May 27, 2015

West Coast Watershed: The California Exchange Caps Specialty Drug Costs

On May 21, 2015, Covered California, the state’s health insurance exchange, became the first in the nation to cap a consumer’s monthly cost for a particular prescription. The $250 per-prescription limit will go into effect in January 2016 for the state’s most popular plans, with a $500 cap per prescription for low-premium bronze plans.

The decision is aimed at protecting consumers from paying high costs for specialty drugs at a time when a number of expensive new specialty drugs have recently entered the market. The California decision comes amid growing concern about “underinsured” consumers in the exchanges foregoing needed health care because of the high cost sharing. A Commonwealth Fund study published in early May is one of a few recent reports on this topic.

While no other exchange has capped per-prescription drug costs until now, the Federal Exchanges (operating in two thirds of the states) and a few state exchanges are taking other steps to limit drug management practices, including requiring exceptions processes for off-formulary drugs and banning mail-order only prescription fills. Some regulators are planning more rigorous “discriminatory benefit” reviews to assure that insurer benefits are not dis-incenting sick people from selecting their plans.

Consumer advocates applauded Covered California’s move, but hope it is only a first step. Carl Schmid of the AIDS Institute noted, “While the limits for the California plans are a step in the right direction, they still are high and make prescription drug access difficult for some patients, particularly those in Bronze plans. But overall, it is good news and we hope more states will enact similar restrictions.”

Pharmaceutical manufacturers will surely pay attention to California's action, as California policy has historically been a harbinger of other state action on an industry that is already highly regulated. If rates are not substantially impacted by this move in California, manufacturers can expect other state exchanges following suit. 

All eyes now turn to the insurers and pharmacy benefit managers to see how they will react. Covered California CEO Peter Lee predicted a less than 1 percent rate increase to finance the cap on specialty drugs costs, but California Department of Insurance Commissioner David Jones advocated for a higher cap, fearing greater rate increases.

Filings for 2016 plans were submitted in May; insurers and regulators are now negotiating final rates and benefits for next year. Rates and benefits will be finalized by the end of the summer.

Covered California Press Release

Commonwealth Fund Report

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