No End in Sight for Escalating Prescription Drug Spending

Escalator

Prescription drug costs are rising more than 10% a year, which is twice the rate of medical costs increases according to an A.M. Best report. Retail prescription drug spending grew 12.2% in 2014 compared to 2.4% in 2013. Driving the rising costs are increased spending for new medications, such as specialty drugs for Hepatitis C; patents that expired, price increases for brand name drugs, and higher health plan enrollment due to the Affordable Care Act (ACA). Drug spending from private health insurance, Medicare, and Medicaid accelerated in 2014. These costs have affected insurers. Also consumers are paying more out-of-pocket costs.

The increase in drug costs has become divergent to other health care costs. In 2014, U.S. health care spending increased 5.3% to reach $9,523 per person. The cost growth was primarily due to major coverage expansion under the ACA, particularly for Medicaid and private health insurance. The share of the economy devoted to health care spending in 2014 was 18.1%, up from 17.5% in 2013.

The medical loss ratio (MLR) remained relatively flat from 2010 through 2013 in the low 80 percentages before a decline in the past two years to around 75%. But the MLR was more than 10 basis points higher in 2010 to 2015 when prescription drugs were included.

Home Care Costs Rise Again in California

The cost of long-term care from a home health aide has increased in California and nationally, according to a Genworth study. Long term care costs are up in all care settings in California from 2015. Home is where most Americans get long-term care. “Although home care costs are much less expensive than those in facility-based settings, the costs can add up to as much as $54,912 per year in California, which is why it’s imperative for consumers to begin planning now for how they will pay for that care should they need it,” said Tom McInerney, president and CEO of Genworth. He noted that at least 70% of Americans 65 and over will need some form of long-term care and support. The following are key trends in California’s major metropolitan areas:

  • The cost of care in a semi-private nursing home in Los Angeles is 8.8% less than the state average, at $6,935 per month.
  • Home health aides cost 18.52% more in the San Diego metro area than the national average, at $4,576 per month.
  • The cost of private nursing home care in San Francisco is $15,193 per month, which 97.36% more  than the national average.

Millenials Underestimate the Cost of Care

Millennials (ages 18 to 36) are more likely than are non-millennials to underestimate the cost of an injury or illness, including medical, household, and out-of-pocket costs (66% versus 45%), according to a survey by Aflac. Sixty-five percent say they could afford less than $1,000 for an unexpected out-of-pocket expense. Millenials are more inclined to try unconventional ways to pay for out-of-pocket health care expenses, such as borrowing from friends or family and crowd sourcing. The online study surveyed 1,500 benefit decision-makers and 5,000 employees at small, medium, and large companies

Prescription Drug Costs Skewed by Hidden Fees

Most independent community pharmacists consistently encounter misleading and confusing fees imposed by prescription drug middlemen. These fees distort medication costs and reimbursement rates, according to a recent survey by the National Community Pharmacists Association (NCPA). The survey documents two relatively recent trends: direct and indirect remuneration (DIR) fees imposed on community pharmacies and increased copay claw-back fees that affect pharmacy patients. NCPA CEO B. Douglas Hoey, RPh, MBA said, “Pharmacy benefit management (PBM) corporations are inserting costs into the system on virtually everyone in order to fuel their profits and reward shareholders. Government officials and health plan sponsors must insist on greater transparency and oversight of these practices to ensure that plan costs and premiums go to their intended purpose: taking care of patients. NCPA will continue to work with Medicare officials, Congress and others toward that end.”

Community pharmacies are assessed DIR fees that can turn a modest profit into a financial loss. Sometimes it takes weeks or months after medication is dispensed until the patient and pharmacy is reimbursed. The survey reveals the following:

  • 67% of pharmacists say they get no information on how much and when DIR fees will be collected or assessed.
  • 53% say DIR fees are assessed quarterly. Many complain that this lag time makes it difficult to operate a small business and impossible to determine if net reimbursement will cover their costs at the time of dispensing.
  • DIR fees started in the Medicare Part D program, but 57% of pharmacists say they now appear in some commercial plans as well.

Eighty-seven percent of pharmacists said that DIR fees significantly affect their pharmacy’s ability to provide patient care and remain in business. Many pharmacists say that DIR fees can be thousands of dollars each month. According to the survey, members report that the Aetna and CVS Caremark drug plans are the most egregious in this area. The survey also disputes claims that DIR fees are actually pay-for-performance incentives. Pharmacists said that PBM corporations were not transparent about their DIR fee criteria and they assessed DIR fees on pharmacies with the highest quality ratings.

