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Capping Coinsurance on Pricey Meds -- Is This the Future of Health Insurance in America?

By Todd Campbell - Jun 24, 2015 at 4:04PM

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California's Covered California marketplace will limit coinsurance on expensive medicine beginning in 2016.

Covered California's decision to limit the amount of money that Californians pay for expensive medicines -- including cancer treatment -- shifts costs back to insurers, further forcing them to either negotiate lower prices with drugmakers, or take a hit to their bottom lines. The decision by this agency, which regulates California's state health insurance marketplace, limits a patient's coinsurance level to a fixed amount of money per prescription and could have wide-ranging implications for patients, insurers, and, ultimately, drugmakers.

A broken system?
In a bid to protect profit margin and reduce annual insurance rate increases amid the approval of a flurry of ultra-expensive new medicines, health insurers have been steadily increasing coinsurance levels. That surge in coinsurance, or the percentage of care that must be paid for by the patient, is pressuring cash-strapped patients, such as seniors who are struggling to afford healthcare for common diseases.

For example, hepatitis C affects roughly 3 million Americans, and newly-launched drugs that offer cure rates north of 90% have been priced at more than $1,000 per pill. Additionally, the Sloan-Kettering Memorial Cancer Center reports that a bevy of newly-approved cancer treatments have been priced at $10,000 per month, or more, in the past year.

The rising cost of new drugs is a big reason why nearly half a million Americans are paying coinsurance of at least $50,000 annually for their medication, according to pharmacy benefit manager Express Scripts.

Given the impact of the rising cost of drugs on a patient's income and savings, it's not surprising to learn that many Americans are cutting corners, such as splitting pills, or skipping treatments, in order to make ends meet. However, those money-saving decisions can reduce how effective a medicine can be, and lead to a host of other medical complications that can ultimately be life threatening, not to mention even more costly.

Changing the game
Although Covered California can't demand that drugmakers charge less for their medicines, the agency can mandate the rules that apply to insurers offering healthcare insurance through the state's exchange. The agency hopes that by capping coinsurance for patients at $150 or $250 per prescription, per month, it can significantly reduce the burden of pricey medicines.

The new coinsurnace price cap will begin with plans covering patients next year, and those coinsurance cap levels will only apply to silver or gold medal plans offered through California's health-insurance exchange. Patients with bronze level plans will have a higher coinsurance cap on these medicines of $500.

Overall, California's decision will only apply to the 2.2 million Californians who buy their coverage through the Covered California website; however, legislation has been introduced in California that would expand this coinsurance cap to include employer-based plans, too.

Digesting the impact
California's coinsurance limits could be a big boon for patients, given that medical costs are the leading reason behind personal bankruptcy. However, coinsurance limits do present a problem for insurers because most of them operate on single-digit profit margins. For example, the nation's largest insurer, UnitedHealth Group, provides insurance to tens of millions of Americans, and its operating profit margin was just 8.07% during the past 12 months.

If coinsurance limits are embraced in more states, then insurers may end up increasing monthly premiums to make up for the shortfall. A margin squeeze resulting from coinsurance limits could also lead to consolidation among insurers hoping to eliminate overlapping costs, or it could lead to a standoff between insurers and drugmakers that might result in more hurdles being put in place to limit access to expensive medicines. 

Drugmakers may also feel the sting if coinsurance limits result in legislation that directly impacts industry pricing, or if drug rationing shrinks prescription volume. Regardless, the creation of coinsurance limits for medicine is something that warrants watching because it could end up significantly altering how Americans get -- and pay for -- their medicines.

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