In his State of the Union speech, President Joe Biden called for capping the monthly out-of-pocket spending by patients on insulin to $35 per month. “For Joshua, and for the 200,000 other young people with Type 1 diabetes, let’s cap the cost of insulin at $35 a month so everyone can afford it.” Indeed, the Build Back Better bill calls for setting insulin monthly payments at the lesser of $35 or 25% of the net price including all rebates and discounts, even if the plan’s deductible has not been reached. The “Affordable Insulin Now Act,” introduced by Senator Reverend Raphael Warnock, D-Ga., in the Senate and the companion bill, sponsored by Representative Angie Craig in the House, take a similar approach.
But why stop there? At this time of accelerating inflation and rampant economic uncertainty, it would be both good policy and good politics for Congress and the Administration to consider extending the principle of capped first-dollar co-pays to a broader class of medicines in Part D to treat chronic conditions such as diabetes, asthma, and congestive heart failure, as well as medicines aimed at preventing stroke. These are medicines where regular use translates directly into better health outcomes and lower hospital costs.
In practice, we’re talking about implementing capped, first-dollar co-pays for chronic diseases for Medicare Part D recipients. Why is this good politics? Americans, and in particular seniors, are begging for some relief from rising costs. Not everyone has a chronic condition, but most people know someone (like their parents) who do, and it can be a shock to see how much drugs cost them. Instituting certainty in patient out-of-pocket costs would definitely reduce the level of apprehension.
PPI has long focused on the need to cap co-pays. In October 2019 we put out our trailblazing policy brief, “The Prescription Escalator: The Real Reason Why Americans Pay More for Drugs Each Year, Why They Are So Upset, and What Can Be Done About It.” As part of that brief, we reported that Americans found themselves paying for more and more essential medicines as they aged, many for chronic conditions. That meant they get hit by soaring spending, even if the price of individual medicines didn’t change much.
Originally, the idea behind deductibles and co-insurance — co-pays that are a percentage of the list price — was to give patients some skin in the game. If they absorbed a share of the cost, the theory went, they would be more likely to seek out the lowest cost medicines.
But forcing patients to bear a flexible share of costs hasn’t worked out as expected, especially for Medicare Part D recipients. Because of perverse incentives in Part D, drug insurance plans, pharmacies, PBMs, and manufacturers gravitated towards setting high list prices, offset by huge rebates and discounts. One result was low net prices for payers, which is good.
The downside is that co-insurance is usually based on the inflated list price, so consumers don’t see the “true” net prices. Similarly, before consumers meet their deductible, they are paying list price. In either case, consumers can be hit by out-of-control costs that have nothing to do with true net prices.
A policy of capping co-pays starting at the first dollar for medicines to treat chronic disease is a straightforward way of offering certainty to the patients who need it the most—those who need their medicines just to survive. And they don’t balance the budget on the backs of those in ill-health. Moreover, when patients fill and take these chronic meds regularly, it avoids spikes in hospital and other health costs.
How much will the co-pay caps cost, and who pays? Given the massive redesign of the Part D program that is also part of Build Back Better, it’s tough to say for sure. The government would have to ante up some additional subsidies, but the cost of capping co-pays would be reduced because the redesign would eliminate the coverage gap which is now part of Part D and which produced some huge patient payments. In addition, the redesign would limit out-of-pocket payments to $2,000 annually across all drugs, and a number of drugs would be chosen for price negotiation by the government. For medicines selected for price negotiation, the subsequent lower cost to Part D would greatly help to offset reduced patient cost sharing. And for competing medicines not selected for negotiation, insurance companies and PBMs will have bargaining leverage to command higher rebates, similarly reducing net prices and also helping to offset costs of better patient access.
This is the right time now to extend Biden’s insulin proposal to other medicines for chronic conditions. Capping co-pays for medicines that older Americans have to take is the quickest and most direct way to introduce more certainty into an uncertain economy.
