E D U CATI O N
THE HISTORY OF
PRESCRIPTION DRUGS AND HEALTH INSURANCE By Emma Peters
According to a recent poll conducted by the Campaign for Sustainable Rx Pricing, 70% of voters across the political spectrum are worried about drug prices and a third of them have trouble affording their medications. To understand how this concern has become somewhat universal to the U.S. population, the history of prescription drugs and its correlation with health insurance is needed.
Learning this history will benefit health insurance professionals looking to better understand how health plans have evolved in the drug coverages offered. Illustrated in the first graph, the cost of
retail prescription drugs has steadily increased since the early 1960s. Coincidentally, it was during the 1960s that insurance companies began offering prescription drugs as a health plan benefit, which created a new job role of pharmacy benefit 20 | CALIFORNIA BROKER
managers (PBMs) who were meant to help insurers contain drug spending. Marty Mackary argues in his book “The Price We Pay” that PBMs have been one of the largest contributors to spending on retail prescription drugs because of their lack of transparency in what’s known as “the spread.” According to Mackary, “the PBM is the middleman, so if that pharmacy charges $10 for the medication, the PBM might bill the employer $50 and pocket the extra $40 — that’s the spread.” In addition to the creation of PBMs, in the 1970s and 1980s there was also a scientific explosion which led to further transformation of the pharmaceutical industry. Scientists were able to isolate the genetic basis of certain diseases, opening a lot of therapeutic areas for new drugs. With the influx of new drugs, pharmaceutical manufacturers were eager to patent these products and create higher demand through some brand name products such as Valium and Tagamet. The 1980s also saw the rise of managed care organizations (MCOs), such as Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). These entities introduced a new approach to health insurance, emphasizing cost containment and preventive care. Many managed care plans included prescription drug coverage as part of their benefits package, making medications more accessible. Yet, studies have found that when the potential market for a type of drug grows, there is an increase in the number of new drugs developed in response
CalBrokerMag.com
NOVEMBER 2023
