Question

Are pharmaceutical costs to blame for insurance premium increases?

Answer 1

The rift between the insurer industry and the prescription drug industry exposes a conundrum. Who is responsible for the high cost of prescription drugs? Insurers say drug prices are too high, and drugmakers say insurers pass on too much of the tab for drugs to consumers.

Both are correct. So the solution is obvious. If drug companies do not charge excessive prices for drugs, then insurance companies should not charge excessive cost-sharing for the drugs,” said Topher Spiro, vice president for health policy at the Center for American Progress. “Everybody wins.”

Either way, voters think they’re paying way too much for their drugs, and high drug prices have made headlines for months. But insurers and drugmakers dug in their heels last week during dueling annual meetings for America’s Health Insurance Plans and the Pharmaceutical Research and Manufacturers of America in Washington.

If there was a serious effort to lower Rx prices [on the part of the drugmakers], then insurers could be asked to give relief on cost-sharing,” said John Rother, president and CEO of the National Coalition on Health Care and who leads the Campaign for Sustainable Rx Pricing. “It’s kind of a Mexican standoff now.”

At their meetings, both industry groups dedicated time to talking about the other, suggesting actions the other group could take to make drugs more affordable.

We need some real solutions. We cannot afford to keep bankrupting our elderly and ourselves over the cost of prescription drugs,” said John Bennett, president and CEO of Capital District Physicians’ Health Plans and one of the speakers at AHIP’s seminar on prescription drug prices.

At PhRMA’s conference, new Chairman-Elect George Scangos went so far as to say that “perhaps the greatest hope” for reducing overall health care costs is within the drug industry. PhRMA argues that breakthrough new medicines cost a lot in the short term, but they end up reducing overall health care costs by lowering hospital bills and reducing the use of high-cost procedures.

AHIP and PhRMA have good reason to dislike one another. As more specialty drugs have entered the market, drug prices have risen. Insurers have been forced to pay for a good portion of this spike. On the other hand, drugmakers say they should get a return on their considerable investment. When insurers pass on drug costs to consumers, the pharmaceutical industry argues, drug companies are the ones that get a bad rap. Instead of being life-saving innovators, they are the greedy villains of the health care world. Prices have gone up, but drug companies say insurers aren’t paying for them like they are reimbursing other providers.

The fact that patients pay a substantial share of drug costs out of their own pockets no doubt contributes to their frustration. Drug costs are rising faster than other services, and those costs are often passed on to patients,

Insurers aren’t helping the situation by making newer drugs the most expensive through a tiering system for prescriptions. Generally, generics go on the first tier, preferred drugs on the second tier, non-preferred drugs on the third tier and, often, specialty drugs on the fourth tier. Co-payments and co-insurance generally get higher with each tier.

For insurers, picking up more of the patient’s tab isn’t as simple as it might seem. Insurance markets are sensitive to the major price fluctuations in the drug industry. Even if insurers covered more of the cost of expensive drugs, as PhARMA suggests, that shift could end up being reflected in higher premiums or greater cost-sharing elsewhere. This is particularly true in competitive markets.

No matter how many insurer-based solutions are discussed, the conversation inevitably circles back to the drug companies.

“The fundamental problem is unsustainable [prescription drug] prices,” Rother said. If the only thing that changed were cost-sharing models between insurer and patient, he added, “it would completely free PhRMA to keep raising prices without restraint.”