Drug Spending for Different Payers

By June 4, 2019 Commentary

While the portion of total health spending represented by prescription medications has risen rapidly in recent decades, it still is only around 15% and relative growth rates have plateaued in recent years.  But because drugs are an omnipresent form of disease treatment and because patients have a heightened sensitivity to drug prices due to extensive cost-sharing, a lot of attention is brought to bear on the question of appropriate drug spending and prices.  A Kaiser Family Foundation brief explores relative costs for commercial, Medicare and Medicaid payers.   (KFF Brief)   In 2017 around $333 billion was spend on medications, with 42% paid for by private health plans, 30% by Medicare, 10% by Medicaid and 14% was paid directly by patients.  Drug costs were 13% of total health spending by private health plans, 15% of all Medicare spending and 6% of all Medicaid expenses.  A few drugs account for a significant amount of spending for each payer type.  The top 50 medications, as ranked by spending, represented 39% of private plan spending, 43% of Medicare spending and 41% of Medicaid costs.  But these medications accounted for only 8% of commercial payer prescriptions, 15% of Medicare prescriptions and 8% of Medicaid ones.  The top 5 drugs by spending alone represented over 10% of all drug spending for each payer type.

A hepatitis C drug, Harvoni, was the single largest cost medication for Medicare and Medicaid; a rheumatoid arthritis one, Humira, was for commercial plans.  These drugs account for multiple billions in annual spending.  As you might expect given  age and other factors that differ among the payers’ covered populations, there is some variation in which medications account for a significant amount of spending for each payer type.  Only Harvoni and an insulin product were among the top ten drugs ranked by spending for all three payer types. For Medicare, the top ten list included more cancer and lipid-lowering compounds.  For Medicaid, more psychiatric medications were on the list.  In terms of number of prescriptions, antibiotics and asthma drugs are most common in commercial health insurance and drugs for high blood pressure and high cholesterol for Medicare.  Over 9 million people, for example, have a Medicare-paid prescription for one statin, a lipid lowering drug.  Fortunately, many of the most commonly used medications have generic equivalents.   For each payer type, there were a number of medications which had annual per person treatment costs in the tens of thousands of dollars and the patient share of these costs was not insignificant, but the actual average out-of-pocket annual spending on drugs per person in both Medicare and private health plans has dropped over the last ten years, contrary to what you might believe.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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