Today, I identify new insights about payments in the 2024 drug market. As the charts below show:
- CMS expects the employer-sponsored insurance market to be slightly more resilient than it had previously projected.
- By 2018, however, Medicare, Medicaid, and other public programs will pay more than employers for drugs.
- CMS still projects that individually-purchased private insurance (via exchanges) will account for a small share of drug spending.
SMILE AND GRIN AT THE CHANGE ALL AROUND
I rely on the July 2015 National Health Expenditure Data projections. The industrious CMS wonks separate private health insurance spending into two subcategories:
- Employer-Sponsored Private Insurance
- Other Private Health Insurance, which comprises Medicare supplemental coverage and individually purchased plans, including coverage purchased through the state-level Health Insurance Marketplaces (HIM), a.k.a. exchanges.
CMS did not provide projections for drug spending within the two sub-categories of private health insurance. Therefore, I disaggregated total private health insurance spending using CMS’s enrollment data. I assume that total private insurance drug spending will be proportional to overall healthcare spending by people with (1) employer-sponsored private insurance and (2) individually-purchased private insurance.
According to Express Scripts’ July 2015 Exchange Pulse Report, exchange enrollees’ pharmacy benefit spending has been 16% higher per member per month compared to traditional health plans, largely due to the increased specialty drug spending among exchange plan enrollees. If this trend continues, then my estimates for exchange spending will prove low.
MEET THE NEW BOSS
The chart below summarizes the major payers for prescription drugs from 1974 to 2024.
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Here’s what CMS is projecting:
- Public funds will overtake employer-sponsored spending. After the Affordable Care Act, this is the change that had to come: public funds will account for 44% of outpatient retail prescription spending in 2024, while employer-sponsored private health insurance’s share will drop to 39%. Last year, CMS projected that employer-sponsored insurance’s share would amount to 38% in 2023, so the newer forecast looks the same and future history hasn’t changed.
- Individually-purchased insurance will account for less than 5% of drug spending. This category includes Medicare supplemental coverage and individually purchased plans, including coverage purchased through the federal and state marketplaces. CMS expects enrollment in individually purchased private insurance plans to grow, from 21.5 million people in 2014 to 32.6 million people by 2024. I guess the uninsured will get their papers and smile at the sky.
- Consumers will account for an ever-smaller share of drug spending. Consumer out-of-pocket funds—the sum of cash-paid prescriptions and consumer copayments—will decline to 12% in 2024. This long-term trend is at odds with the public’s perception of their drug costs.
The chart below shows changes in absolute spending, by payer.
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CMS estimates that annual U.S. outpatient prescription drug expenditures will grow by $259.2 billion(+85%), from $305.1 billipon in 2014 to $564.3 in 2024.
- Individually-purchased private insurance will have the fastest growth, although it will only total $25 billion in drug spending by 2024.
- Drug spending by public sources will grow more than twice as quickly as employer-sponsored insurance. In 2018, employer-sponsored private health insurance’s spending will drop below the combined spending figure for public funds (primarily Medicare and Medicaid). Perhaps it’s no coincidence that the excise tax on high-cost insurance plans will begin in 2018. By 2024, the public programs will spend a combined $247.4 billion on outpatient drugs—$25.3 billion more than the $222.1 billion that will be paid by employer-sponsored insurance.
- Consumers’ absolute spending will grow the most slowly, from $47.5 billion in 2014 to $69.6 billion in 2024.
August 19, 1974!
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To paraphrase a great philosopher: The world looks just the same and history ain’t changed, because the banners were all flown in the last war.