Recently, 16 U.S. senators and 30 representatives wrote to the Centers for Medicare & Medicaid Services (CMS) urging implementation of the agency’s proposed “negotiated drug price” guidance. Proponents say that requiring  Part D plans to report these fees consistently would improve transparency, increase accuracy of the Medicare Plan Finder tool that patients use to evaluate drug plans, and give pharmacists more clarity about their true reimbursement rate.

The survey also addresses copay claw backs on patients. PBMs instruct pharmacies to collect elevated copays and recoup the excess amount – and sometimes more – from the pharmacy. “Patients purchase insurance with the presumption that they will save money using the plan’s designated health care providers. Copay claw backs turn that logic on its head. A copay becomes a full pay – and then some,” Hoey added. The survey also reveals the following:

  • 83% of pharmacists have witnessed copay claw backs at least 10 times during the past month.
  • 67% say the practice is limited to certain PBMs.
  • 59% say the practice occurs in Medicare Part D plans and commercial plans.

PBM corporations sometimes impose gag clauses that prohibit community pharmacists from volunteering that a medication may be less expensive if purchased at the cash price rather than through the insurance plan. In other words, the patient has to ask about pricing. Fifty-nine percent of pharmacists say they encountered these restrictions at least 10 times during the past month. Pharmacists sat that United Healthcare/Optum Rx and Aetna appear to employ copay claw backs most often.

Generic Drugs and Multi-Tiers Dominate Employer Plans

Forty-nine percent of employer-sponsored prescription drug plans have three tiers, and 44% have four or more tiers. That’s an increase of 34% from 2014 to 2015 and 58% since 2013, according to a report by United Benefit Advisors (UBA). “The market will continue to adapt. We’re already seeing the advent of six-tier prescription drug plans,” said Scott Deru, president of UBA Partner Firm Fringe Benefit Analysts. The Affordable Care Act will drive changes to plan design. Employers struggle with balancing cost containment and employee retention. The biggest challenges are for employers that are losing their grandmothering or grandfathering protection.

Healthcare Issues Among Millennials

Transamerica Center for Health Studies (TCHS) finds that Millennials are struggling with the cost of healthcare while facing some health issues at a young age. The survey reveals the following:

  • The most common reason that the 11% of uninsured Millennials didn’t get coverage before the ACA deadline is that they did not know how to apply for insurance.
  • 60% of the uninsured are women; and 68% of the uninsured are unemployed.
  • 21% of Millennials can’t afford their routine healthcare expenses. An additional 26% can afford it, but with difficulty.
  • 70% say that cost is very important when looking for healthcare.
  • 66% of Millennials say that a $200 a month premium is not affordable.
  • Nearly half of Millennials skip care to reduce their healthcare costs.
  • More than half of Millennials have a chronic illness or health condition. The most common conditions are depression (17%), weight issues (15% overweight and 7% obesity), and anxiety disorders (14%).
  • 64% rely on their mom/step-mom as their primary source for health advice and healthcare guidance; 36% rely on their dad/step-dad; and 26% rely on their spouse or partner.

Insurance Commissioner’s Statement on Centene’s Acquisition of Health Net

California Insurance Commissioner Dave Jones issued a statement on Centene’s acquisition of Health Net. The following is a summary of his comments:

This transaction provides an opportunity to bring new capital and resources from a major national health insurer largely outside of California (Centene) to enable a California health insurer (Health Net) to continue to compete and offer consumers additional choices in California’s individual, small group, and large group commercial health insurance market. The conditions for my approval of this merger include the following:

  • Merger costs will not be imposed on California policyholders.
  • Health Net will maintain and grow its commercial line of business. There are growth commitments and investment requirements to ensure that Centene continues to invest substantially in Health Net Life and that both companies seek to expand Health Net Life’s present competitiveness in California’s individual, small group and large group health insurance markets.
  • Health Net Life will continue to offer products through Covered California.
  • Centene and Health Net must provide sufficient networks of medical providers and timely access to medical providers and hospitals.
  • Centene and Health Net must improve the quality of care delivered through their health insurance.
  • Health insurance rates will be developed using the same methodologies used before the merger, but with an agreement that rate increases will be kept to a minimum.
  • An adequate distribution channel for Health Net health insurance must be maintained.
  • Senior management for Health Net’s California operations must remain in California and restrictions are placed on Centene’s ability to re-domesticate or move Health Net out of state.
  • Centene will invest further in California by making a $200 million infrastructure investment by establishing a California call center, bringing new jobs to California.
  • Centene and Health Net will invest an additional $30 million in California’s low and moderate income

Health Net has had declining market share and covered lives in its commercial health insurance business. The merger with Centene gives Health Net access to the capital and resources to compete in a California market that’s dominated by three much larger health insurers (Kaiser, Anthem Blue Cross of California, and Blue Shield of California) and several other national health insurers (United Health Care, Aetna, Cigna).

