Health Insurance HQ: An Update on the Health Care Landscape

Health Insurance HQ distills the current political activity around health care into a brief, monthly educational update to help you become a more active consumer and citizen. Our experts in the field and others in our community are here to provide you with plenty of handy resources to help you use your voice and your vote to make a difference. 

Dear Friends, 

The cost of health insurance has been an evergreen subject in the last few years—from the cost of premiums and deductibles, to the cost to the government (and taxpayer) of programs like Medicaid. And yet, what drives these costs? An important driver is the cost of pharmaceuticals in the U.S. We spend an enormous amount of money on prescription drugs—$450 billion in 2016 alone, according to a report by QuintilesIMS Institute, a firm that tracks the pharmaceutical industry.

Why?

Drug Companies Can Charge Whatever They Want
There are no federal rules or laws that regulate what a drug company can charge for a drug. Drug companies like to say that they price their drugs based on a number of factors, including the expense involved in developing it. But drug companies may spend up to twice as much or more on marketing and promoting their products—including advertising—as they do on research and development. Consumer Reports reviewed the 2015 annual reports of 10 of the world’s largest drug companies and found that all spent more on marketing and administration costs than research and development. For example, “Johnson & Johnson and Pfizer spent about 13 percent and 16 percent on R&D, respectively. At the same time, both companies spent about 30 percent of revenue on selling, marketing and administrative expenses.”

Another explanation of the pharmaceutical industry is that prices are linked to value. But this can’t be true if you look at drugs side by side—generic drugs can be up to 90 percent cheaper than their brand name equivalents. It can’t be true if prices are rising faster than benefits—for example, the price of cancer drugs has risen five times faster than the benefits they deliver. And it can’t be true if the prices in other countries for the same drugs are much, much lower. Is cost no longer linked to value as soon as the drug leaves U.S. shores? Why then, does the U.K. have an advisory board that calculates the value of a medication by taking into account a drug’s efficacy, safety and total benefits to the health care system and to society at large, whereas the U.S. does not?

Keep in mind that the American taxpayer pays a large percentage of research and development costs. According to a 2015 study published in the Journal of the American Medical Association, about 38 percent of all basic science research is paid for with tax money through federal and state governments.

The truth is, drug companies charge whatever they think the market will tolerate—and with lifesaving medication, that can be a lot.

Insurance Companies Are Passing Along The Increased Cost To You
In order to maintain their profit margin, insurance companies are passing along the increased cost of medications to the consumer by raising your premiums, deductibles and cost-sharing.

Everything Old Is New Again
Drug companies reformulate or repackage their medication in order to charge more. For example, they may create an extended-release version, or change the delivery method (from tablet to injectable). The perfect example of this is insulin; it’s been around for almost 100 years, and yet, there is no generic version in the U.S. Drug companies keep changing it just enough so that the federal government grants a new patent, which means they can continue to charge brand-name prices.

Specialty Drugs Are Especially Expensive
Super-expensive “specialty drugs” like Humira, which treats rheumatoid arthritis, “account for less than one percent of prescriptions in the U.S. but represent about one-third of total drug spending by consumers, employers and the government, which all purchase medications.” Many specialty drugs are biologics, which start out as a living organisms derived from other organisms, such as bacteria or yeast, which makes them much more difficult to copy than conventional drugs.

Avoidable Drug Waste
In 2016, the New York Times wrote an excellent piece on the extra revenue generated by avoidable pharmaceutical waste: “The federal Medicare program and private health insurers waste nearly $3 billion every year buying cancer medicines that are thrown out because many drug makers distribute the drugs only in vials that hold too much for most patients.” For example, “In February 2015, Merck introduced 100-milligram vials and stopped selling Keytruda [a new drug for lung cancer and melanoma] in 50-milligram vials, ensuring far larger amounts of waste… Under its present dosing, Merck would earn $2.4 billion over the next five years from discarded quantities of Keytruda.”

What Consumers Can Do
The Artists Health Insurance Resource Center has a short e-learning tutorial on 10 ways you can save on drug costs. The top 3 are:

Shop around. If you pay out of pocket, check www.GoodRx.com to compare prices at various pharmacies and see if there’s a discount coupon for your medication.

Take advantage of pharmaceutical assistance programs. If you are uninsured or your medication is not covered by your insurer, and your income is low to moderate, you may be eligible for free or very low cost medication through the pharmaceutical manufacturer. To find out if your medication has an assistance program, visit www.Needymeds.org.

Ask about generics or “therapeutic substitution”—a different drug that works as well. Also, if your drug has been dropped from your insurer’s formulary, your doctor may be able to appeal for an exception to cover the drug anyway.

What The Government Can Do
The U.S. government is the largest purchaser of drugs in the country for programs including Medicare and Medicaid, as well as for veterans and the military. It could:
• Approve more generic versions of common drugs.
• Allow importation of drugs from legitimate Canadian and European sources, which currently is illegal.
• Set a limit on a consumer’s out-of-pocket drug costs.

Although bills have been introduced in Congress (check out the Drug Pricing Lab for an overview of all proposed legislation), including bills that address all of the above ideas, most of the action on lowering drug prices is taking place at the state level. For example, California and Vermont have proposed cost controls, and Maryland is proposing a rate-setting commission for certain types of drugs. To follow what’s happening in your state, check out the National Academy for State Health Policy’s site on current state legislation, and contact your elected officials to let them know what you support, and what you don’t.

The issue of inflated drug prices is solvable. A majority of Republicans, Democrats and independents favor policies such as allowing the federal government to negotiate with drug companies to get a lower price on medications for people on Medicare (92percent) and making it easier for generic drugs to come to market (87 percent). Let’s get to work on making these ideas a reality.

Yours in good health,

Do you work in performing arts and entertainment and have questions about health insurance? The Actors Fund provides assistance nationally. Contact our regional office closest to you to speak to a counselor.

New York City
917.281.5975

Los Angeles
855.491.3357

Don’t forget to use the resources section of our website. It contains tools to help you make decisions about your health insurance, including new online tutorials on how to choose providers and how to read an Explanation of Benefits. In addition, you’ll find an updated Stage Managers National Health Directory, our national online directory of health care providers recommended by industry professionals that can be used by theaters and touring companies. For these resources and more, visit actorsfund.org/HealthServices. You can also find out more about enrollment assistance and upcoming health insurance seminars near you!

Photo © Kimberly M. Wang / eardog.com