The cost of the high copay

The New York’s Times carried a sobering story today on the effect of high co-pays for certain drugs. According to the story, “Health insurance companies are rapidly adopting a new pricing system for very expensive drugs, asking patients to pay hundreds and even thousands of dollars for prescriptions for medications that may save their lives or slow the progress of serious diseases.”

The health plans used to charge flat co-pays — $30, for example — but are now charging a percentage of the total cost. The problem is the total cost, in some cases, is astronomical. One woman now has a copay for Copaxone, used to treat multiple sclerosis, of about $4,000 a year.

Where would the insurance companies get the idea? According to an April 2006 story in the Times, Medicare patients with cancer got stuck with similar costs when the Part D program went into effect.

From time to time, we read about these cases, but how prevalent are they? And are people forgoing treatment because of the copays?

If you are or know someone in this situation, please e-mail me. I’d love to talk to you about your situation.

  • The pharmaceutical insurance companies (more accurately called Pharmacy Benefits Managers, or PBMs) are not the cause of increased co-pays. PBMs, just like any other employer-funded health care provider, are at the mercy of their customers, in this case employers. They compete for customers just like any other business. This is why it is not uncommon when working for a corporation to see your coverage move around each year as they price shop. Your coverage may move from Exrpess Scripts to Caremark to Aetna in three years, for example.

    The PBM’s customer (the employer) is price conscious, just like every other customer in any industry is. They are the ones that actually pay the bill for the pharmaceuticals used by their employees. The price of the drugs passed along to the employers is based on a number of criteria used to determine the amount reimbursed to the pharmacy that dispensed the drugs. These reimbursement rates have a number of factors, but normally take the form of:

    AWP – discount percent + dispense fee + patient co-pay.

    AWP stands for ‘Average Wholesale Price’ and is, in effect, a dollar value assigned to any given drug.

    The reimbursement from the PBM to the pharmacy is the discounted AWP plus the dispense fee, but the total reimbursement includes the patient co-pay. The employer pays the PBM back for the discounted AWP, the employee pays the co-pay. Both together constitute the total reimbursement to the pharmacy.

    A generous plan would look like AWP – 15% + $2.50 with a fixed co-pay of, say, $15. A not so generous plan would look like AWP – 23% + $1.00 with a percentage-based co-pay of, say, 15%.

    As you can imagine, the generous reimbursement plan costs the employer far more than the less generous plan. The employer has to decide what they can afford to provide, and how this will affect their employees.

    The PBM’s job is simply to manage the plan; it is the employer that decides how much they want to pay. Therefore, it is not the PBM that sets co-pays, it is the employer.