Prescription drug expenses rose substantially industrywide between2013 and 2015, and had an impact of 19 percentage points on the industry medicalloss ratio in 2015, an S&P Global Market Intelligence analysis of NAIC statutorydata reveals.
Industry leader UnitedHealthGroup Inc. reported a $5.19 billion increase in prescription drug expensesover the two-year period but emerged relatively unscathed in terms of the comparablemedical loss ratio impact. UnitedHealth's increase in prescription drug expenseskept pace with its overall growth in business subject to the medical loss ratio,and the MLR impact of prescription drugs held relatively steady at 19.45%, an increaseof 17 basis points since 2013.
The analysis is based on information filed in Part 1 of the SupplementalHealth Care Exhibit, a supplement to the NAIC annual statements filed by insurancecompanies. Where mentioned, the medical loss ratio is calculated as incurred claimsplus defined expenses for improving healthcare quality, and deductible fraud andabuse detection and recovery expenses, divided by adjusted premiums earned. Adjustedpremiums earned exclude federal taxes and assessments; state insurance taxes, statepremiums taxes and other taxes, regulatory authority licenses and fees; and othersimilar taxes. The data is calculated gross of recoveries from federal and stategovernments under an Affordable Care Act reinsurance program and thus directly measuresprofitability of the insurers' business.
Prescription drug expenses are the costs of prescription drugsand other pharmacy benefits covered by the reporting entity, excluding prescriptiondrug charges included in hospital charges. The MLR impact of prescription drug expensesis calculated as prescription drug expenses divided by adjusted premiums earned,keeping the denominator consistent with that of the medical loss ratio.
Unlike UnitedHealth, four health carriers — ,Humana Inc., and Highmark Health — saw the MLR impact of prescription drugscross 20 percentage points in 2015. Health Care Service Corp. reported a 595-basis-pointincrease in the MLR impact attributable to prescription drug expenses between 2013and 2015. Its overall medical loss ratio on business subject to MLR increased 1,062basis points, from 87.95% in 2013 to 98.57% in 2015, with prescription drugs accountingfor more than half of the increase. Health Care Service Corp. specifically ascribedthe MLR increase to "higher prescription drug prices particularly for brandedand specialty medications, and higher cost of care for ACA-related business"in the Management's Discussion and Analysis section of its 2015 annual statutory statement.
Other insurers also have pointed to the increased expenses inbrand-name drugs as a significant cost driver in rising healthcare costs. A recentS&P Global Institute reportstated that national healthcare costs rose 6.5% year over year in 2015, mainly drivenby a 15.83% increase in prescription drug expenses. The hike in brand-name drugcosts, 19.17% year over year, outweighed the corresponding 6.58% increase in genericdrug costs. President Barack Obama also drew attention to rising prescription drugcosts in a July article publishedin the Journal of the American Medical Association,calling for Congress to "give the federal government the authority to negotiateprices for certain high-priced drugs." Previously, a June articleby LifeHealthPRO stated that a group of senators led by Sen. Susan Collins, R-Maine,had questioned the 17-fold increase in the price of a version of naloxone, a drugused to block the effects of opioids, especially in overdose.
New York bucked the nationwide trend of rising prescription drugcosts, as expenses remained virtually flat over the two-year time period. Prescriptiondrug expenses doubled during the same time frame in Florida and Texas, with bothstates leapfrogging New York in dollar terms in 2015.
Connecticut felt the greatest MLR impact of rising prescriptiondrugs costs over the past two years. Prescription drug expenditure contributed 31.43percentage points to Connecticut insurers' medical loss ratio in 2015, well abovethe national average of 19 percentage points. The national average does not includedata for most California health filers because they do not file NAIC health statutorystatements. Health insurers in California file statutory financials to the CaliforniaDepartment of Managed Care as opposed to the California Department of Insurance.
Health insurers in Wisconsin and Nebraska also reported increasesof more than 1,000 basis points in the MLR impact of prescription drugs expensesbetween 2013 and 2015.
Click here for a downloadable template featuring market share calculations for health insurers, based on the Healthcare Supplement and/or A&H Policy Experience Exhibit from statutory statements.