This paper discusses possible solutions to the problem of excess out-of-pocket drug costs. We argue that allowing consumers to receive drug rebates directly at the “point-of-sale,” rather than indirectly and opaquely through insurers and pharmacy benefit managers, will help make the healthcare system simpler and fairer.
Like clockwork, Congress holds hearings featuring Americans, both young and old, who are being hit hard by sky-high out-of-pocket drug costs. Surveys uniformly show that pharmaceutical companies are hugely distrusted. Many Americans regard drug costs as one of their biggest problems.
Even while politicians fume about the high prices of prescription drugs, solid statistics derived from multiple reliable sources show that out-of-pocket spending on prescription drugs as a share of household disposable income has fallen to a record low of only 0.3% (see Figure 1). By comparison, in 2005 out-of-pocket spending on prescription drugs was almost 0.6% of household disposable income, almost twice as much.
Nevertheless, some Americans find themselves with astronomical spending on drugs. We analyzed 2017 Medical Expenditure Panel Survey (MEPS) survey data on out-of-pocket prescription drug spending. Our results show that about 1% of Americans each year pay more than $2000 per year in out-of-pocket drug costs. That’s more than ten times the average, and a level that is clearly unacceptable.