Monday, November 08, 2010

Unfortunate Industry Tricks: PBM's vs Common Sense

Let's start with a premise and a fact:

Premise: increasing health care costs lead to increasing health insurance costs (premiums).

Fact: most (all?) insurance carriers use Pharmacy Benefit Managers to help both the cost of care and of insurance.

By way of background: PBM's are (allegedly) a cost-efficient way for carriers to offload the administrative functions of filling prescriptions. Now, one might ask why the carrier "owns" that task in the first place: they don't handle brain surgery or give tetanus shots, so why are they dispensing (even vicariously) medications?

The stated reason for this business model is that it helps carriers to rein in the cost of medications, which make up a disproportionate percentage of claims. That's a good thing, because (as we've noted), lower health care costs can lead to lower insurance costs. The problem is that we don't really know that the PBM's fulfill this function; all we know is that carriers believe that they do.

In researching for this post, it became readily apparent that this is a more complex issue than it would at first appear; so I'm going to focus simply and exclusively on one subset of the model:

I have a client who suffers from MS, and is covered under a High Deductible, HSA-compliant health plan. His annual deductible is $3500, after which the carrier pays 100%. His deductible starts anew every January 1, and he meets the deductible by mid-February, after which the carrier pays the tab for the rest of the year.

So where's the beef?

In case it's not obvious, January 1 is right after "the holidays," when coming up with $3500 is often a challenge. Now, he understands this, and begins saving for it around Thanksgiving, but it's still a heavy load. His insurer requires him to use their PBM, and the med's cost about $2500 for a month's supply [ed: something to consider when you're thinking about going "bare" or believe that a discount card is all you need]. He found the same medication on-line for a much lower price, and would prefer to go that route. In the grand scheme of things, it would seem to be six-of-one, a half-dozen of the other: after all, he still has to come up with the $3500. But this way, he can spread that cost over a few extra weeks or months. It also means that, once he's met the deductible, the insurer would save money, as well.

It'd be a win-win.

But alas, one of the key components of the insurer-PBM contract is "exclusivity;" that is, the insurer agrees to count towards the deductible (and future reimbursements) only those scrips filled by the PBM (with rare exceptions). On the one hand, this makes sense: the PBM is in business to make money, and insurer to save it. This model apparently serves both purposes. The problem is that the insured is the one who pays the price: if he finds a better price for a particular med at, say, his neighborhood pharmacy or at Amazon, he's free to buy it, but it most likely won't count towards his deductible.

This is a double whammy for the savvy insurance consumer that opted for the HSA plan: after all, it's his money being spent (at least at first), not the insurer's. Haven't we been told that one of the most important aspects of consumer-driven health care is that the insured has an incentive to shop more carefully for it? In this instance, though, he's being actively punished for doing so.

So how do you resolve this dilemna? I have no reason to doubt that, in the big picture, PBM's can help insurers control their costs, but it's also obvious that this puts the insured at a disadvantage. I've often half-joked that one should never confuse "insurance" with "common sense," but it seems to me that this particular question has yet to be addressed. I am most definitely not arguing for government intervention in this - we have enough screwy laws and mandates, and enough government meddling already, thank you very much. But I would like to see this addressed by the industry, and perhaps by organizations like the NAIC (which I grant you is a quasi-governmental entity).

What say you?
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