Congress added a prescription drug benefit to Medicare in 2003, it required insurers to cover at least two different drugs to treat any particular ailment. It also set aside six protected classes of medication where insurers were required to cover "all or substantially all" of the drugs offered to ensure seniors got whatever treatment they needed, like for cancer.
The Trump administration thinks that gives drug manufacturers greater negotiating power on prices. The proposal is meant to give insurers more leverage and drive prices down by allowing them to drop coverage of certain drugs in a protected class if it's too expensive.
"The concern however is people lose access to specific medications" because plans stop providing them, Juliette Cubanski, associate director of the Program on Medicare Policy at Kaiser Family Foundation, told CNBC. "And that concern is outweighed by any potential savings."
The Medicare program under former President Barack Obama attempted a similar proposal back in 2014 but it was ultimately abandoned after public backlash and criticism that it could lower seniors' access to necessary drugs.
The current proposal, which is open for public comment until Jan. 25, would still require insurers to cover at least two drugs in every therapeutic category. But they could exclude some protected-class drugs when prices increase faster than the rate of inflation or when new drug formulations "are not a significant innovation over the original product," according to Medicare and Medicaid Administrator Seema Verma.
Pharmaceutical companies "have been able to say you have to cover my drug no matter what and have to pay whatever I want on my plan," Health and Human Services Secretary Alex Azar said Tuesday on CNBC's "Squawk Box." That ends under this proposal, he said.
Spending on Medicare Part D drugs totaled $137 billion in 2015, according to Kaiser. Total health care spending in the U.S. represented 18 percent of gross domestic product, according to Medicare, and is expected to continue to rise.
Lowering out-of-pocket costs
Federal health officials are also considering a change that would pass along drug rebates to seniors instead of to insurance companies — lowering out of pocket costs for patients but potentially raising insurance premiums.
Ross Muken, senior managing director and equity researcher at Evercore ISI, said it's supposed to ease consumer prices at the pharmacy. But consumers won't likely be so happy when they end up footing that bill in the form of higher insurance premiums, he said.
"Net, net you will be no better off," said Muken, who has nearly 20 years of experience in the health-care industry. "We want ultimate choice, we want ultimate innovation, but we also want the lowest cost. It's a harsh reality and also impossible to achieve."
Cubanski of Kaiser agreed, saying, "You can't have it all in this world. Unlimited access to every medication basically means plans have no leverage with drug companies."
Medicare estimates the policy would lower cost sharing for beneficiaries by about $12 billion to $15 billion over a decade.
But Gerard Anderson, a professor of health policy and management at Johns Hopkins, warned the policy could end up costing taxpayers more money. He said companies are likely to entice consumers with higher rebates on more expensive drugs, and the sponsor is still on the hook for the price.
Matt Eyles, president and CEO of America's Health Insurance Plans, commended the Trump administration proposals on Monday.
The Pharmaceutical Research and Manufacturers of America (PhRMA), the industry's main trade group, was not immediately available for comment.