Federal Drug Rule Directs Insurers to Reveal What They Pay for Prescription Drugs

Prescription drugs have become so expensive that one in ten Americans opts not to get a prescription filled because of its cost. In an effort to help control the cost of prescription medications, the Trump administration issued a rule last year that will force health insurance companies to give customers estimated out-of-pocket costs for prescription drugs. Not only that, but insurance companies will also have to provide the negotiated prices that they pay for prescription drugs. The hope is that this will create more competition and help customers make better medical decisions that will save them money. 

a crack in the ground dividing different colored groups
There is a division between groups on whether it will drive costs down or disrupt the market. 

Division

There is some division among policy experts about how much this rule will actually save people; in fact, many groups who represent drug manufacturers argue it will decrease market competition and raise the prices of drugs. Commercial insurers and pharmacy benefit managers are also not in favor of the new rule. 

“This rule will disrupt the marketplace dynamics and undermine the highly competitive negotiations that kept net prices for brand medicines at a growth rate of just 1.7% in 2019,” said Katie Koziara, a spokesperson for the Pharmaceutical Research and Manufacturers of America. She wouldn’t say whether her group would sue to block the rule.

But advocates for the new rule say it will help patients with private health plans save on prescription drugs. According to them, the rule will allow doctors to choose less expensive medications, and help health plans buy drugs more cheaply.

When the New Rule Goes Into Effect

These new drug price provisions are not estimated to go into effect until 2022 at the earliest. In 2022, private plans will have to publish online the prices that drug companies and benefit management companies negotiate with each other. And then, starting in 2024, insurance plan members will be able to request and receive estimates for out-of-pocket costs of medications. 

the number 2022 on the road with an arrow in front of it going up.

The rule will not apply to Medicare or Medicaid. In addition, it will not require plans to disclose rebates and other discounts negotiated with drugmakers. That’s a disappointment to employers who provide health insurance for their workers. “We’d like a much clearer idea of how much we’re paying for every drug every time it’s dispensed,” said James Gelfand, senior vice president for health policy at the ERISA Industry Committee, which represents large self-insured employers. “We want to know where every cent in rebates and discounts is going. We’ll at least begin peeling back the onion. You have to start somewhere.”

The reason that manufacturers will not disclose the discount information is that other health plans will then ask for the same rebates. “Insurers and pharmacy benefit managers currently use rebates that are hidden from view to drive prices lower,” said Dr. Aaron Kesselheim, a professor of medicine at Harvard University who studies prescription drug policy. “If you make that transparent, you kind of reduce the main strategy payers have to lower drug prices.”

The Biden administration favors increased price transparency and therefore plans to keep the new price disclosure rule in place.

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