Costs, Not Utilization Are Driving Children’s Healthcare Spending

In 2014, rising prices were largely to blame for the growth in children’s health care spending, according to a report from the Health Care Cost Institute (HCCI). Health care spending  for children under employer-sponsored plans grew 5.1% a year from 2010 to 2014, reaching $2,660 in 2014. But the use of health care services declined from 2012 to 2014. HCCI senior researcher Amanda Frost said, “The decline in children’s use of health care services is a relatively new trend…While we know that prices have fueled much of the spending growth in 2014, future research should examine whether these higher expenditures are leading to better health care outcomes for children.” The survey also reveals the following:

  • Out-of-pocket health care spending on children increased 5.5% a year to $472 in 2014. This growth was due partly to higher out-of-pocket spending on ER visits, which increased 11.7% annually.
  • The average price for brand prescriptions went from $7 a day in 2010 to $16 a day in 2014.
  • The rise in the average price of brand prescriptions drove spending increases. In 2014, spending for brand prescriptions rose 6.8%. The average price for generic prescriptions remained stable.
  • In 2010, the average price of a surgical admission for a child was $35,423, and jumped to $53,372 in 2014.
  • ER visits accounted for 8% of health care spending for children in 2014.
  • The average price of an ER visit increased $298 from 2010 to 2014. At the same time, the number of ER visits dropped from 181 visits per 1,000 children in 2010 to 177 visits in 2014.
  • In 2014, there were 3,228 doctor visits per 1,000 children, down slightly from the previous year.
  • Doctor visits accounted for 12% of spending in 2014 ($339 a child), and made up the largest share of health care spending for the average child.

Are Healthy Employees Unfairly Burdened?

The Affordable Care Act requires healthy employees to pay the same insurance premiums as their unhealthy coworkers, even though they account for a significantly lower proportion of their employer’s health care spending. Many see this imbalance as a ripoff, according to a video report by SelfHelpWorks.com. The following is a summary of the video report and comments by Lou Ryan, founder and CEO of behavior change firm SelfHelpWorks:

Health insurance costs have skyrocketed in recent years, reaching an average of $6,251 for single coverage in 2015 according to a Kaiser Family Foundation/HRET employer survey. Many employees feel the high insurance rates are a ripoff. The biggest cost driver is chronic disease, which accounts for 86% of the nation’s health care costs according to the CDC. As chronic disease creeps up in an organization its health care costs are driven upwards, resulting in higher premiums and fewer benefits for everyone.

Ironically, most chronic disease can be prevented or reduced by simply making healthier lifestyle choices. Yet the Affordable Care Act essentially requires employees of the same age and gender to pay the same rates regardless of health status. This penalizes employees who work at staying healthy, causing them to view their health insurance as a ripoff. Employers have implemented corporate wellness programs. But results are generally poor when it comes to creating sustained behavior change among those who need it most. While these people want to break free of unhealthy habits like junk food, tobacco or excess alcohol, the vast majority simply find it impossible to do so for any length of time. The problem is that the issue is not being tackled correctly, Behavior begins in the mind, not the body. To view the 3-minute video report, visit selfhelpworks.com and scroll to the bottom.

It’s Gotten Harder for Hispanics to Afford Healthcare

An increasing number of Hispanics are finding it harder to afford healthcare. The percentage of those without health insurance is up slightly over a year ago, but a majority still have a favorable view of the Affordable Care Act (ACA). For the first time more women are insured than men, according to a new survey by the Florida Atlantic University Business and Economics Polling Initiative. “The increased healthcare costs compared to last year is probably making it harder for Hispanics to afford health insurance,” says Monica Escaleras, director of the Initiative.

More than 43% of respondents in the April poll say it is harder to afford healthcare, up almost 6% from a similar survey in March 2015. Only 13.7% say it’s easier, down more than 9% from last year. The number of uninsured increased 5%, from 7.8% in March 2015 to 12.8% last month. However, Hispanics have still benefited since the enactment of the ACA, resulting in 4 million adults gaining coverage, according to the Department of Health & Human Services’ March 2016 report. Hispanic women are increasing their access to health insurance through the ACA with 52% saying they have government healthcare coverage compared to only 23.3% of men.

According to an analysis by McKinsey & Company, premiums for the lowest-cost ACA plans are expected to increase 10% to 13% in 2016. More than half of the government-sponsored nonprofit insurance co-ops have failed, leaving more than 750,000 families and individuals scrambling for new health insurance. Fifty-one percent of Hispanics gave Obamacare a favorable rating, compared to 35% unfavorable.

Last Updated 11/18/2020

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