Prescription drug spending in U.S. among highest worldwide

Prescription drug spending in the United States exceeds spending in nine other high income countries, with generic drugs comprising 84 percent of the total pharmaceutical market. Besides the U.S., a Commonwealth Fund issue brief looked at prescription drug spending in Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland and the United Kingdom.

Prescription drug spending in U.S. increases in 1990s

According to the Commonwealth Fund review, spending on prescriptions drugs increased substantially in the mid-1990s due largely to the growth of the pharmaceutical industry. For instance, FDA approved drugs were at an all-time high and sales of cancer drugs increased. Additionally, drug spending increased due to the expansion of federal programs such as the Children’s Health Insurance Program, Medicaid, and Medicare.

Prescription drug spending increased by 20 percent over a period of two years during the mid-2000s. The growth was primarily due to introducing many expensive specialty drugs to treat hepatitis C, cystic fibrosis and other conditions. Passage of the Affordable Care Act likely led to such increases as well. U.S. spending on pharmaceuticals surpassed $1,000 per person in 2015 and was 30 percent to 190 percent higher than in the nine other countries. The next countries, behind the U.S., in spending in 2015 were Switzerland with $783, Germany with $686, and Canada with $669.

Reasons U.S. spending on prescription drugs is so high

The Commonwealth Fund offered possible reasons to explain why the U.S. spends so much on prescription drugs, including country population and volume of drugs consumed, drug utilization per person, type and mix of drugs consumed (e.g., generics versus brand-name drugs), and prices at which drugs are sold.

Although the U.S. population is ranked among the largest and has the highest prescription drug spending as a country, spending per capita remains much higher in the U.S. than that of other countries. Higher per person spending is not due to the large population of the U.S., however.

The impact of generic prescription drugs

Generic drugs make up 84 percent of the total U.S. pharmaceutical market, which is a larger share than in all other countries, excluding the U.K., which is tied with the U.S. with 84 percent. Followed by the U.S. are Germany with 81 percent, Netherlands with 71 percent and Canada with 70 percent of the share of generic prescription drugs. Lower prescription drug prices in the other countries reflect more centralized processes for obtaining pharmaceuticals and setting coverage.

Conclusion. Price continues to play a primary factor in the high prices associated with prescription drugs in the U.S. The reasons can be attributed to the fragmented nature of health care delivery and payment, as well as separate negotiation arrangements between drug manufacturers and payers and complicated arrangements for federal and state health programs. Also, the U.S., unlike other countries, allows for greater latitude for monopoly pricing of brand name drugs.

ACA Marketplaces provide best bargain for individual insurance plan shopping

For shoppers looking for the best value in individual health insurance plans, marketplaces created by the Patient Protection and Affordable Care Act (ACA) (P.L. 111-148) are the place to go, according to a recent report by the Commonwealth Fund (CWF). Not only do they have the best prices, but more people are flocking to them to find the best plan. What’s on the other side isn’t as appealing—individual plans sold outside of the marketplaces have experienced much larger premium increases by an average of $8 per member per month and have higher administrative costs than those sold on the exchanges.

Cost analysis

The study found that plans outside of the marketplaces are spending more on administrative costs and less on patient care, while plans operating through the marketplaces are able to spend a greater portion on medical care. Administrative costs were 2.5 percentage points higher in plans sold exclusively outside the exchanges. When analyzing why this might be, the CWF could not determine whether the exchanges themselves cause insurers to devote a lower proportion of premiums to overhead and profits, or if insurers with historically higher overhead or profits choose not to participate in the exchanges.

Point of sale

The CWF also looked into where certain policies are sold. Insurers are not required by the ACA to sell their policies through the marketplaces, but it is the only place that they can sell subsidized insurance for individual policies. Insurers have the option to sell outside of the exchanges to people who do not qualify for or claim premium subsidies. Despite this opportunity, the CWF found that insurers are becoming less likely to sell outside of the marketplace. In 2016, only 17 percent of individual health insurance plans are projected to be sold off the ACA exchanges compared to 28 percent in 2014, indicating a steady decline.

“Collectively, the data in this report make a strong case for the viability of the Affordable Care Act marketplaces,” said Sara Collins, Vice President for Health Care Coverage and Access at the CWF. “Insurers inside the marketplaces appear to be competing well on price and continue to sell more of their business through them. And, the measures designed to encourage insurers to enroll healthier as well as sicker people in the marketplaces are working.”