By: Ron Peck, Esq.
I recently drafted an article regarding legislative proposals to “cap” patient out of pocket costs for insulin. In it, I explained that – while the individual patient’s out of pocket cost may be reduced at the time of purchase – the total cost of the medication is not reduced. Instead, a greater share is shifted onto the health benefit plan or insurance. That payer would then – likely – increase the cost of coverage (premiums, contributions, etc.), resulting in the patient ultimately paying the cost of the drug… simply in a different way. Shifting who pays a designated portion of a price doesn’t reduce the price itself. The only way to reduce the price of something is to reduce the price.
Ultimately, the proposed law about which I wrote was limited to Medicare. Recently, however, every news outlet I’ve looked at is featuring headlines akin to: “Drugmaker Eli Lilly caps the cost of insulin at $35 a month, bringing relief for millions” (https://www.nbcnews.com/health/health-news/eli-lilly-caps-cost-insulin-35-month-rcna72713), “Lilly to cut insulin prices by 70%, cap prices at $35 per month for people with private insurance” (https://www.cnbc.com/2023/03/01/lilly-cuts-insulin-prices-70percent-cap-prices-at-35-per-month-for-private-insurance.html) and “Eli Lilly to cut insulin prices, cap costs at $35 for many people with diabetes” (https://www.cnn.com/2023/03/01/health/eli-lilly-insulin-prices-diabetes/index.html).
Look at the Eli Lilly news release, however, and you’ll see “Lilly Cuts Insulin Prices by 70% and Caps Patient Insulin Out-of-Pocket Costs at $35 Per Month” (https://investor.lilly.com/news-releases/news-release-details/lilly-cuts-insulin-prices-70-and-caps-patient-insulin-out-pocket). Note the all-important reference to “Patient … Out-of-Pocket Costs”, and the all-important “and” – separating the 70% price drop (applicable to the total price) from the $35 cap (applicable only to patient out of pocket costs).
The bottom line? No; NBC, CNBC, and CNN … Eli Lilly is not capping the cost of insulin at $35. They are reducing the price of “some” types of insulin by 70%, and “some” patients will pay up to $35 of that total price.
Herein lies the issue. People do not understand how health insurance works. They (apparently – if these media headlines are evidence) believe that their co-pay pays for the full cost of the medication, and that health insurance (apparently) pays nothing. How else can we explain a headline such as: “Drugmaker Eli Lilly caps the cost of insulin at $35 a month”? If Eli Lilly were indeed reducing the TOTAL COST of insulin to $35, then – if my co-pay is $20 – I pay $20, and my health plan pays the other $15. Right? Yet, as we know, the proposal is to cap the patient’s out of pocket at $35 only. The cost of the insulin is NOT $35. The cost of the insulin is, at worst (for some types of insulin) unchanged, and at best (for certain types of medication listed by Eli Lilly) reduced by 70%.
Unpacking this further … If the current retail cost for a box of five insulin pens is – hypothetically – $400 … and the patient’s current co-pay is $50 … then, in that example, the patient pays $50 and the insurance pays $350 for a grand total of $400 (the total cost of the medication). If the patient’s co-pay is subsequently capped at $35, but the total cost of $400 remains unchanged, then the patient pays $35 and the insurance pays $365 for a grand total of $400 (the total cost of the medication). If the total cost of the insulin is reduced by 70% and the patient’s out of pocket expense is limited to $35, then the new total cost of the drug is $120 ($400 reduced by 70% is $120). Now, the patient pays their $35 and the insurance pays the remaining $85. Is this better than $400? Absolutely. Is it “capping the cost of insulin” at $35? Not a chance!
Further complicating matters … and confusing your author … is the fact that this recent headline grabber came to us courtesy of Eli Lilly. The law that would cap Medicare recipients’ insulin cost applies to Medicare; the payer. That is because it is the payer (the health insurance or health plan administrator) that decides how high or low to set the co-pay or co-insurance. How, then, can the manufacturer of the drug decide how much the patient will pay? If the plan says the co-pay is $40, what right or authority does Eli Lilly have to reduce that co-pay to $35? Does Eli Lilly now pass laws applicable to benefit plans and insurance carriers? Does the “E” in ERISA stand for Eli? Perhaps they plan to reimburse patients for co-payments in excess of the $35 at the point of sale? Will the retail pharmacy be on notice to charge patients up to $35, and submit the remaining co-pay to Eli Lilly to credit to itself? Furthermore, how will this decision impact said retail pharmacies’ own revenue?
These recent headlines have both disappointed me (by reminding me how little people understand about how health insurance and drug pricing works), and confused me (regarding how – exactly – a drug manufacturer can dictate how a plan and plan member decide to split the overall cost of a drug, absent any law or contract obligating the plan to so cap the patient’s share). I watch with anticipation to see how, exactly, this will work. Stay tuned!