As yet another legislative session ends in Colorado with questions surrounding the prescription drug board created to help alleviate high out-of-pocket costs for patients, it bares reflecting how similar questions revolved around a recent visit by U.S. Department of Health and Human Services (HHS) Secretary Xavier Becerra. He stressed the importance of increasing access to care and life-saving prescription medicines, but failed to mention the need for insurers and their middlemen to be part of the solution for Colorado.
Just a few weeks ago in Washington D.C., Becerra identified middlemen as part of the affordability problem, pointing out they “have always skimmed money off the top, and it is a matter of how we can try to keep the resources where they are most needed: with consumers, not with middlemen.”
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Insurance companies and pharmacy benefit managers (PBMs) make substantial profits from the sale of prescription drugs. Insurers and PBMs pocket more than half of every dollar spent on medicines. Where does it go? According to the health insurance industry’s own trade association, America’s Health Insurance Plans (AHIP), a higher percentage of patient premiums go toward insurer overhead and profit than to patient prescription medication. In fact, many insurance companies get most of their profits from their PBM drug benefit business.
Here’s how this happens.
Insurers and their PBMs create health plans and formularies — a list of drugs covered under the health insurance plan — that determine what drugs a patient can access and what their out-of-pocket costs will be at the pharmacy.
For inclusion on these lists, biopharmaceutical manufacturers often offer significant rebates that reduce the costs of drugs to these middlemen. Instead of passing these savings directly to Coloradans, middlemen are allowed to use these rebates to boost their own profits.
In addition, middlemen often require patients pay deductibles or coinsurance based on the full price of the drug instead of the lower, negotiated price for medication the middleman actually pays.
Finally, insurance companies and PBMs too often refuse to cover lower-priced versions of medications that biopharmaceutical companies bring to market. Similarly, PBMs increasingly exclude FDA-approved generic and biosimilar medicines with lower prices from formularies, instead covering the higher-priced brand drugs.
Perverse incentives in our health care system enable insurers and middlemen to favor higher-priced medicines and help them to pocket larger rebates, even if it means higher costs for patients and undermining adherence to safe, effective medicines. Thankfully, numerous experts — including the FTC, a growing number of states and bipartisan leaders in Congress — are looking at this problem, and it needs to be addressed.
Insurers and PBMs frequently claim attempts to reform these practices would result in increased premiums for patients, but this fearmongering is disproven by states already taking action to protect patients. Recently, PhRMA commissioned a study about a 2023 Arkansas law passed that required health plans and PBMs to pass manufacturer rebates directly to patients at the point of sale. The study found no evidence requiring insurance companies and their PBMs to share cost savings with their customers at the point of sale materially increased premiums. So, what is holding Colorado back?
Though Colorado passed a related law in 2023, it doesn’t guarantee rebates and discounts will reach patients at the point of sale. State policymakers looking to help Coloradans save money on prescription medicines should improve the law with language requiring manufacturer rebates and discounts reach patients at the pharmacy counter.
The facts are clear. Health insurers and their PBMs are shifting more costs onto patients through high deductibles and coinsurance, while pocketing savings they could pass on directly to Colorado families.
Until federal and state bureaucrats, including the Colorado prescription drug board, address these middlemen issues, insurers and PBMs will continue to prioritize profits over the health and well-being of Coloradans.
