Report: Capping Copays Will Raise Premiums and Drug Prices

Proposals are “unnecessary and ill-advised,” expert says

Drug therapy represents the greatest value in the U.S. health care system––but if policymakers limit cost-sharing, many drug prices will skyrocket, according to a new report from the National Center for Policy Analysis, a nonprofit, nonpartisan public policy research organization.

“Because of the increasing use of drug therapy, out-of-pocket drug costs have become a political issue in Washington and across many states. To lower consumers’ drug bills, some policymakers have proposed limits on patients’ copays,” according to author Dr. Devon Herrick. But these proposals and laws are unnecessary and ill-advised, he contends.

“The share of prescription costs Americans pay out of pocket has been falling for decades; most prescription drug costs are paid directly by drug plans sponsored by insurers and health plans,” he writes. “State and federal proposals to cap drug cost-sharing could actually lead to higher drug prices [and] higher premiums, and force millions of Americans to pay more, albeit indirectly.”

Drug-makers are increasingly developing costly specialty drugs, according to Herrick’s report. Only approximately 1% of drugs fall into this category, while about 11% are name-brand drugs. Because of the higher costs for specialty medications and branded drugs, health plans must carefully manage the procurement and dispensing of these medications.

To lower consumers’ drug bills, some policy-makers have proposed limits on patient copays. Nearly one-third of states have either passed legislation or introduced bills that seek to limit cost-sharing:

  • So far, seven states have passed legislation limiting cost-sharing for drug therapies.
  • An eighth state, California, passed a law, due to take effect in January 2017, that limits copays to $250 for a 30-day outpatient prescription ($500 for people with high-deductible Bronze plans).
  • Montana also caps copays at $250 per prescription. Laws in Delaware, Maryland, and Louisiana limit cost-sharing to no more than $150 per a 30-day supply.
  • A law in Vermont limits copays to no more than $1,300 per year (plus the deductible), while in Maine copays cannot exceed $3,500 per year.
  • It is against the law in New York State for health plans to place specialty drugs into tiers that have higher cost-sharing than name-brand drug tiers.
  • At the federal level, Senator Ron Wyden (D-Oregon) has proposed a bill that would eliminate all prescription drug cost-sharing for Medicare beneficiaries above a certain threshold (currently $7,500 per year).

But these proposals and laws are unnecessary and ill-advised, according to Herrick. The Manhattan Institute estimates a $250-per-month cap on out-of-pocket drug spending would benefit only approximately 1% of Americans who take any prescription drug in a given year. Further, nearly half of the benefits from a copay cap would accrue to families earning more than four times the federal poverty level. Such a law would also raise premiums for all policyholders and facilitate drug price hikes, the report adds.

The purpose of cost-sharing is to align consumers’ incentives with the pharmacy benefit manager (PBM) and drug plan sponsor, and encourage the use of preferred drug therapies. Drug plan formularies impose little cost-sharing for generic drugs because they are a good value, Herrick writes. But PBMs often require higher cost-sharing (and copays) for patients who prefer to take more costly name-brand drugs—especially brand drugs for which cheap, effective substitutes exist. Some drug plans also have tiers for costly specialty drugs.

Drug plans impose little in the form of cost-sharing, according to the report. Nearly one-fourth of retail prescriptions are fully covered by insurers and require no copayment by the patient. Just over three-fourths of prescriptions cost the patient $10 or less. By contrast, less than 8% of prescriptions require copays of more than $30, and just over 2% require copays of $70 or more.

Cost-sharing is a method that employers, insurers, and drug plans use to hold down drug spending and keep premiums affordable, by giving enrollees an incentive to ask for generic drugs when appropriate, Herrick observes. Cost-sharing also provides drug makers with an incentive to limit price hikes or risk alienating customers who could see their out-of-pocket costs rise.

“If policymakers are successful in their attempts to limit cost-sharing, you can bet there will be drugs whose prices reach the stratosphere,” Herrick warns.

Source: NCPA; September 2016.