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Remarks on Health Reform to the American Action Forum and the Council for Affordable Health Coverage

Eric D. Hargan
American Action Forum and the Council for Affordable Health Coverage
November 1, 2017
Washington, DC

All of [our] efforts are focused on getting us to the goals that we want from a successful, sustainable healthcare system and all our work at HHS: healthier people, stronger communities, a safer country.

As Prepared for Delivery

Good afternoon and thank you all for having me here today.

I want to thank the Council for Affordable Health Coverage and the American Action Forum, and in particular their respective leaders, Joel White and Douglas Holtz-Eakin, for convening this gathering today to discuss a topic that is so deeply important to all of us.

I want to thank each and every one of you for the work you do to improve the lives of the American people and to think about the healthcare challenges we face.

It is a great privilege to join you here as Acting Secretary of the Department of Health and Human Services to share our views on some of these issues.

What Drives Healthcare Costs

The particular aspect you all are discussing today, the cost of our country’s healthcare, is a crucial one, for so many reasons.

For one, unaffordable healthcare is inaccessible healthcare—which means deferred care, untreated conditions and diseases, and a lower quality of life.

These days, in spite of the misnamed Affordable Care Act, the affordability of healthcare is a challenge for broad swaths of Americans.

Runaway healthcare costs are also a challenge for our country collectively.

It’s not just family budgets that are strained by the cost of healthcare in America—it’s city, state, and federal budgets, too. These strains are being felt by employers and nonprofits, as well.

According to the Congressional Budget Office, our major healthcare programs are projected to rise from the 28 percent of federal spending they represent now to 40 percent of federal spending—about 10 percent of our entire GDP—over the next several decades.

The stakes here could not be higher.

I want to suggest to you that we think about the cost of healthcare in two ways: costs driven by “health” and costs driven by “care.”

In other words, the healthcare cost equation has two main elements: on the one hand, the inputs and factors that define our system of care—how we pay providers, how systems are organized, how insurance is purchased, how drugs are priced—and, on the other hand, the factors that go into our own personal health.

On the care side, we need a system that provides effective, affordable, accessible, innovative care.

On the health side, factors like how we eat, how much exercise we get, and consumption of alcohol, tobacco products, and drugs explain a huge amount of how much we spend on healthcare.

Of course, the relationship between these two pieces of the equation is dynamic, but it can be a useful way to think about these complicated cost issues.

Let’s begin with the care side of things: In what ways can we drive down costs of care—by considering how it’s financed, how it’s provided, and how we develop innovative treatments?

One place to start is to look at where we’ve gone in the wrong direction, unfortunately, the last several years: the individual and small-group markets.

These markets, and the millions of Americans who rely on them for coverage, have suffered greatly under the Affordable Care Act as costs have skyrocketed and choices have vanished.

Each year since the ACA’s implementation, the law’s original architects assured us that the next year would be the last year of serious premium increases.

Yet each year, average premiums have risen.

In total, individual-market premiums in the 39 states on the federal exchange rose 105 percent from the year before the major parts of the ACA were implemented, 2013, through the final year that the Obama administration oversaw enrollment, 2017.

Now, for the 2018 plan year, we have seen benchmark premiums increase 37 percent.

The premium for an average benchmark plan under the ACA is now $4,932, up from $2,616 in the first year of the law.

At this point, we can say this experiment has failed. This law has failed.

It has failed American families, it has failed American businesses and employers, and it has failed the American taxpayer.

The law has been tested, and it has, regrettably, been found unworkable and unsustainable.

President Trump is deeply concerned by this situation, which is why he is so committed to repealing the ACA and replacing it with a law that actually works.

For now, the administration is doing what we can to provide relief for Americans suffering from the unfixable system we have.

As many of you know, today marks the beginning of open enrollment for Plan Year 2018.

Dedicated public servants at HHS and in the states have put a great deal of work into preparing us for open enrollment season, and we are committed to making this year’s enrollment as consumer-friendly as possible.

But as you can tell from the premium numbers, our ability to do so is limited when we have such flawed rules governing what kinds of insurance products Americans are allowed to buy.

