How Coinsurance Is Driving High Costs for Patients Taking Brand Medicines

People get health insurance to make healthcare more accessible and affordable, but it doesn’t always work that way. The complicated paperwork and terminology make people wonder if their coinsurance applies to prescription drugs treating their health needs.

Many factors contribute to why coinsurance doesn’t cut costs. This is everything you need to know about the type of health insurance and brand medicines.

How Does Coinsurance Work?

When you sign up for health insurance, you pay a monthly bill deducted from your paycheck or bank account. If you go to a healthcare provider, you’ll pay a set rate for the appointment. It most often doesn’t count toward your deductible. However, if you need medical care that exceeds your deductible, your coinsurance applies. It’s the percentage of medical costs you’ll pay after meeting your deductible.

The financial burden of coinsurance begins before it’s even applicable. The average American pays between $2,378 and $4,816¹ as their deductible for individual or family health insurance. You’ll get a bill for that entire amount before your coinsurance starts, and then you’ll pay the preset coinsurance percentage for charges afterward.

Each person’s percentage depends on their personalized plan. You might pay 20% of future medical bills or as high as 70%. Coinsurance lasts until you reach your out-of-pocket maximum, which is also specific to your health insurance plan. Many people wonder if their coinsurance includes their routine prescription medications.

Does Coinsurance Apply to Prescription Drugs?

People may prefer coinsurance because shared service costs make advanced procedures more affordable² due to the low premium expenses. However, the more routine medical needs like prescription drugs get more complicated.

Pharmacy benefit managers (PBMs) negotiate drug rebates with biopharmaceutical companies. The rebates reduce how much patients pay for brand medications, but it mostly applies to people with copays. The people who meet their deductibles and pay with coinsurance have to afford the listing price for brand medicine.

The United States Committee on Oversight and Reform investigated brand drug pricing in 2021. The investigation covered pay discrepancies becoming increasingly bigger between individuals with coinsurance and copay. Those with coinsurance paid higher prices because the pharmaceutical companies were raising revenue targets and executive pay³. The companies relied on people with coinsurance or no insurance at all to pay the full price.

Coinsurance plans do apply to prescription drugs but in a limited fashion. The plans outline maximum and minimum dollar amounts. The maximum amount the insurance covers can be lower than brand medications, and the out-of-pocket maximum can exclude services like brand-name prescription drugs.

The High Costs for Brand Medicines

Insurance companies separate prescription drugs into four tiers⁴ and place generic drugs on the lowest tier. As the tiers rise, the medications get more expensive. Brand drugs appear on tiers two through four. Those without generic alternatives are exclusively tier-four medications.

Research shows the difference in how insurance companies treat these tiers for coinsurance enrollees. The highest and most expensive medications are in tier four and in a separate specialty drug category. Those medications have higher maximum dollar amounts⁵ than tier three drugs and lower.

The higher green percentages mean insurance companies more strictly limit a patient’s access to brand medications with maximum dollar amounts. The maximum amount insurance companies pay could be lower than the patient’s weekly, monthly, or annual cost for their medications. It makes people pay out of pocket for higher prices because they have no other treatment options.

These prices also aren’t applicable to every country where these medications are available. The U.S. Government Accountability Office found that the U.S. costs for brand-name drugs were two to four times higher⁶ than in other countries.

Specifically, countries like Canada, Australia, and France had more affordable name-brand medications⁶. American prescriptions in 2022 alone increased between 31.6–500%⁷, hitting patients with coinsurance harder than those with a copay.

Reasons for the Rising Costs

Drug manufacturers raise the cost of their products for numerous reasons. These are the influencing factors primarily affecting people with coinsurance.

The companies continuously raised executive salaries.

The U.S. Committee on Oversight and Reform found two issues causing the skyrocketing medication prices. Rising executive salaries and increasing revenue targets were the primary motivators³ for brand-name and specialized medications price points. Patients can’t find generic alternatives to tier-four prescriptions, so they’ll either pay the higher price or not receive treatment.

Private companies retain the right to pay their leadership teams and employees how they see fit. However, the increased pay rates always fall back on product price. When drug manufacturers increase their own salaries, patients pay higher costs. Those with coinsurance pay more out of pocket, leading to inequities between insurance holders.

The lack of anti-monopoly laws allows price hikes.

Market competition gives consumers options. They can choose to purchase the more affordable products, making other brands price their products lower to compete. The pharmaceutical industry doesn’t work the same way because it contains virtual monopolies over many brand drugs.

“In the United States, three companies — Novo Nordisk, Sanofi-Aventis, and Eli Lilly — control most of the market for insulin, contributing to high prices and lack of competition,” S. Vincent Rajkumar, MD, hematologist and oncologist, states in a Blood Cancer Journal article⁸.“Ideally, monopolies will be temporary because eventually, generic competition should emerge as patents expire. Unfortunately, in cancers and chronic life-threatening diseases, this often does not happen. By the time a drug runs out of patent life, it is already considered obsolete (planned obsolescence) and is no longer the standard of care.”

