Alyssa Lane
The high cost of prescription drugs is a well-known issue, with consumers often facing sticker shock when collecting their medication. While health insurance is intended to reduce these costs, it is not always the case that having insurance makes prescriptions more affordable. In fact, some consumers find that they are charged more when using their insurance than when paying in cash. This is due to a variety of factors, including the complex pricing structure of prescription drugs, the shifting of costs from insurers to patients, and the fact that insurance companies do not always cover the drugs that patients need. As a result, many people are unable to afford their necessary medications, which can have serious health consequences.
| Characteristics | Values |
|---|---|
| High drug prices | The cost of prescription drugs can be very high, with some medicines costing more than a million dollars per dose. |
| Insurance not always covering prescriptions | In some cases, insurance plans do not cover certain drugs, leading to individuals having to pay out of pocket or forgo the medication. |
| Shifting of costs to patients | Insurers have increasingly shifted costs to patients through higher copays, deductibles, and premiums, resulting in patients paying a larger share of their drug costs. |
| Limited drug coverage options | Some insurance plans may have restrictions on the types of drugs they cover, impacting an individual's access to necessary medications. |
| Lack of transparency | The process of determining drug prices, including rebates and discounts, can be confusing and lack transparency, making it challenging for individuals to understand the true cost of their medications. |
| Impact on health and finances | Not being able to afford necessary medications can have negative consequences on an individual's health and increase financial burdens. |
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What You'll Learn
High copays, deductibles and premiums
In recent years, insurers have increasingly shifted costs to patients through higher copays, deductibles, and premiums. While this is sometimes justified by the notion that it incentivizes patients to seek care only when necessary, it can also discourage people from seeking care when warranted.
A deductible is the amount you pay for most eligible medical services or medications before your health plan begins to share in the cost of covered services. For example, if you have a $2,000 yearly deductible, you will need to pay the first $2,000 of your total eligible medical costs before your plan helps to pay. After meeting your deductible, you will pay a percentage of healthcare expenses known as coinsurance.
Copays are flat fees that you pay at the time of service, such as a set fee when you go to the doctor because you are sick. The amount of your copay is predetermined based on your health insurance plan and can be found on your ID card.
Premiums are regular payments to keep your healthcare plan active. Higher premiums usually mean lower deductibles, and vice versa. This inverse relationship helps balance costs for both the member or employer and the health plan.
The high cost of prescription drugs can be influenced by various factors, including the list price set by the manufacturer, discounts and rebates, and the role of pharmacy benefit managers (PBMs) in negotiating prices with insurers and pharmacies. As insurers ask consumers to pay a greater share of their drug costs, it may be cheaper to pay cash than to use insurance in some cases.
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Pharmacy benefit managers (PBMs)
PBMs are one of the few parts of the prescription drug supply chain specifically dedicated to lowering costs. For example, PBMs negotiate rebates from drug manufacturers so that the insurance plan gets a discount on the drug's "list price". However, PBMs sometimes retain a portion of these rebates for their own profit instead of passing the full value of the rebates on to the insurer. This practice, known as "spread pricing", helps PBMs profit by capturing the difference between the higher payment they receive from insurers and the lower amount they pay to retail pharmacies. Insurers contract with PBMs to receive these discounts and lower prices, but when PBMs engage in spread pricing, some of those cost savings are passed on to patients as higher premiums and cost-sharing.
PBMs also have other incentives to drive up the price of drugs for insurers. For example, their fees and incentives—often a share of total spending on medicines—can encourage the approval of higher-priced drugs. In addition, market concentration among PBMs gives large PBMs substantial control of the market and little competition, allowing them to construct their services to their advantage. For instance, PBMs use formularies to determine which drugs patients can access and can influence which drugs patients choose to take through substantial variation in cost-sharing.
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Competition between drug companies
Pharmaceutical companies also employ tactics to prolong a drug's exclusivity and avoid competition. They often engage in "product hopping", discontinuing a product before its patent expires and shifting patients to a new, patented drug. They also use evergreening to make minor modifications to a drug to preserve their patents. This prevents generic competition and drives companies to focus on modifying existing drugs rather than creating new ones. Patents give companies monopoly power, ensuring prices remain high by reducing competition.
The market power of drug manufacturers also influences their pricing decisions. They frequently set high prices for brand-name drugs and abuse the patent system to maintain exclusivity and prevent generics from entering the market. When generics do enter the market, increased competition should theoretically drive down prices. However, pharmacy benefit managers (PBMs), who act as middlemen in the drug price supply chain, can also inflate drug costs for insurers and consumers. PBMs have incentives to drive up drug prices and promote brand-name drugs, and their market concentration gives them substantial control.
