Pharmaceutical manufacturers often pay significant rebates on brand-name medications to pharmacy benefit managers or health plans to reduce the cost of pharmacy benefits and promote their brand-name drugs. Traditionally, these rebates have been provided to payers—not to health plan members.\n\nPayers use these rebates to reduce their costs, in theory lowering members’ premium rates. In this scenario, plan members using brand-name medications have the same out-of-pocket (OOP) costs for prescriptions, whether a rebate is received or not. However, the rise in prevalence of high-deductible health plans (HDHPs), increases in the list prices of drugs, and the rise in rebates to mitigate payer costs have raised interest in passing rebates directly to health plan members at the point of sale (POS).\n\nA recent report, prepared for the Pharmaceutical Research and Manufacturers of America (PhRMA) by the actuarial firm Milliman, found that POS rebates may lower patient costs and would have a minimal impact on premiums for health plan members with employer-sponsored benefits.\n\nThe report used Milliman’s proprietary Claims Simulation Model and a national commercial claims data set to model the impact of applying all POS rebates to predict the resulting reallocation in payer costs and member cost-sharing, relative to a baseline scenario across different plan types typically found in the commercial employer-based insurance market:\n\nA traditional preferred provider organization (PPO) plan:\n\n$1200 deductible\n\n80% coinsurance up to $4000 in OOP maximum costs\n\nPharmacy costs subject to no deductible\n\n$12 generic copays\n\n25% coinsurance on preferred brands up to $55\n\n35% coinsurance on non-preferred brands up to $80\n\n30% coinsurance on specialty prescriptions up to $200\n\nAn HDHP with pharmacy co-pays after deductible (Co-pay HDHP):\n\n$2800 deductible\n\n80% coinsurance up to $6000 in OOP maximum costs\n\nPharmacy costs subject to the medical deductible\n\n$12 copays on generics\n\n$35 copays on preferred brands\n\n$60 copays on non-preferred prescriptions\n\n30% coinsurance on specialty prescriptions\n\nAn HDHP with pharmacy coinsurance after deductible (Coinsurance HDHP): \n\n$2800 deductible\n\n80% coinsurance up to $6000 in OOP maximum costs\n\nPharmacy costs subject to the medical deductible and coinsurance\n\nThe analysis used 3 hypothetical patient profiles with conditions represented by specific pharmacy utilization data, and assumed that patients took at least 1 medication in the underlying categories of complex diabetes, diabetes with chronic respiratory disease, or autoimmune disease.\n\nThe model assumed that brand-name dipeptidyl peptidase-IV inhibitors and insulins used in the treatment of diabetes provide 40% rebates off allowed retail costs, and that anti—tumor necrosis factor agents used to treat autoimmune diseases and anti-asthmatic products used to treat chronic respiratory disease provide rebates of 30% off allowed retail costs, while other brand medications provide 35% rebates, and specialty medications provide 15% rebates.\n\nThe analysis posits that the following would result from a change to providing POS rebates:\n\nHealth plan cost increases would be minimal, with an average increase of 1.0% or less. These plan costs may result in higher premium rates or benefit reductions, but the impact would likely be small, the report states.\n\nPatients in HDHPs would see the largest reduction in OOP costs. Members in the Coinsurance HDHPs—50% of whom currently have costs between $2800 and $5600—would see the greatest savings if rebates move to POS. Total cost reductions would vary by a member’s baseline OOP spending, and would be distributed among members who are in a cost-sharing phase of the plan and take brand products that have a rebate.\n\nThere is the potential for significant per-prescription reductions in member costs at the pharmacy for brand prescriptions. Patients whose pharmacy cost sharing is in the deductible or coinsurance phase of a Coinsurance HDHP could see POS cost reductions averaging over $200 a month per prescription.