The authors summarize evidence on drug spending, other health care costs, and premiums in commercial markets. They also present findings from initial analyses of prescription drug data reported to the U.S. government by insurers and health plans. This research will provide a framework for later analyses related to a planned series of biannual public reports from the U.S. Department of Health and Human Services.

Prescription Drug Prices, Rebates, and Insurance Premiums

Andrew W. Mulcahy, Preethi Rao, Lindsey Patterson, Annetta Zhou, Jonathan S. Levin, Rachel O. Reid, Sarah Junghee Kang, Zetianyu Wang, Susan L. Lovejoy

ResearchPublished Dec 5, 2024

The authors summarize evidence on drug spending, other health care costs, and premiums in commercial markets and summarize extant evidence on associations between drug spending and premiums. They also present findings from initial analyses of 2020 and 2021 Prescription Drug Data Collection (RxDC) data reported to the U.S. government by commercial insurers and group health plans. This research will provide a framework for later analyses related to a planned series of biannual public reports from the U.S. Department of Health and Human Services.

Premiums, deductibles, and out-of-pocket maximums have grown in magnitude over time overall and across different plan types. Formularies, which are the lists of drugs covered under a drug benefit, are becoming deeper (that is, having a greater number of tiers to differentiate drugs at different cost-sharing levels) over time. Deductibles increased on average by 5 percent annually between 2014 and 2022 among employer plans and by 8 percent annually between 2014 and 2023 among Marketplace plans with combined medical and prescription drug deductibles. When analyzing RxDC spending information, the authors found ratios of net to gross drug prices of roughly 0.8; in other words, for every $100 initially paid by plan sponsors to pharmacies, plan sponsors later receive $20 back in the form of rebates and other discounts. In this initial experience working with 2020 and 2021 RxDC data, the authors found that plan sponsors, insurers, and pharmacy benefit managers used inconsistent and varying approaches to aggregating and attaching identifiers to their submissions.

Key Findings

  • Nearly all enrollees in large group health plans have prescription drug coverage through the same plan that provides their broader health insurance.
  • Patient out-of-pocket spending as a share of total drug spending was relatively constant for those with group and Marketplace coverage and decreased by roughly 50 percent for those with off-market individual coverage. For retail-dispensed prescription drugs, average annual cost sharing for enrollees in large group plans was relatively stable, decreasing from $125 in 2014 to $109 in 2019 (not adjusted for inflation). Despite this modest relative decline overall, the authors found that aggregate out-of-pocket spending in dollar terms increased dramatically for some therapeutic classes from 2014 to 2020, including a near-doubling of out-of-pocket spending for oncology drugs.
  • Relatively little existing empirical research links drug spending directly to premiums, changes in benefit design, or other specific impacts on consumers.
  • There is broad consensus that price negotiation and rebates result in net prices that are substantially lower than gross prices.
  • Inconsistencies in the submission of data in this first reporting cycle prevented analysis of the relationship between drug spending and premiums.

Recommendations

In future rounds of RxDC data collection, the U.S. government should clarify and standardize reporting instructions and processes

  • Require reporting at a standardized plan sponsor/segment/state level. (This includes rescinding a suspended aggregation restriction provision that allowed pharmacy benefit managers to report RxDC data at a more aggregated level than their plan sponsor clients.)
  • Broaden and standardize how submitter identifiers are reported and linked.
  • Clarify and require that amounts come from the plan sponsor perspective.
  • Include enrollment, spending at net and gross prices, and out-of-pocket spending consistently across all templates.
  • Add high-level breakdowns for single-source brand, other brand, and unbranded generic drugs.
  • Update documentation and instructions annually.
  • Provide technical assistance and organize listening sessions with pharmacy benefit managers and plan sponsors/issuers on an ongoing basis.

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Document Details

Citation

RAND Style Manual

Mulcahy, Andrew W., Preethi Rao, Lindsey Patterson, Annetta Zhou, Jonathan S. Levin, Rachel O. Reid, Sarah Junghee Kang, Zetianyu Wang, and Susan L. Lovejoy, Prescription Drug Prices, Rebates, and Insurance Premiums, RAND Corporation, RR-A1820-3, 2024. As of April 8, 2025: https://www.rand.org/pubs/research_reports/RRA1820-3.html

Chicago Manual of Style

Mulcahy, Andrew W., Preethi Rao, Lindsey Patterson, Annetta Zhou, Jonathan S. Levin, Rachel O. Reid, Sarah Junghee Kang, Zetianyu Wang, and Susan L. Lovejoy, Prescription Drug Prices, Rebates, and Insurance Premiums. Santa Monica, CA: RAND Corporation, 2024. https://www.rand.org/pubs/research_reports/RRA1820-3.html.
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