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Medical Pharmacy Benefits

By June 1, 2021Commentary

This is another report on drug utilization and spending trends.  For the typical health plan, traditional oral medications were covered under a pharmacy benefit, which typically had a separate copayment for the consumer.  With the advent a couple of decades ago of more complex medications that had to be injected or infused, and required some medical oversight for administration, an increasing amount of drug spend went to these “specialty” drugs and they were typically reimbursed under the health plan’s medical benefits, because of the need for clinician involvement.  This has led to pricing abuses, especially by large health system outpatient departments.  These providers would buy the drug, at an already high price, and then add absurd amounts of margin, raising both the price to the health plan and the copayment, coinsurance or deductible amount for the patient.  This “buy and bill” model has been very profitable for physicians and health plans and very bad for utilization and spending control.  This report from Magellan Health, which helps manage these medical pharmacy benefits for payers, gives you a good sense of how much money goes into these drugs, which often costs tens of thousands of dollars for a course of treatment.  (Magellan Report)

A common way of describing health spending by a health plan is how much a service or product costs per person, or member, per month.  The sum of all these per member per month costs across all services and products is how a health plan determines their premium.  From 2009 to 2019 the pmpm cost of these medical benefit drugs rose 90%, to almost $33.  That amount has to be incorporated into the premium for every person, every month.  Just for medical benefit drugs.  If you spin through the report, you will see lots of information on how costly these drugs are.  Drug companies, and providers, are very good at thwarting attempts to even modest utilization or pricing controls, which would keep premiums down.  But if you wonder why health plan premiums are so high and why they keep going higher, this category of spending is the number one source of those increases.

Join the discussion 2 Comments

  • Mike M. says:

    “the pmpm cost of these medical benefit drugs rose 90%, to almost $33 … if you wonder why health plan premiums are so high and why they keep going higher, this category of spending is the number one source of those increases.”

    I don’t understand this. Back when I was on Obamacare, my monthly premiums rose by more than $33/month every year. And the lowest Medicare Part B premiums, highly subsidized, are $148.50/month. It seems to me like an increase of $30/month spread over 10 years is chicken feed.

  • Kevin Roche says:

    This is just one part of the health care premium, but it has been by far the fastest rising piece. Your overall premiums rising $33 a month, if it was family coverage, wouldn’t necessarily be a large percent increase. And your exchange coverage likely wasn’t a very comprehensive benefit package, like employer coverage is

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