The most important difference is that individual market plans are much less likely to provide first dollar coverage for expensive prescription drugs, meaning that most enrollees must satisfy their deductible before they are able to pay co-insurance or co-payments. This is most likely for the costlier drugs in the higher formulary tiers. More than three quarters of individual market plans require that the deductible be met before enrollees are eligible for any cost-sharing for preferred specialty drugs. This is true for a little less than half of large and small group plans. And deductibles in the individual market are significantly higher than in the large group market.
To give an example, an individual market enrollee with a specialty drug that costs $3,000 per month would reach their deductible (about $4,000) in the first two months, before paying co-insurance (median 50%) until reaching their maximum out of pocket, usually $8,500. For the small group market, the situation is quite different, and looks more like large employer plans. More than half of small group plans permit co-pays or co-insurance before the deductible is met for drugs in the preferred specialty tier, and the median copay is $300, versus $650 in the individual market.
The individual market is extreme, but rising out-of-pocket costs for brand and specialty drugs are a general trend in commercial insurance, with deductibles and co-insurance representing a growing share of spending. Consumer costs have risen as the use of branded and specialty drugs has grown. Spending on specialty drugs in particular has grown sharply in recent years, and accounted for nearly 40 percent of retail and mail-order prescription drug spending net of rebates in 2016-2017. For privately insured patients with an initial cost exposure above $50, the average obligation has climbed in recent years, from $122 in 2013 to $188 in 2018, according to data from IQVIA. This trend has led to the proliferation of manufacturers' co-pay assistance programs, which circumvent the benefit design by providing financial assistance that allows patients to reach their deductibles. Co-pay coupons offset an estimated $13 billion of commercial costs in 2018, and have become particularly important in the individual market, due to the austere benefit design and approximately 30% of enrollees have a prescription for at least one specialty medication.
Yet co-pay coupons have been criticized for encouraging substitution of brand name drugs for generic medications, and for increasing overall drug spending. Plans have responded in recent years with “co-pay accumulator” policies, which essentially bar manufacturers’ co-pay programs from allowing enrollees to meet their deductibles. Accumulator programs began to proliferate in ACA plans in 2017, and were inserted in plan descriptions in ways that were not easy for consumers to notice. The AIDS Institute and other disease groups have criticized plans for a lack of transparency and opposed accumulator programs more generally. Yet in the 2021 Payment Rule, CMS approved their use, provided that they were applied in a “uniform manner” and plans were transparent about their existence. It is not clear to what extent co-pay accumulators are prevalent in 2021 plans, or how transparently they are being labelled. A handful of states have since passed laws or are considering laws to prohibit co-pay accumulators. Yet other states have passed laws limiting the use of co-pay assistance programs to cases where generics are not available.
While the successful effort to create a COVID-19 vaccine may have temporarily diverted attention from prescription drug costs, the issue is a high priority to consumers and will doubtlessly return. Reflecting the level of consumer dissatisfaction, state legislative activity in the area of drug affordability has increased significantly in recent years. In addition to actions banning co-pay accumulators, a large number of states recently proposed or passed laws directly limiting out of pocket costs for drugs, particularly insulin. The recent favorable Supreme Court decision regarding the Arkansas law that sought to regulate prices that PBMs pay pharmacies may serve to further increase state legislative activity in this area.
Co-pay coupons, co-pay accumulators, and state cost sharing policies are all imperfect responses to affordability problems, because they operate on cost-sharing, well downstream of prescription drug prices, and force unhappy tradeoffs between higher premiums for all versus much higher cost-sharing for a few. These challenges will only increase as the use of costly specialty drugs grows, and policy approaches that are designed to reduce drug prices will continue to have strong bipartisan support.