The spirited debate about how to make medicines more affordable for patients sometimes masks the fact that, in the United States, the link between drug prices and what patients pay is not as straightforward as many might believe. Before Congress passes legislation to impose federal price controls, it should consider how effective these policies will be in bringing actual costs down for patients.
The challenges many patients face with affordability largely stems from increasing cost-sharing responsibilities that their insurance plans impose on them. The rise in these out-of-pocket costs is outpacing both inflation and worker wages. The average deductible for a single coverage plan climbed by 25 percent, from $1,318 in 2015 to $1,644 in 2020. Last year, the average out-pocket maximum was $4,039 and the coinsurance rate — what patients pay after their deductible has been met — was a staggering 26 percent. The combination of high deductible plans and coinsurance can be particularly financially taxing for patients taking specialty medication, which typically have coinsurance requirements.
But much of the debate in Washington focuses on specific price regulation plans, with the implicit suggestion that price controls would translate into patient savings. But would they? To address this question, the National Pharmaceutical Council surveyed 35 officials at national and regional health plans, integrated delivery networks and pharmacy benefit managers about what changes might take place if government price regulation lowered total drug costs (i.e., the costs for all drugs) by 15 percent.
The short answer is — not much would change. Most respondents indicated that a 15 percent price reduction would result in a minimal impact on patients’ out-of-pocket costs. Only a quarter of respondents said it would reduce copays, and the vast majority of payers indicated that the coinsurance rate would not change. (The full survey results are available in Xcenda and NPC’s “Affordability is about more than drug prices” issue brief.)
Even with a price discount, a stagnant coinsurance rate could be a big deal, particularly for costly specialty medication. Let’s walk through one example: A patient is taking an essential specialty drug that costs $35,000 annually, a tab that means they are likely to hit their average annual out-of-pocket maximum of $4,030 early in the year. A federal mandate to cut the price of that drug by 15 percent, with no change in the insurance plan design, would still leave that patient with that out-of-pocket $4,030 burden.
For most Americans, $4,000 out of pocket is unaffordable. The problem would be worse for people in Medicare Part D plans because they do not have a limit on their out-of-pocket expenses, meaning the patient, rather than payers, will continue to face the financial responsibility for catastrophic coverage costs. The number of people in Part D with out-of-pocket drug spending above the threshold has more than tripled in a decade, from nearly 400,000 in 2010 to 1.5 million in 2019, the last year used for the Kaiser Family Foundation analysis.
A federally mandated 15 percent cut in drug prices could, however, impact health insurance premiums. In our survey, 46 percent of respondents said a price cut like that would probably mean premiums would drop. While that might provide some financial relief for people in some insurance plans, it will not provide much help for people who have high cost-sharing levels, especially for patients taking a specialty medication.
Eighty percent of the NPC survey respondents strongly agreed that commercial payers’ biggest challenge is the concerns that plan sponsors — usually employers — have about insurance plan affordability. Therefore, they predict that savings from drug price controls will likely be applied across the board through a reduction in premiums but with benefit designs remaining essentially unchanged.
While premiums are an important fixed cost for everyone with insurance, when it comes to prescription drugs, the real financial burden comes from high levels of cost-sharing.
Cracking down on high drug prices can be a popular political promise, but the reality is that prices alone are not the driver of patients’ financial burden. Those with commercial plans are unlikely to see financial relief unless Congress takes direct action on insurance plans’ design.
At the end of the day, the goal should not be just to cut drug prices, but to lower the cost to patients. Legislation that makes it possible to cap patient spending will be a better way to truly address affordability concerns for patients and the overall health system.
Michael Ciarametaro, MBA, is vice president of research at National Pharmaceutical Council. Brian Sils, MPP, is a senior research associate at National Pharmaceutical Council.
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