The current patent system prevents competition.

Pharmaceutical companies need to file patents on their medications long before they reach consumers. Once they get their patent, the legal wording prevents other companies from utilizing the same research to create generic alternatives.

The average patent protection covers the following 20 years⁹ after the company gets patent approval. By the time those two decades end, other companies use new technology and more advanced research to create new drugs. The manufacturers get nearly exclusive profits, while patients have limited treatment options.

Harmful Consequences of Coinsurance on Patients

High drug prices affect patients in more ways than one. These are the specific outcomes of coinsurance driving high costs for patients taking brand medicines.

They may be less likely to seek treatments.

Coinsurance applies to prescription drugs, both branded and generic. It makes people pay out of pocket more extensively for brand medications. The prices significantly limit individuals without extensive financial resources to treat chronic conditions.

In July 2023, one in three Americans¹⁰ couldn’t afford their prescription medications. If it comes to essential survival needs or refilling prescriptions, people will choose to stay housed, clothed, and fed.

The U.S. Centers for Disease Control and Prevention found that 7% of adults with private insurance¹¹ can’t afford their medications. Even though they pay monthly insurance bills and potentially pay their deductibles, those people can’t get the medications they need. It reduces the public’s ability to receive life-saving treatments. It may also discourage some from ever seeking medical assistance for new conditions at all.

They may not stick with treatment plans.

Patient adherence to treatment plans drops when medication fees remain high or continue to rise. The most recent data shows that 50% of adults with chronic conditions¹² don’t stick with their healthcare providers’ treatment plans. The patients can’t afford their brand-name medications.

“Poor adherence is also estimated to cause 10% of all hospitalizations,” Kevin McHugh, PhD in Biomedical Engineering and CPRIT Scholar in cancer research, states in a review article¹² for Nature Reviews Drug Discovery. “Rates of non-adherence are especially high among older people, who are more likely to require complicated treatment plans and suffer from cognitive or functional impairments.”

The people most affected by costly medications are the patients who need help the most. Individuals with chronic conditions and elderly patients may not have the time or ability to advocate for themselves.

They might also not have the time to wait for price changes. They can’t put their treatment on hold and hope for generic medications to hit the market. Instead, they go without medications and live with greater pain or other chronic symptoms.

Patients also won’t recover if financial barriers prevent them from accessing help outside of a clinic or hospital. High drug costs create significant inequities for numerous communities. It’s a pressing issue for those with coinsurance, copays, or no insurance at all.

They may experience worsened healthcare outcomes.

People who can’t receive treatment due to rising medication costs experience worse healthcare outcomes than those who do. Experts estimate that over 125,000 people die annually¹² due to a lack of adherence to prescription medications. This happens mostly because those tier-four or specialty drugs treat various types of cancers.

Even if a cancer diagnosis is treatable, the medication costs could be too high for patients to afford. Death is the consequence of unchecked price hikes and insurance systems keeping people away from the treatments they need.

The Future of High Costs for Brand Medicines

As long as coinsurance applies to prescription drugs, the high costs for brand medicines will continue causing patient outcome discrepancies. Other factors, like the lack of federal regulation and industry competition, could also foster continued access inequities.

People don’t need to continue with this lack of access to medications. A multi-faceted approach is necessary to fix this complex issue of price hikes and insurance limitations. Coordinated private and federal efforts would ensure patients get what they need to recover from illnesses.

Sources

1. Center for American Progress. Health insurance costs are squeezing workers and employers.
2. Health for California. What is coinsurance?
3. House Oversight Committee. Drug pricing investigation majority staff report.
4. Patient Advocate Foundation. Understanding drug tiers.
5. KFF. 2022 Employer health benefits survey - Section 9: Prescription drug benefits.
6. U.S. Government Accountability Office. Prescription drugs: U.S. Prices for selected brand drugs were higher on average than prices in Australia, Canada, and France.
7. U.S. Department of Health and Human Services. Price increases for prescription drugs, 2016-2022.
8. Rajkumar SV. The high cost of prescription drugs: Causes and solutions. Blood Cancer J. 2020;10(6):71. doi:https://doi.org/10.1038/s41408-020-0338-x
9. Gurgula O. Strategic patenting by pharmaceutical companies – should competition law intervene? IIC - International Review of Intellectual Property and Competition Law. 2020;51(9):1062-1085. doi:https://doi.org/10.1007/s40319-020-00985-0
10. KFF. Public opinion on prescription drugs and their prices.
11. CDC. Characteristics of adults aged 18–64 who did not take medication as prescribed to reduce costs: United States 2021.
12. Baryakova TH, Pogostin BH, Langer R, McHugh KJ. Overcoming barriers to patient adherence: the case for developing innovative drug delivery systems. Nat Rev Drug Discov. 2023;22:1-23. doi:https://doi.org/10.1038/s41573-023-00670-0