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How will ObamaCare Effect The Pharmaceutical Industry

Health & Wellness

This November, President Obama was elected for another four years. This means that the Affordable Health Care act he implemented will be on the fast track toward implementation within the next few years. Although there are people on both sides of the political world that both love and detest the plan, the overall effect on the pharmaceutical industry should be a positive one. In fact, there are many ways that the new medical rules will provide benefit to the pharmaceutical industry.

Greater revenue from preventative care

The preventative care industry will likely see an increase in business due to Obamacare. The plan allows coverage for preventative procedures unlike many current insurance plans. Insurers will be motivated to provide more preventative care, including screenings vaccines, and biotechnology processes because they are required to bring in 80 percent of their revenue from medical procedures rather than from insurance premium hikes. This will benefit pharmaceuticals because many preventative care options are drug or supplement-based.

Pharmacy stocks will rise

The medical industry is already strong, but the new government mandates on healthcare will cause pharmacy stocks to rise even higher. Since insurance and medical procedures are now a requirement from the government, any stock based in the medical industry will automatically go up. People who invest in the medical industry are likely to see a large income hike on their stocks from the new medical insurance plan.

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Increased pharmaceutical customers

Since insurers have to pay for their businesses with 80 percent medical-related products and procedures, more companies will want insurance customers to purchase the latest medical treatments and care options to cover their expenses. This will increase the amount of people using pharmaceutical products. That, of course, has certain problems attached to it.  With the increase of people using drugs, abuse is a growing possibility; fortunately great places are set up to deal with such issues, click here for more information on that subject.

Since insurance is a requirement for most Americans, many people will want to increase the amount of medicine and procedures they have simply because they are paying for the treatment anyway. This will benefit the pharmaceutical industry as a whole simply by increasing the amount of people who purchase from the industry.

How hospitals benefit

The hospital industry will also benefit from the new plan. Right now, some individuals choose to skip insurance plans and simply pay for medical care as they go along. This reduces the amount of people who visit hospitals for smaller medical issues. With required insurance, more people will visit hospitals and take advantage of the medical services they provide.

The potential for pharmaceutical cost increases

The benefit to the medical companies and pharmaceutical industries is likely to be great. However, the benefit for individuals may not be so great. Individuals who already have insurance may see their prices increase by up to 20 percent. The Affordable Care Act prevents price increases above 20 percent, but it is possible that some insurance companies may find a way to continue to increase prices by 20 percent for the next several years, leading to extreme insurance costs for individuals who are unable to qualify for government assistance due to high income levels.

The future of the medical industry is unknown. It is likely that the medical industry as a whole will benefit from the new plan, but it is less certain which individuals will benefit from the plan. The only way to know for sure is to wait it out and see what happens. Most likely, if anything changes too much, the government will add additional stipulations to the act to ensure that the cost of health care is fair for all.

Comments on this Article: 2

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  1. Christopher Chiu says:

    Mr. Levitan,

    Reading your blog post on how the Affordable Care Act will impact the pharmaceutical industry was informative and helpful, as the production aspect of prescription drugs is often overlooked in coverage of the effects of such monumental legislation. I agree completely with your assessment that revenue will increase and stocks will rise, since the bill will increase the number of patients in the healthcare system, meaning tens of millions of additional consumers for the industry. Yet, when it comes to the fates of these consumers, my view differs from yours. In particular, you contend that “individuals who already have insurance may see their prices increase by up to 20 percent […] leading to extreme insurance costs.” How did you calculate this figure, and what might that difference mean to the average citizen? This elevated expense is a common argument against Obamacare, as many different writers believe that tighter regulation on insurance companies coupled with increased volume will result in disastrously high premiums. The ACA, however, was signed into law in March 2010, meaning that it has been in force for almost three years. Its various clauses have been taking effect ever since, without the predicted price spike. Furthermore, health insurance costs had increased 63% in the seven years before the bill was even ratified, indicating that the law is not solely responsible for rising fees. Although the severity has been exaggerated, it is very reasonable to assume that health plans will end up being more expensive. How much more? According to the Congressional Budget Office, an average of 5.7% annually, inclusive of normal inflation and all the factors discussed above. This is certainly a substantial increase, but would you consider it a reasonable price to pay? What about in terms of the financial benefits to companies—should they be required to foot a portion of the bill?

    While you focus largely on drug manufacturers in your article, any discussion the ACA and pharmaceuticals without also accounting for the rest of society would be incomplete. There are so many facets of the legislation that have great potential to change the way healthcare functions in America for better or worse. Community pharmacies, for example, will experience the growth in demand you mentioned in your post, but it is possible that there will not be a commensurate rise in profit as we might assume. Government spending (by means of expanded Medicare and Medicaid) will account for almost 50% of all health payments under the ACA, and federal reimbursement restrictions may mean that retail drug stores will be left with slimmer margins. An incredibly interesting solution to this dilemma is currently being enacted in Ohio. To improve community health, lighten demands on overloaded hospitals, and involve independent pharmacies, Berger Health System is instituting a reform of their own: they are paying local pharmacies to counsel recently hospitalized patients on proper medication usage. Over the past year, this approach has cut readmission rates in half, and has supplied the participating pharmacies with additional work and revenue. In addition to inducements provided by the hospital (like a financial payout to the pharmacies if 70% of patients successfully undergo consultation), the program is designed to qualify for several incentives built into the ACA. As Berger’s president Tim Colburn states, “we are going to have to reform healthcare locally […] and this is one small way to do that.” While the concerns you raise in your article are legitimate and important, this example of reform shows me that there is significant promise in legislative change. After all I have discussed, would you agree?

  2. wjwalker says:

    Title should read “How will Obamacare affect…” not “effect”. If the subtlety of the difference cannot be comprehended by the author then I wonder what else he may miss.

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