Health Insurance Carriers Are Prescription Drug Pushers

Health Insurance Carriers Are Prescription Drug Pushers. Or alternatively... how pharmaceutical payments to PBMs escape the Medical Loss Ratio.

For an example fully-insured group of 100 employees on the plan, the employer will pay approximately $1M per year in health insurance premiums.

85% of that premium must be spent on healthcare and 15% can be kept by the health insurance company for administration and profit margin.

However, prescription drug spend is approximately 20-25% of total healthcare spend. 25% of 85% is 21%... therefore, 21% of premium dollars are spent on prescriptions.

Approximately 25% of all drug spend comes back to the health insurance carrier in the form of pharmaceutical company 'rebates' (i.e. commissions). 25% or 21% is 5%... therefore, 5% of premium dollars come back to the health insurance carrier as payments from pharmaceutical companies.

This 5% of payments ESCAPES the Medical Loss Ratio, but still contributes to the health insurance carrier's profit margin.

Accordingly, health insurance carriers are financially incentivized for plan members to receive more and more expensive medications to boost the rebate payments and their bottom line profits.

**NOTE: It has been brought to my attention that CMS rules dictate in (42 CFR 438.8(e)(2)(ii)(B)) that "Amounts that must be deducted from incurred claims include the following: Prescription drug rebates received and accrued."

It is unknown if other pharmaceutical payments to PBMs such as Admin Fees, Formulary Placement Fees and Market Share Bonuses are considered 'rebates.'

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[apark]

The real master here seems to be the PBM, which both pharma and the carrier seem to serve.

[NickPrayson]

I love your insights into healthcare finance, you are one of the few resources out there with a goal to educate on this topic. Would you consider making a video on some ideas regarding improving insurance reimbursement as private practice physician/group? Intuitively, improving such contracts (making the private practitioner happy) would be in the interest of the insurer to prevent cases from being taken to the hospital systems whom have negotiated much higher rates (often multiples), however private practices often don't have as much sway to negotiate from an economy of scale perspective...Also I recognize that the insurer needs to have the option of offering large hospital networks to their insured patients or they might walk. Given this balance, do you have any tips or ideas that would likely work to use in negotiation? I would love to hear your thoughts!

[MarkStanley]

Regarding your comment: **NOTE: It has been brought to my attention that CMS rules dictate in (42 CFR 438.8(e)(2)(ii)(B)) that "Amounts that must be deducted from incurred claims include the following: Prescription drug rebates received and accrued." Does this mean that this video is no longer valid?

[rodjack]

Can you explain why being an American I cannot purchase a Healthcare policy because I missed the "Open Enrollment " period?, until wait until next year ?

[jupirena]

How much are these companies paying you to make and publish such a ridiculous video?