SOUTH PORTLAND — For the past 30 years I have worked as an independent insurance broker in Maine, selling group and individual health plans.
About 25 years ago, the insurance industry came out with the first widely distributed prescription drug cards. Many people may remember the PCS card, one of the earliest. It was the industry’s attempt to eliminate the paper processing of trivial claims that these prescriptions usually represented.
The first cards on the market allowed you to get your prescription filled at a cost of $2 for a generic medication and $5 for a brand-name drug. How quaint.
Unfortunately, and apparently unforeseen, we had created a system in which the buyer did not care what the product cost, because no matter whether their brand-name medication had a price of $10 or $50, their cost was $5. This led not only to drug price increases well beyond regular inflation, but also to a country increasingly enamored of prescription drugs. Usage rates shot up exponentially.
Fast forward 25 years, and television is jammed with ads for various brand-name medications. You almost can’t watch TV without seeing an ad for Humira (used to treat inflammatory diseases such as rheumatoid arthritis and plaque psoriasis) or its chief competitor, Enbrel.
And when those well-produced ads flash on the screen, few take the time to think what this might be costing all of us, or costing our health care system. Unfortunately, it’s a lot.
According to the pricing website goodrx.com, the Portland-area price of Humira is $3,532.31 a month at CVS. That works out to $42,388 a year (that’s enough for a new, well-equipped BMW 3 with money left over to pay sales and excise taxes). Humira and Enbrel are not alone – there are numerous drugs being advertised at equally jaw-dropping prices. Some make their cost pale by comparison.
All of the pharmaceutical companies, of course, are quick to point out the tremendous research and development costs of startup drugs, and the fact that some never make it to market.
True, but here is an odd thing: Humira and Enbrel are made by two entirely different drug companies. There would have been different paths and associated costs to get their drugs through the long process and to market. And yet, according to goodrx, Enbrel sells at CVS for $3,533.15, just 64 cents a month more than Humira. How can that be?
Because there are no limitations in place to prevent it. Six months ago, both drugs were selling for $2,800 a month at CVS. They sell more, they charge more, and typically in business it should be just the opposite.
Medicare has long put limits on what it pays to doctors who accept Medicare “assignment” (i.e., what Medicare is willing to pay). The program even put a limit of an additional 10 percent on doctors who don’t accept assignment.
More recently the Affordable Care Act put limits on insurance company profits. In short, for every premium dollar an insurance company takes in, it must collectively pay out 80 to 85 cents for patient care, or pay a rebate to consumers to get it back under the threshold. Somehow, though, the drug companies can charge whatever they want, whatever the market will bear.
The problem is, we can’t bear it any longer. Tying the threads together in simple terms: Take the case of a company with 100 employees, all with single coverage at an annual cost of $5,000 per employee. That’s an annual premium of $500,000.
If only five employees get lured into taking Enbrel or Humira, that company’s claim experience is at 42 percent. No one has had a day in the hospital, no one has had a surgical procedure, no one has seen a physician, and yet the group has used half of the 85 percent that it can spend before rates will go up.
In practice, the 85 percent requirement under the ACA applies to blocks of an insurance company’s business, but the math works the same and the health care system cannot sustain it. People can’t afford it, and if left unchecked, it’s a prescription for our health care system’s collapse. Literally.
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