Calif. governor doubles down on Obamacare, drug price negotiation

New Democratic Gov. Gavin Newsom of California closed his first day in office with an executive order for the state to negotiate drug prices and proposals to double down on Obamacare with more funding and a state-level individual mandate.

His actions, framed as antithetical to the Trump administration's policies particularly on Obamacare, made a political splash.

In his executive order, Newsom asked all state agencies to band together as one drug purchasing entity to try to barter prices down, and he also laid out a path for private payers to join the public system.

That proposal has analysts hopeful that leveraging the country's largest Medicaid program could work to lower costs, and could serve as fodder for congressional Democrats advocating for broad Medicare negotiation with manufacturers at the federal level.

Under California's current system, the state's health department currently buys the drugs for just 2 million out of the 13 million Californians on Medicaid. California is the most populous state and about one-third of its residents are on Medicaid.

"States like California could bring a lot of leverage to a sole-source drug that is priced very high," said Jack Hoedley of Georgetown University's Health Policy Institute, adding that lower prices could lead to more widespread use for some particularly expensive pharmaceuticals.

"This is a piece of a dilemma that is getting a lot of discussion in the federal sector," he said. "How do you go after these sole-source drugs?"

California is not the first state to push for stronger negotiating powers, although not all other states have had success. Last June the CMS rejected a waiver proposal from Massachusetts to exclude some drugs from its Medicaid formulary, for example. But Hoedley said California given its size could effectively wield the prior authorizations to boost drugs whose manufacturers are coming to the table to negotiate.

"If you're a manufacturer you want to be on a preferred list," he said.

Avik Roy, a conservative policy advisor who runs the Texas-based Foundation for Research on Equal Opportunity, said the idea has parallels with his own advocacy for an antitrust safe harbor for a state's insurance companies to band together and negotiate drug companies.

Newsom also addressed healthcare coverage from two different political angles.

In terms of actual policy proposals, Newsom stuck to Obamacare, while in a separate letter to President Donald Trump and congressional leaders he signaled support for a single payer policy.

His forthcoming budget will propose more subsidies for people on the state exchanges, paid for by an individual mandate to replace the federal penalty that the GOP-led Congress zeroed out in 2017 and similar to that implemented in New Jersey and the District of Columbia and reinstated in Massachusetts. The subsidies would expand to people above the 400% poverty line limit that's in federal statute.

From a numbers perspective, Matthew Fiedler of the Brookings Institution said the people above that line represent a relatively small minority of the remaining uninsured and most additional funding should target the lower-income people who are already subsidized but may need more help to buy coverage.

California saw a rate hike in its individual market premiums for 2019. Sabrina Corlette of Georgetown University said with coverage so expensive expanding the premium subsidies for people just above the cutoff becomes a "fairness issue."

"I think providing the people with relief who bear the full brunt of the cost is the right thing to do," she said.

Roy countered that while the financial help might be warranted, "the real problem is the skyrocketing cost of coverage in California."

The proposal to set an individual mandate for Californians now that the federal mandate has been zeroed out also drew praise from industry and analysts. But ultimately the effect of a state-level measure on coverage numbers isn't clear yet from the examples already out there, Corlette said.

New Jersey came up short in enrollment this year over 2018 numbers even though it established its own individual mandate penalty and a reinsurance pool. Massachusetts reinstated the penalty it had in place before the ACA was implemented, but its open enrollment period hasn't closed yet. The District of Columbia also imposed a mandate and its enrollment period ends next week.

The California Association of Health Plans, representing state insurers, said they "strongly support" Newsom's push for the individual mandate and the additional subsidies, and the California Hospital Association board also expressed support.

Newsom also addressed the immigration issue — in a separate rebuke to the Trump administration — with a proposal to cover undocumented young adults up to age 26 through Medicaid, if they otherwise qualify. This policy was introduced in the Legislature last summer as well.

Newsom's letter to Congress and Trump, criticizing the confines of the 1332 State Innovation Waivers, bolstered California's single payer idea that has been languishing in the state's Legislature.

Last year the Legislature also killed the more modest step to single payer that would have set an all-payer rate. The measure spurred intense hospital opposition.

To manage rising healthcare costs, Newsom wrote, "we must have the federal tools to support California's ability to provide quality healthcare for everyone, financed through a single payer model like Medicare."