Lies and damned lies: Prescription drug costs aren't driving insurance premium jumps

Last night John took a rather grim look at the question of why Obamacare failed. And let’s not undersell the story here… it’s not a question of “possibly failing” or being on the way to failure. The program is currently only on its feet in the sense that that armies of flesh-seeking diners continue perambulating on The Walking Dead. It’s difficult to argue with John’s conclusion that the president’s signature contribution to the entitlement state failed both Economics 101 and Human Nature 101. The insurance companies are quickly pricing themselves out of the program and up until now they’ve had a convenient scapegoat to point to: the pharmaceutical industry. Rising drugs costs are to blame, they say, while sadly agreeing that the cost of developing new medicines is simply too high to make them affordable. What’s a poor healthcare provider to do?

But as it turns out, while many cutting edge drugs can indeed be budget busters, the rate of increases in prescriptions is no longer the chief driver of higher premiums. As PhRMA reports this month, these costs have slowed in growth over the past few years and are now nearly on par with normal inflation.

Despite recent headlines, U.S. spending on prescription medicines continues to decline. In fact, new data from Altarum Institute found that spending on prescription medicines grew by just 3.9 percent between July 2015 and July 2016 – the lowest level in three years. It’s a dramatic decline from the 8.5 percent increase that Altarum reported last year and the 12.5 percent annual increase the year before that.

But this hasn’t stopped health insurers from continuing to argue that prescription drug costs are fueling rising health insurance premiums. Now, some consumer groups are starting to question these claims. According to a new story published on California Healthline, the advocacy group Consumers Union says two insurance companies in California “may be exploiting the outrage over high drug prices to artificially inflate their premiums for individual coverage.” Dena Mendelsohn, a staff attorney at Consumers Union in San Francisco, was more direct, saying “pharmaceutical expenses may be the factor most open to exploitation by health plans searching for a Trojan horse with which to usher in excessively priced insurance rates.”

These stories are popping up in Illinois, California, New York and elsewhere. Savvy consumers are questioning the typical excuses they receive every time their healthcare premiums are jacked up yet again, and the explanation that drug costs are the problem really isn’t credible at this point. The problem is that consumers should typically be able to rely on the government (or at least media coverage of the government) to sort out the details and keep them informed. Now, unfortunately, the insurance providers are essentially in bed with the government and are continuing to try to paint lipstick on this pig. The real problem in too many cases is that government mandates continue to force insurers to include all sorts of added benefits to standard, employer sponsored plans whether the employers or even the employees want them or not. Do retired, single or intentionally childless couples really have to have a full range of maternity options included? That’s only one of many examples where this increasing menu of government mandated “rights” is making it impossible for providers to offer better deals.

But admitting to that publicly would further sink the entire enterprise, so blaming drug costs is a convenient whipping boy. The reality is that too many healthcare operatives have seen what a disaster Obamacare turned out to be and some of them probably really don’t mind pricing themselves out of the system. As options decrease, the government exchanges are left in the position which most conservatives predicted from the beginning. An army of low income, very sick people are lining up for services and expecting Uncle Sam’s subsidies to cover almost all of the costs while healthier, young people with jobs aren’t signing up, choosing instead to simply pay the non-compliance penalty. (Oh, sorry Chief Justice Roberts… I meant the tax.)