How Rising Drug Prices Affect Your Insurance

The cost of prescription drugs has been increasing over the past years across the United States. Its impact steadily affects all healthcare industry sectors, especially health insurance policies. Employers are finding it difficult to get the value of what they insure, therefore passing the cost of drugs to employees.

In a recent study by AHIP, over 20% of commercial health insurance plans cover Prescription Drug costs, while a mere 10% only covers doctor visits. A scanty 3.35 goes to emergency room costs. These effects are affecting SMEs more as they have smaller staff. Such employees wound up paying more for drugs since the company does not have enough capacity to negotiate with pharmacy benefit managers (PBM) and health insurance providers.

Most countries have a centralized healthcare system that plays a significant role in dictating drug prices and ensuring no company gets outrageous profits. However, the system in the United States is set so that prices are made by the PBMs, manufacturers, and insurance companies. Most mid-sized companies are forced to look for alternative companies to offer PBM technology and solutions.

Price negotiations happen at the back end, and patients and physicians are only involved when the price has already been set. Let’s look at these three stakeholders who heavily affect prescription drug prices.

Pharmaceutical companies are involved in every process of making drugs, including pricing. Unlike most businesses, how these drugs are priced is a silently discussed topic. However, the big pharmaceutical giants insist on R&D costs as a significant driver of drug pricing.
Pharmacy benefit managers act as brokers on behalf of insurance companies or any employer. They discuss the upfront amounts with pharmaceutical companies, including rewards for specific drugs. This may lead the PBMs to focus more on prescription drugs with more rebates, increasing demand. These agreements are always locked and key, so knowing if the deal benefits the patients is hard.
Health insurance firms set the co-payments, approve medical treatments, and work with PBMs to price various prescription drugs. They primarily determine prices based on what gives the company huge margins. This is not an ethical model, as crucial drugs may be in shortage just because they don’t sell as much as over-the-counter drugs.

Also, R&D costs have been shown to affect drug prices. The big pharmaceutical companies spend millions yearly on machine R&D, which adds to the overall cost of any drug they develop. Research by BMJ Group showed that the average price of launched prescription drugs jumped from $1,400 a year in 2008 to over $150,000 a year in 2021. This massive increase purportedly also affects the price of old and common drugs.

The country has made several efforts to reduce costs. For instance, some states have allowed the importation of prescription drugs and other medicines from outside countries like Canada, where production costs are significantly cheaper.

There are plenty of alternative PBM companies offering better deals on prescription drugs. In doing due diligence, these companies ensure they navigate the negotiation on behalf of smaller companies to ensure the prices stay low.

Larger companies with a vast employee base have better negotiation power in pricing deals, especially when the insurance companies know they will benefit from that deal. The companies can advocate for policy changes and involve oversight programs to ensure the prices are set fairly.

In conclusion, the high cost of prescription drugs continues to affect employers, health insurance firms, and patients negatively. Even as the country puts efforts into reducing these costs, there is more to be done to ensure that prescription drugs are affordable to everyone.