We do have some flexibility within the law to try to expand choices and promote affordability.

Efforts to do so began in the early weeks of this administration, when HHS released a draft rule, now finalized, to help provide greater choices and affordability for consumers within the bounds of the law.

Over the course of this year, we’ve also taken action to ease enrollment in small-business plans and open up more private sector options for purchasing exchange coverage.

Then earlier this month, the President signed a powerful executive order instructing HHS and other departments to pursue several different avenues for opening up more affordable coverage options.

At HHS, we will be looking at ways to expand access to short-term limited-duration plans, a consumer-friendly option that had been significantly restricted by the previous administration.

In conjunction with the Department of Treasury and the Department of Labor, we’ll be looking at new ways to use association health plans to finally allow Americans to purchase insurance across state lines.

We’re also looking at new, better and easier ways for employers and employees to use Health Reimbursement Accounts to afford coverage that works for them.

On Friday, I signed our proposed Plan Year 2019 payment notice, which puts forth a number of new flexibilities to open up more affordable options for consumers down the road.

In particular, we want to make sure states have the flexibility to set essential health benefit benchmarks, expanding the array of choices for consumers in the individual market and employers in the small-group market.

These efforts have one thing in common: They recognize that greater competition and choice for the individual patient is what drives down costs.

Ultimately, we want to see Congress replace the Affordable Care Act with a system that has competition and choice at its heart—rather than the assumption that central planning is the solution for everything.

Outside of the individual and small-group market, the ACA also greatly expanded the Medicaid program.

There, too, the ACA is a good example of how not to address healthcare costs, because it expanded, rather than reformed, a program with questionable health outcomes and unquestionably out of control costs.

We need Medicaid to work smarter and we are eager to engage with states on how we can do that.

There is great potential for driving efficiencies within the program while reforming it to help put people in charge of their own health.

The next generation of Medicaid innovation includes such possibilities as health-savings-account-like features and wellness-program-like incentive systems.

At the Centers for Medicare & Medicaid Services, we are so lucky to have Administrator Seema Verma, who is one of America’s top experts on these kinds of innovations, and we are excited for her work to continue.

Regulatory Reform

Another cost driver we’re closely examining is regulations on the healthcare system.

President Trump has made regulatory reform a top priority across the administration, and we’ve taken it very seriously at HHS.

We’re talking about regulations that affect at least one-sixth of the economy and, just as important, often directly affect our family doctors and nurses, those who consult with us and provide for us in some of life’s most challenging moments.

We want to be giving providers space not just to provide that care and to really listen to their patients, but also to innovate.

We certainly shouldn’t be drowning them in new rules and reporting requirements—and yet that’s what we’ve been doing for years now.

So HHS has undertaken a broad review of our rules and regulations, across the full spectrum of what we regulate.

A key piece of this has been stakeholder engagement, including frequent requests for information from both the Centers for Medicare & Medicaid Services and the Food and Drug Administration. Each new CMS payment rule we are issuing includes an RFI, and each center at FDA has issued its own RFI, seeking input on how to reduce burden on the community it regulates.

I would urge every one of you to look into these opportunities and engage with us.

With a practical regulatory approach and an innovation-friendly attitude, we are optimistic about what can be done within our Medicare and Medicaid programs, and for the effects that can have on our healthcare landscape more broadly.

It’s not easy to bring change to programs as large as Medicare and Medicaid, but it is possible.

In fact, many of you in this room here today know that.  

I want to offer a special thank you to Dr. Mark McClellan, who spoke earlier today, for his strong leadership in leading the implementation of Medicare Part D. It was an honor to work with him on that project, which has delivered popular benefits for senior citizens at a cost of billions of dollars lower than projected.

Part D has come in so far under budget that one analysis attributed about 60 percent of the lower-than-expected Medicare cost growth of the last decade to the lower-than-projected costs of the drug program.

Just to underline that, drug costs only constitute 15 percent of Medicare spending, and yet this one market-oriented program resulted in 60 percent of the savings we’ve seen.

And the program continues to show positive results: This year, at a time of rising prescription drug costs, the Part D premium will actually drop.

