Amid Rising Health Care Premiums, Misguided Legislation Would Raise Costs Even Higher
As we enter the stretch run for 2023, a recent survey from KFF should serve as a stark warning for misguided legislation that purports to lower prescription drugs.
The KFF survey found that the average cost of health care premiums for employer-sponsored health insurance increased seven percent from last year – driven by inflation and an increase in post-pandemic costs of care. The increase in commercial market premiums is concerning, but there is a strong possibility that costs could be further exacerbated if Congress continues to pursue so-called PBM reform legislation.
A new analysis by health policy researcher Alex Brill examined one proposal known as “delinking” in the commercial market that would completely undermine market-based incentives for PBMs to achieve savings, while taking choice and flexibility away from employers in deciding how to contract for PBM services. It found that implementing “delinking” in the commercial market would increase premiums for Americans by as much as $26 billion. Most of that increase – up to nearly $22 billion according to the analysis – would go directly to increasing drug company profits.
For the Medicare program, another analysis from University of Chicago Economist Casey Mulligan examined “delinking” in the Medicare Part D program and found that the policy would cost patients and payers up to $18 billion annually in increased premiums and higher taxes.
Amid this troubling news, pharmacy benefit companies, also known as PBMs, keep delivering on their work to help employers and plan sponsors offer affordable benefits to patients. While more than 60 cents of every health insurance premium dollar goes to hospitals, doctors, and outpatient care, PBMs have kept the share that goes toward prescription drugs down to about 22 cents. All in all, the work of our industry saves an average of $1,040 per person every year.
PBMs deliver by going head-to-head with drug companies to negotiate significant discounts on prescription drug costs. These discounts are passed directly down to the employers who decide how to use the savings to help their more than 275 million enrollees save money. PBMs offer and encourage their employer clients to consider any number of options to facilitate benefit designs that result in lower out-of-pocket costs while maintaining affordable premiums.
The policies on the table do not address the prescription drug affordability problem that exists in this country. A recent JAMA article echoed a similar caution, as a team of professors examined proposed policy reforms and cautioned, “without incentives tied to rebate negotiation or reducing pharmacy payments, administrative fee-based contracting may not generate the same amount of savings to the plan sponsor.”
The authors further concluded that pending legislation may be misguided, writing “it is important to distinguish between market failure problems that require regulatory intervention vs initiatives that are designed to serve the financial interests of other market participants (eg, pharmacies, pharmaceutical manufacturers).”
Not only will these policies raise costs, they risk meddling in a market where employers report strong satisfaction with the options they have for prescription drug benefits. A recent employer group survey found that 93% of employers say it is essential to have flexibility and a range of choices in how they offer prescription drug benefits to employees. 86% of employers also said that they value a range of options in how they pay PBMs for their services and expertise.
Policies restricting pharmacy benefit companies and the rebates they secure from negotiations are based on a false and disproven premise that rebates drive drug companies’ price setting decisions. Research has shown that there is no correlation between rebates and drug prices – drug companies alone possess complete autonomy over how to set prices. That’s why PCMA has called on drug companies to lower prices of prescription drugs across the board to make medicine more affordable for all Americans. Drug companies could have a tremendous impact in making life-saving medications more affordable if they simply lowered their prices.
Despite numerous analyses that demonstrate how targeting pharmacy benefits risks increasing costs which can result in higher premiums, Congress has continued to focus on the wrong approach to addressing the drug pricing crisis by singling out the one entity that lowers prescription drug costs.
Instead, we urge lawmakers to focus on curbing the egregious anti-competitive tactics of drug companies that are increasing the cost of health care for patients, ensuring drugs can compete fairly, promoting generic and biosimilar competition, and supporting a competitive Medicare Part D prescription drug market. Our industry stands ready to support in any way we can to help Congress enhance competition and enable pharmacy benefit companies to further drive down drug costs.
JC Scott is the president and CEO of the Pharmaceutical Care Management Association, which represents America’s pharmacy benefit companies.
