Senate Fiscal Committee to Consider Bill that May Increase Health Care Premiums

A California Chamber of Commerce-opposed bill that may will drive up the cost of health care premiums will be considered by the Senate Appropriations Committee on August 17.

AB 339 (Gordon; D-Menlo Park) severely restricts the ability of health insurers and pharmacy benefit managers (PBMs) to control health care costs on behalf of purchasers through their prescription drug benefit designs, and places strict caps on prescription drug copayments. In this way, AB 339 shifts costs, encourages utilization of expensive medications, and reduces flexibility, which will make health care less affordable for all.

While the CalChamber shares the author’s concerns about the ability of patients to afford necessary and potentially life-saving medications, capping out-of-pocket costs for expensive medications and undermining the ability of insurers and PBMs to negotiate better prices with drug manufacturers, will jeopardize the affordability of health care coverage for millions of California enrollees and purchasers.

AB 339 Shifts Costs

AB 339 does nothing to lower the actual cost of prescription drugs. Instead, it caps what an enrollee can be asked to pay out-of-pocket for a month’s supply of a prescription drug at $250 for most enrollees. This means that health care issuers will have to pay a larger share of the purchase price for affected prescription drugs and spread that additional cost out to all enrollees and purchasers in the form of higher premiums.

Cost-sharing caps also encourage inefficient utilization of the most expensive medications because they shield patients and their doctors from the cost of treatment, preventing them from taking cost into consideration when deciding which prescription drug is the right one to take or prescribe. Were AB 339 to pass, patients who might otherwise be treated effectively by a less expensive drug would no longer have an incentive to ask about the comparative cost of their other treatment options, nor would their doctors.

AB 339 would also compound the impact of cost-sharing caps by restricting how drugs may be placed into formulary tiers, further limiting the ability of insurers and PBMs to negotiate lower drug prices by offering favorable placement of a manufacturer’s drug. The strict rules proposed by AB 339 would give drug manufacturers more leverage during price negotiations, make drug prices even less transparent for enrollees and prescribers, and make it harder for insurers and pharmacy benefit managers to craft affordable benefit designs.

AB 339 will have an even bigger impact in future years.

Three new hepatitis C medications that entered the market in late 2013 and 2014 had a huge impact on overall health care spending in 2014 due to their high price tags. Medicare alone spent $4.5 billion on them. However, while these medications can cost as much as $1,300 per pill, there are only 3 million people in the United States with hepatitis C, and after a course of treatment with one of these drugs, most individuals are cured of the disease and do not require additional treatment.

This June, though, the federal Food and Drug Administration advisory committee recommended approval of two new cholesterol medications that are expected to cost between $7,000 and $12,000 per patient, per year. Even though these new medications will cost much less than those used to treat hepatitis C, they could have an even larger effect on overall health care spending and premiums due to the sheer number of people who suffer from high cholesterol. To put it in perspective, if all 3 million individuals with hepatitis C were treated at once for $84,000 each, the total cost would be $252 billion, but if all 120 million Americans with high cholesterol were treated for $12,000 each, it would cost more than $1.4 trillion each year with these new medications!

With drug costs rising generally, and new, more expensive drugs entering the market all the time to treat common, chronic conditions, health care costs and premiums are bound to rise no matter what, but AB 339 eliminates the incentive for patients and doctors to be cost-conscious, and takes away many of the tools health insurers and pharmacy benefit managers use to curb inefficient and unnecessary spending on prescription drugs. As such, it is apt to cause prescription drug spending to rise much faster than it otherwise would, and not necessarily to the benefit of enrollees.

AB 339 especially impacts employer-sponsored coverage and middle-class Californians.

Drug cost-sharing caps will affect affordability more outside of Covered California. Unlike the cost-sharing caps imposed by Covered California, which can be modified each year when the agency develops its benefit offerings for the coming year, AB 339 would enact these rules through state statute, making them harder to adjust later on. In addition, more than 88% of individuals enrolled in Covered California’s plans receive a premium subsidy, which buffers them somewhat from increases to their premium rates, but AB 339 will have an impact on premiums for millions of Californians who do not qualify for these subsidies, and their employers.

For example, the least expensive plan available through Covered California for a family of four making $98,000, just over the eligibility threshold for a premium subsidy, costs $781/month and has a $4,500 individual deductible and a $9,000 family deductible. At 9.3% of that family’s gross income, it’s hardly affordable, but AB 339 would make it even less so.

To be sure, the problems associated with rising drug costs are real and growing, and they impact individuals, employers, and employees, not to mention state and local governments. Unfortunately, though, AB 339 avoids the fundamental problem, the underlying cost of prescription drugs, and instead seeks to impose a complex regulatory scheme to shield enrollees from drug costs and reasonable utilization management. In the long run, this will increase health care costs for everyone, further limiting access to preventative care and life-saving treatments.

Action Needed

AB 339 will be heard in the Senate Appropriations Committee on August 17. Contact your senator and committee members and urge them to oppose AB 339.

Staff Contact: Mira Morton