Insurers Get Rebates When Consumers Pay Full Price for Medications
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Insurers Get Rebates When Consumers Pay Full Price for Medications

Consumers with high-deductible health insurance plans often pay full price while insurers get a rebate

October 5, 2016

Millions of patients in the United States with high-deductible health insurance do not know that the companies that manufacture their medications offer rebates that could cut out-of-pocket costs in half—and that those rebates are nearly always paid to insurance companies and drug-benefit manufacturers.

"More than $100 billion a year"

"Behind the scenes," reports Bloomberg, "drugmakers gave insurers and benefit managers more than $100 billion a year in rebates and other discounts to reduce the skyrocketing cost of drugs for diabetes, asthma, arthritis and allergies."

When an insurer actually pays for a medication, no one has a problem with it when the insurer gets a rebate check. The problem arises when insurers get rebate checks for medications paid for out of pocket by consumers.

This situation is becoming more common as more people are enrolling in insurance plans with high deductibles. According to the Kaiser Family Foundation, one fourth of employees participating in employer plans have to pay the full cost of their medicines before their coverage will kick in—an increase from 17 percent of workers in that situation in 2011. In these instances, insurers get the rebates even though they have not paid a penny.

As pharmaceutical companies have been coming under heavy fire from Congress for increasing the price of even old medications by as much as 5,000 percent, this rebate practice undermines the argument put forth by the industry that the discounts it provides to consumers protects them from high list prices.

Contractual Requirements

Bloomberg contacted eight drug manufacturers, including Novo Nordisk, Merck, Pfizer, and Mylan regarding this issue. All eight said that the contracts they have with benefit managers and insurers generally require that any rebates be paid to them on all prescriptions—even when it is the patient paying for the medication due to a high deductible.

Take the case of a $600 prescription, for instance. Adam Fein, president of Pembroke Consulting, says that in such a case as this, "if the patient has a high-deductible plan, then the insurer could pocket the $300 rebate and not share it with the patient."

Drug makers like Mylan claim that the situation reflects changes in the insurance market that are outside their control. The Kaiser Family Foundation estimates that the average deductible for an employee has quadrupled to $1,221 over the past 10 years. Consumers who got their insurance under the Affordable Care Act, also known as Obamacare, frequently have to pay $3,000 or even more before their insurance will kick in.

"We regret that our programs did not keep pace with the evolving health-care system, and, as a result, some patients are facing out-of-pocket costs that were never intended, potentially leading to stress upon them and their families," Mylan wrote to Congress last month.

Mylan has claimed that it discounts its EpiPen—an emergency allergy injection device—by more than 50 percent on average, and Novo Nordisk claims to offer a similar cut in the price of its U.S. drugs. Although the majority of patients do not pay the full cost of their medications, "a small but growing" number now have to do so due to increasing deductibles, said Novo spokesman Ken Inchausti.

Generally, rebate money that comes from pharmaceutical companies gets lumped together into payments made every quarter, payments that can add up to hundreds of thousands of dollars. According to Glen Perry, director of pharmacy services for nonprofit insurer Blue Cross Blue Shield of Michigan, lower premiums can result from such rebate checks. Christine Cramer, spokeswoman for CVS Health Corp., said that her company gives "the vast majority of rebates" back to those clients, while Express Scripts Holding Co. claims that it gives back about 90 percent of rebates to its customers, keeping only about 10 percent as its compensation.

The Solutions

Meanwhile, employers and insurers have figured out an easy way to avoid the issue entirely for many of their employees and customers: make exempt from deductibles medications for chronic conditions such as diabetes.

There is another solution, however, that seems even simpler: break up the rebate checks and send the money back to the patients who actually paid for the medications. Why not just do this?

Representatives of corporate health plans claim that doing so would not be practical since they only receive the rebates months after employees actually purchased the drugs.

"It would be very difficult to figure out how to administer that," said Laurel Pickering, chief executive of the Northeast Business Group on Health.