Part D has been successful not just because it induces private firms to compete with one another for seniors’ business, but also because its design has harnessed strong competition in the generic drug market.

In the Bush Administration, we also bolstered the Medicare Advantage program and made other changes to Medicare—the world’s largest single healthcare system in dollar terms—to make it more responsive to its customers.

We are tremendously pleased with the growth of Medicare Advantage that has resulted.

When Congress made major changes to the Medicare program in 2004, 13 percent of Medicare beneficiaries were on MA plans. In 2016, that number had risen to 31 percent, and we expect those trends to continue.

We are eager to extend this spirit of competition not just within Part D and Medicare Advantage, but also throughout Medicare and Medicaid more broadly.

In order to have competition, you need to have two things: You need price transparency, so that consumers get signals about costs and you need a market with a meaningful number of players.

This is very well understood by President Trump.

In the October executive order on healthcare, the President laid out two particular priorities that go beyond the specific flexibilities outlined in the EO. Here’s what the order said:

“To the extent consistent with law, government rules and guidelines affecting the United States healthcare system should … re-inject competition into healthcare markets by lowering barriers to entry, limiting excessive consolidation, and preventing abuses of market power; and improve access to and the quality of information that Americans need to make informed healthcare decisions, including data about healthcare prices and outcomes, while minimizing reporting burdens on affected plans, providers, or payers.”

This is a powerful, important charge for HHS.

We are looking closely at ways in which we can improve price transparency for the tens of millions of Medicare and Medicaid consumers to help them understand when they have lower-cost options of which they may not have been aware.

We are also taking great care to ensure that we have an even playing field for all providers, avoiding new regulations and mandates that may advantage some providers over others.

Economies of scale can be tremendously important, but we are wary of the pricing pressures that can be created in concentrated healthcare markets.

As I said earlier, we are also excited to work with states who want to innovate in these areas under the Medicaid program, and we want to work with private-sector providers on payment innovation as well.

We know employers face tremendous pressure in terms of healthcare costs, just as the federal government does, and we see cost control as a joint effort in which both the public and private sector have a stake.

As I mentioned, we have seen tremendous savings from generic-drug competition over the past decade both for American patients and for the government.

But there are issues looming on the horizon: New specialty drugs promise incredible advances in the standard of care, but can also carry high costs.

And there are far too many cases where drug patents have expired but we still don’t see generic competition taking off.

We know rising costs in this area are a pressing issue not just for American patients, but also for employers, insurers and everyone with a stake in our health system, including many of you in this room.

President Trump appreciates this challenge, and we’ve been working on it from the administration’s very first days.

Under the leadership of Commissioner Scott Gottlieb, FDA is actively implementing a robust Drug Competition Action Plan that lays out a number of avenues for encouraging the development of, and speeding approval of, biosimilars and generic drugs, including complex generics, which will increase competition and help keep drug prices down.

Doing what we can to spur competition in drug markets is going to be a top priority for HHS, because it’s the right way—or really, in our view, the only way—to make sure pharmaceuticals are part of affordable care for patients, while incentivizing new treatments that can mean incredible advances for our health.

The Health Side of the Equation

So now I want to talk a little about I’m calling the health side of the equation, and particular health challenges that we face as a country.

At HHS, we have identified three particular health challenges as clinical priorities: the opioid crisis, childhood obesity, and serious mental illness. And I want to say a bit about how the first two figure into healthcare costs.

The opioid crisis has left a major mark not just on our society and our communities but also on our healthcare system and our economy: By one estimate, it is costing our country $78.5 billion a year.

More Americans are now dying every day of drug overdoses than from car crashes or gun homicides. Overdoses, in fact, are the leading cause of death by injury in our country.

With suffering of this scale, we welcomed President Trump’s request on Thursday for the declaration of a nationwide public health emergency, which I signed as Acting Secretary later that day.

The chronic disease of drug addiction is a tremendous burden on the Americans struggling with it, and on the families and communities that care for them.

And addiction often carries with it other challenges for both mental and physical health. Our Surgeon General, Dr. Jerome Adams, knows firsthand what these challenges can look like for a health system, from his time as health commissioner in Indiana during Scott County’s terrible HIV outbreak.

