The Out-of-Pocket Cost Ponzi Scheme

It is all the rage for politicians in Washington to talk endlessly about "skyrocketing drug prices." But the ground has shifted under their feet seemingly without their knowledge. These days, the real crisis for patients is high out-of-pocket costs, not drug prices, which have declined for four straight years.  

According to one study, for 2020, over half of people who have health insurance provided by their employer are enrolled in a high-deductible health plan with significant out-of-pocket costs due to deductibles and coinsurance requirements.  In five years, analysts forecast, close to three-quarters of patients in employer-sponsored plans will be enrolled in these plans. 

High deductible plans can be a wise economic choice for healthy people as they may carry lower premiums. But what happens when members of these plans get sick?  

Average annual out-of-pocket costs for an individual in a high deductible plan were $4,425 in 2020 and can be significantly higher for a family. If you are diagnosed with cancer, you may be required to take thousands of dollars out of your savings or even go into debt to pay for your oncology medicine on top of ever-increasing healthcare premiums.    

The growth in high-deductible health plans is happening in tandem with approval by the Food and Drug Administration (FDA) of precision medicine biopharmaceuticals with high price tags that impact a finite patient population.   

Aware of the financial difficulties that the convergence of these two trends imposed on patients, biopharmaceutical companies began offering copay assistance, copay coupons, copay debit cards, and other programs that offset patients’ out-of-pocket costs. One recent study concluded that drug manufacturers’ copay assistance to patients grew from $8 billion in 2015 to $12 billion in 2019, which helped lower patients’ out-of-pocket spending by 6.3 percent . In addition to making drugs more affordable, a tangential benefit of such programs is that they were designed to help fulfill annual deductible patient liabilities for all healthcare services. 

But health insurance companies did not celebrate the out-of-pocket cost savings offered by drug companies. Health insurance and Pharmacy Benefit Management (PBM) companies use those charges to boost revenues by steering patients to either the oldest and cheapest drugs or ones that give insurers and PBM’s the largest rebate payments and fees from pharmaceutical companies.   

Insurers and PBMs initiated new policies that are hard to describe as anything other than anti-patient. They refuse to allow patients to count drug company copay assistance towards their deductible and, instead, implemented the “copay accumulator” program, which prohibits the biopharmaceutical company copay assistance from counting towards a patient's deductible. Hence, patients are left with the responsibility of fulfilling the deductible in its entirety. For example, if you have a $5,000 deductible, you will pay $5,000 out of pocket even if you first use $5,000 in copay assistance from a drug company. This leads to poor health outcomes because if the co-pay assistance runs out mid-year, patients may not be able to cover the out-of-pocket costs of the drug and they may abandon their prescription. 

Responding to patients’ displeasure with accumulator policies, insurers and PBMs have created new “copay maximizer” programs. These programs allow health insurance companies to take the full amount of copay assistance provided by a drug company and spread it out over the entire plan year.  

For instance, if a drug company offers copay assistance of $10,000 for a particular drug, the health insurance company will take one-twelfth of the full amount ($833) each month from the drug company's copay assistance program, and the patient will pay nothing out-of-pocket for that specific medicine.  

Unfortunately, just as was the case with the copay accumulator scheme, none of the patient assistance applies towards the deductible requirement for non-drug medical services. By seizing the full copay assistance amount upfront, the health plans and PBMs are forcing patients to pay out-of-pocket costs for any MRI, surgery, physician visits, or prescribed physical therapy they may need.   

Fortunately, several states have passed legislation prohibiting the practice of copay accumulators. Such laws protect patients from being taken advantage of in those states. However, federal policymakers have yet to address these insidious PBM and insurer practices. It is time to protect all patients from profit-maximizing programs that only benefit the ever-monopolistic insurers and PBMs. 

William S. Smith, PhD, is Senior Fellow and Director of the Life Sciences Initiative at Pioneer Institute in Boston. Robert Popovian, PharmD and M.S., is Senior Visiting Health Policy Fellow at Pioneer Institute.