California health care premiums rose. Are prescription drug costs the biggest culprit?

The California Department of Managed Care put out its second report aimed at increasing transparency on prescription drug costs, but perhaps the most startling revelation from the document comes in a footnote showing that health plans greatly expanded their reporting the data.

Insurers build a margin of profit into their annual premiums, and in 2018, they more than doubled the profits they received, driving it up to $2.75 billion from $1.01 billion the prior year. Regulators said in the 14th footnote that three health plans accounted for the increased profit of roughly $1.74 billion.

A DMHC spokesman said that state mandate prevents them from providing the names of the three health plans. The law requires that information be aggregated to ensure that it cannot identify individual plans.

No other factor driving the cost of health plan premiums increased as much as the profit margin. Overall, premium costs rose by $4.14 billion to $71.33 billion in 2018, and roughly 42 percent of increase was because insurers took more profit.

Taxes and fees, however, also had a far greater impact on premiums than the cost of prescription drugs. The cost of taxes and fees jumped 30 percent year over year to $2.46 billion, compared with a 4.7 percent increase in prescription drug charges.

Overall, however, the cost of prescription drugs eats up a much bigger slice of the premiums than do either the profits or the taxes and fees. In 2018, the 26 health plans that filed information with regulators reported spending $9.05 billion on prescription drugs.

Health plans paid out a total of $71.33 billion. The largest expenditure from this pot, roughly $52.99 billion, went toward medical expenses, and that was a 2.7 percent increase from 2017.

“Health plans paid more than $400 million more on prescription drugs in 2018 than they did in 2017,” said DMHC Director Shelley Rouillard. “This rate of increase outpaces the increase in overall medical expenses, impacting the affordability of health care. This report provides greater transparency into prescription drug costs so the public can better understand the impact to health care premiums over time.”

The DMHC's report contains detailed information on sales of generic, brand name and specialty drugs, showing the most frequently prescribed medications as well as the most costly ones. The lists of most commonly prescribed drugs provide insight into the ailments plaguing many Californians.

The 25 most common prescriptions on the specialty drug list, for example, included nine HIV antiviral drugs, three for diabetes, three to help people living with Crohn's disease, plaque psoriasis and forms of arthritis.

The most common generics prescribed included eight medications to treat cardiovascular conditions; four to treat depression; and two each for diabetes, chronic respiratory ailments and pain relief. The 25 most commonly prescribed brand-name medications included eight for diabetes, four for chronic respiratory conditions, and four hormonal agents for either contraception or thyroid management.

Although specialty drugs made up a tiny fraction of the volume of drugs prescribed, less than two of every 100 medications, they accounted for 52.6 percent of the total dollars that health plans paid out in 2018, the data revealed.

The report also showed the value of getting generic prescriptions when possible. Although generics represented 87 percent of the volume of drugs prescribed in 2018, annual spending on them represented just 22.4 percent of the total spent that year. Brand name drugs came in at 11.4 percent of volume but 25 percent of spending.

As the price of drugs increased, the DMHC report showed, plan members shouldered less of the cost. Insurers paid out a little more than $2.5 billion to cover specialty drugs, while members paid out roughly $80 million. Health plans paid out roughly $1.1 billion for brand name drugs and $195 million for generics, and members paid out $168 million and $245 million respectively.

California Gov. Gavin Newsom, as part of his budget proposal last week, introduced a suite of legislation intended to drive down the cost of prescription drugs, including contracting with some manufacturers to produce medications for the state.

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