President Trump’s speech on Thursday was a national call to action, not just offering us new flexibilities via the public health emergency at HHS but also calling on the federal government to marshal all of its resources to fight this challenge.

This has been a priority for our department since January, but when the President says focus, we FOCUS!

The President’s Commission on Combating Drug Addiction and the Opioid Crisis is releasing its final report today, and we look forward to reviewing their recommendations for federal policy changes to defeat the epidemic.

But we believe strongly, while HHS and the federal government have a prominent role to play, it is heroes on the frontlines of this epidemic, communities and families, who are going to turn the tide.

We’ve seen not just civil society respond, but the private sector, too: insurers changing policies to discourage aggressive prescribing of opioids, and pharmaceutical innovators charging ahead with research into non-addictive painkillers and new formulations of addiction treatment.

We believe that, in partnership with civil society, local governments and the private sector, we will be able to defeat this unprecedented health crisis.

While the opioid crisis is so often in the headlines, one of our other clinical priorities is a long-term challenge: the high rates of obesity among young Americans and adults, and, more generally, our eating habits and rates of physical activity.

It’s important to remember this is in part a side effect of the tremendous achievements modern civilization has made in the production and supply of food.

But obesity exacts an enormous cost on the quality and length of lives Americans live, and plagues us often with painful, sometimes debilitating, health conditions.

It’s also a serious challenge for us as a whole country.

By one estimate, from back in 2005, America spent $190 billion a year on healthcare related to obesity, and that number is no doubt only higher today.

Figuring out ways to encourage new generations of Americans to eat better and exercise more, and cut our rates of obesity, will mean better health, but also much more sustainable costs for our health system.

At HHS, we’re looking at all the programs the department runs related to obesity, what has worked, what hasn’t, all in the context of an administration that brings a decidedly different vision to this issue than the last one.

We don’t believe one more government program is going to fix this—we want to look at ways in which we can encourage families and communities to take personal responsibility for making healthier choices and achieving better health outcomes. We want to engage the private sector as well. A great employee wellness program or new ways to encourage exercise and work-life balance can mean great benefits for physical health. I think we can all agree that no one has easy answers to this challenge, but the rewards of working together to make meaningful gains will be huge.

HHS is also working aggressively on other serious public health challenges we face.

One of those remains the use of tobacco, which is estimated to cause the premature deaths of more than 480,000 Americans every year.

But we are developing new, productive ways forward on this front.

At FDA, Commissioner Gottlieb is laying the groundwork for how to significantly reduce the addictiveness of traditional cigarettes, while laying down commonsense rules for e-cigarettes.

The Washington Post editorial board declared that carrying out the plan FDA is contemplating could be the most significant public health accomplishment of the 21st century, and I don’t think that’s an exaggeration.

An analysis FDA released last week found that it could prevent 8 million smoking-related deaths over the next 100 years, and prevent 30 million Americans from ever picking up smoking at all.

Eight million lives saved over the next 100 years. I’m proud to say Dr. Gottlieb, like so many of our leaders at HHS, didn’t take this job to play small ball.

Charge to Stakeholders

All of these efforts are focused on getting us to the goals that we want from a successful, sustainable healthcare system and all our work at HHS: healthier people, stronger communities, a safer country.

But we cannot do any of this alone.

In each and every issue I just described to you, we need innovation from the private sector, from state and local governments, and from civil society. This administration fully appreciates that.

There can be a temptation in government to think that we’re the only ones who go to work every day with the goal of better health for Americans.

But it’s not just government that wants better health, stronger communities and a safer country.

It’s civic organizations, it’s churches, it’s employers and innovators in the private sector, it’s hospitals and benefits administrators and doctors and nurses. It’s every single American.

All of them, too, want healthcare and a health system that comes at a sustainable cost—just as much as us green-eyeshades folks in Washington do.

So we are committed to recognizing the contributions all of you can make, to bringing your ideas to light, allowing those ideas to flourish, and driving reforms that will make our great healthcare system more affordable for every American and for our entire country.

Thank you very much.


Content created by Speechwriting and Editorial Division 
Content last reviewed on November 1, 2017