Both the U.S. and Canada recently celebrated Thanksgiving, and health insurance is something I’m very thankful for. Especially in the light of the recent decision by Turing Pharmaceutical to hold the new price of its 62-year-old lifesaving drug, Daraprim, at $750 per pill.
Daraprim treats toxoplasmosis—a parasitic infection that can threaten the lives of individuals with compromised immune systems, such as those with AIDs, cancer patients and unborn babies. Toxoplasmosis is most prevalent in areas of the world with hot, humid climates, so it’s not a huge threat in Canada or in much of the US.
Turing will be charging insurance companies $750 per pill for Daraprim while limiting all plan member copays to $10. It sounds like a generous offer, but remember: this is a drug whose cost has increased from $13.50 to $750! And the decision to limit copays has its consequences.
At its most basic, insurance is the sharing of risk among many parties. If a risk befalls one party, the financial consequences are spread across all participants, meaning they all shoulder a portion of the cost.
In the case of group insurance, the participants are employers. The insurance companies are the conduit for the financial exchange, but they hold little risk under drug plans. The money used to pay claims comes directly from the employers who hold policies with the insurer.
For most employers, their rates are a direct reflection of claims paid under the plan. And a single claim can have a big impact.
Consider this scenario: the cost of a pill increases from $13.50 to $750. The premium paid by the employer therefore increases by $736.50 plus the insurer’s expenses (around $59), the premium tax (about $14.75) and, for employers in Ontario, Quebec and Manitoba, the Retail Sales Tax (about $59).
Of course, treatment usually requires more than one pill. Patients will have to take Daraprim for several weeks, pushing the additional cost of treatment into five-figure digits. This additional cost is borne directly by the employer of the individual requiring treatment.
Where copays exist, Turing will limit the out-of-pocket cost to the employee to $10—but the employer may be absorbing costs of $10,000 to $40,000! It’s nice that the drug company has plan members’ interests at heart, but what about the employer’s?
From an employer’s perspective, employee benefits are one of many expenses they must pay from their income. Drugs are funded by corporate revenue in a direct trade-off for other possible uses for those dollars, such as salary increases, equipment improvements, innovation and expansion. When a plan member needs a high-cost drug, there isn’t any new money to cover it.
Is it right that companies and their employees should forego advancements to pay for high-cost drugs? Do drug companies really need to increase their profits this radically to fund new treatment breakthroughs?
I’m thankful that, due to our cold winters, Daraprim isn’t prescribed or dispensed in Canada. I’m also thankful for the Patented Medicine Prices Review Board, which controls patented drug prices. In Canada, patented drug prices can’t be increased above the rate of inflation, and the price of a new drug is limited to the maximum price in seven different countries. So we have a few controls in place that prohibit major cost increases.
Thankfully, there is provincial legislation governing generic drug pricing. In 2010, Ontario limited the price of new generic drugs to 25% of the brand-name drug price. Other provinces have similar limits. While this may not entirely protect employers from high-cost drugs, I’m thankful the provincial governments are keeping a watchful eye.
Lastly, I am thankful for the blessing of good health. Because the best way to control drug costs is not to need one!
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