NCPA - National Center for Policy Analysis

Consumers on the Losing End of New Drug Plan Regulations

April 21, 2015

An estimated 220 million Americans obtain their drugs through a managed plan. Some drug plans are integrated with health coverage, while others — such as the Medicare Part D plans — are stand-alone plans, says NCPA senior fellow Devon Herrick. Drug plans use a variety of techniques to control costs. Large national pharmacy benefit managers (PBMs) are able to negotiate lower prices from manufacturers because they have multiple clients, and therefore possess far more bargaining power than individual firms. PBMs also negotiate with pharmacies, and assemble networks of preferred pharmacies willing to provide the most value for consumers' dollars. The process is highly competitive: PBMs compete for the rights to manage health plan members' drug benefits; drugstores compete to attract drug plan members needing a prescription filled; drug makers compete to ensure their drugs go into members' prescription pill bottles.

The degree to which drug benefits are managed efficiently has significant effects on consumers' cost-sharing and premiums. For most Americans, a trip to the pharmacy incurs little out-of-pocket cost:

  • Nearly One-fourth (23 percent) of retail prescriptions are fully covered by insurers and require no copayment by the patient.
  • An additional one-third (34 percent) cost the patient $5 or less.
  • The cost-sharing for more than three-fourths of prescriptions (78.6 percent) is $10 or less.

Considering the benefits of safe and affordable prescription drugs, lawmakers are unwise to impose stifling regulations on drug plans, boosting costs to consumers and employers. These regulatory initiatives purportedly "protect consumers," but are actually designed to protect local pharmacies from competition. State regulations reducing competition often boost the profits of local stakeholders. These profits generally come at the expense of insurers, employers, pharmacy benefit managers and consumers.

Drug benefits managed efficiently help make most medications affordable to most patients. Blatant protectionism through restrictive drug plan regulations may be touted as consumer protections, but more often than not they benefit local pharmacy service providers at the expense of consumers.

Source: Devon Herrick, "New Drug Plan Regulations Protect Pharmacies, Harm Consumers," National Center for Policy Analysis, April 20, 2015. 


Browse more articles on Health Issues