Wednesday, August 03, 2011

Who Will Pay for Prescription Drugs in 2020?

Yesterday, I looked at CMS' Bright Future for Drug Spending in 2020. Now let’s see who will be paying for all of these drugs.

In a major reversal from its pre-health care reform forecasts, CMS projects that private insurance will pay for a greater share of retail prescription spending than public funds will pay.

Hmm, how can this be?

Well, it turns out that CMS classifies coverage via state-run Health Insurance Exchanges (HIE) as "private insurance." While technically true, it is a bit misleading about the sources of payment. A big chunk of "private" coverage will actually be paid for by the government through subsidies.

Read on for a look at the past, present, and future of payers, along with some thoughts on what the forecasts means for manufacturer contracting and PBM strategy.


Here’s my summary of the latest forecast as well as a look at where we've been.

Post-health care reform, CMS projects that private insurance will cover 42% of outpatient retail prescription spending in 2020, while public funds will pay for 41%. Public funds include Medicare Part D, Medicaid and State Children’s Health Insurance Program (SCHIP). Consumer out-of-pocket funds include the sum of cash-paid prescriptions and consumer co-payments.

Surprising, isn’t it?

This payer mix is vastly different than the pre-reform forecasts I discussed in CMS' New Drug Spending Projections. The previous forecast (for 2019) projected that 47% of drug spending would be paid by public funds and only 36% would come from private insurance.


IMHO, the private insurance forecast understates the role of public funds—and presumably public control.

The Patient Protection and Affordable Care Act (PPACA) creates Health Insurance Exchanges (HIE) through which certain individuals and families will receive federal subsidies that reduce the cost of purchasing health insurance coverage. Check out this nifty color flowchart, suitable for framing: How People Get Health Coverage Under the Affordable Care Act Beginning in 2014.

CBO estimates that about 81% of individuals purchasing their own coverage through the Exchanges in 2019 will receive subsidies. Is private insurance paid by public funds really not government spending?

Alas, CMS' latest forecast doesn’t break out the mix of payers under private health insurance between employer-sponsored insurance and HIE. Just don't be complacent about the supposedly bigger role of "private payers," especially in light of the recent and upcoming battles over the U.S. debt.

Pharmaceutical manufacturers should pay attention because contracting will continue occur with private insurers, although the government will be exerting influence behind the scenes a la Medicare Part D. PBMs will benefit as more people get coverage (per Health Reform: Impact on Drug Channels), but will find the health plan segment growing at the expense of self-insured employers.

And in case you were wondering, the exchange population is projected to be older, less educated, lower income, and more racially diverse than current privately-insured populations. See the educated guesswork in A Profile of Health Insurance Exchange Enrollees.

1 comment:

  1. That chart tells you everything you need to know about why health care spending is out of control.  Consumers are not payers, at least not in any direct, meaningful sense of the word.