Insurers' bargaining power also affects drug prices. Private insurers can deny pharmacies or manufacturers access to their members, extracting profits and potentially passing on lower prices to consumers. Greater enrolment gives insurers more bargaining power, which can lead to lower drug prices for all their members. However, insurers in concentrated markets may be able to charge consumers a large markup over their costs.
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Discount programs and coupons
Discount programs, coupons, and prescription cards can help patients reduce the cost of prescription drugs. However, they do not always lead to cheaper drugs and may not count towards insurance deductibles or maximum out-of-pocket costs.
Prescription discount cards are available to patients who lack insurance or adequate coverage for their brand or generic medication costs. These cards are usually free and can be used at many pharmacies. They are not a type of insurance but can be a good option for those who otherwise could not afford their medications. The savings vary from pharmacy to pharmacy and card to card.
Retail coupons are another way to save money on prescriptions. Retailers tout these coupons as a way to get common medications for very cheap and without the hassle of insurance. However, for people on high-priced or specialty drugs, these coupons may not offer much savings. Retail coupons cannot be combined with insurance.
Manufacturer coupons are used in conjunction with health insurance. The patient pays a reduced co-pay, but the drugmaker still charges the health plan its normal portion of the drug cost. These coupons usually have cost caps and time limits.
Patient assistance programs (PAPs) are offered by drug manufacturers, non-profit organizations, and individual states to help reduce out-of-pocket costs for prescription drugs. These programs are typically administered through independent charitable organizations or foundations established by drug manufacturers.
Copay accumulator programs allow patients to use copay coupons or patient assistance to reduce their out-of-pocket costs. However, the patient still owes their full deductible if they incur other medical expenses throughout the year. A copay maximizer program is similar, but the coupon value is spread evenly throughout the year, reducing or eliminating the out-of-pocket cost for the prescription.
Medicare beneficiaries can use discount coupons instead of their prescription drug (Part D) benefits, but not both. Medicare-approved programs can help lower prescription drug costs, but they may not always be the cheapest option.
While discount programs and coupons can help reduce prescription drug costs, they do not always result in cheaper drugs. It is important to compare prices at different pharmacies and consider the potential impact on insurance deductibles and out-of-pocket maximums.
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Insurance plans that don't cover required drugs
The cost of prescription drugs can be very high, and there are several factors that contribute to this. While having health insurance is supposed to save you money on your prescriptions, consumers are increasingly finding that this is not the case. In fact, many Americans report that their insurance plans sometimes do not cover drugs they need, and nearly half of them do not fill the prescription. This is more common among lower-income adults, with 49% reporting that their insurance plan would not cover a prescribed drug, compared to 41% of the highest-income adults and 32% of middle-income adults.
There are several reasons why an insurance plan may not cover a required drug. One reason could be that there are generic alternatives available or other less costly alternatives. Additionally, for biological drugs, such as those used to treat autoimmune disorders and cancer, insurers may require you to substitute with another biological drug. Insurers can also deny an exception request for a drug that the FDA has removed from the market due to safety concerns.
If you find yourself in a situation where your insurance does not cover a required drug, there are a few things you can do. Firstly, you can request an exception to get a prescription drug covered. Your doctor will need to submit a supporting statement detailing that the drug is medically necessary and that any alternatives would have an adverse effect. If your request is approved, your insurer must inform you of the cost-sharing amount. While waiting for a decision on your exception request, your insurer must allow you to remain on your current medication.
Another option is to look for prescription drug discount programs that offer savings. These programs can often be found on the websites of drug manufacturers or through GoodRx. Additionally, you can compare prices at different pharmacies and review your options with a pharmacist. Sometimes, the price may be lower if you do not use your insurance. However, keep in mind that paying through a discount program might not count towards your insurance deductible or maximum out-of-pocket costs.
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Frequently asked questions
The cost of a prescription drug can be very high due to the list price set by the manufacturer, which is then negotiated by Pharmacy Benefit Managers (PBMs) who decide on the final price and how much patients pay.
Insurance companies negotiate with PBMs to make prescription drugs available to their consumers. However, insurers are increasingly shifting costs to patients through higher copays, deductibles, and premiums, leading to higher out-of-pocket expenses.
Yes, consumers can compare prices at different pharmacies and online services to find lower prices. Prescription drug discount programs and coupons offered by manufacturers can also help reduce costs. In some cases, paying in cash without using insurance may result in lower prices.
When insurance plans do not cover necessary medications, many individuals may not fill their prescriptions due to the high out-of-pocket costs. This can lead to individuals forgoing needed treatments, which may have negative health consequences.
