Formulary Lists May Help Insurers Avoid Covering Chronic Illnesses

Out-of-pocket costs may prevent patients with chronic illnesses from purchasing some Affordable Care Act plans.

Recent research shows that certain insurers have been using high prescription drug costs to prevent some individuals from purchasing their Affordable Care Act (ACA) plans.

Michael Geruso, an economist at The University of Texas at Austin, will be presenting his findings to Congress to inform them about how these companies are preventing chronically ill patients from signing up for their health plans.

A provision of the ACA prevents insurers from charging high premiums for patients with pre-existing conditions. However, recent findings show that patients with multiple sclerosis (MS), rheumatoid arthritis, and some cancers are treated in a way that leads to thousands of dollars in out-of-pocket costs, according to a press release from the university.

Currently, President-elect Donald Trump has said that he plans to keep the provision to protect this group of patients, but they may still face hardships.

“Any future scenario in which there is a goal of guaranteeing coverage for people with pre-existing conditions will face similar challenges,” Geruso said.

In the study, researchers evaluated how health plans sold on ACA marketplaces may use the formulary benefit design to prevent certain patients, who are deemed to be unprofitable, from purchasing their plans through high out-of-pocket costs for certain medications.

The main problem discovered was with risk adjustment and reinsurance, which are measures that the federal government put in place to compensate insurers who cover patients with high costs. For certain patients, these payments are too low for insurers to break even, according to the study.

“If we observe insurers avoiding certain patient types, it means that risk adjustment and reinsurance do not adequately compensate the plan for enrolling such patients,” Geruso said. “Understanding how this type of backdoor — which has featured prominently in the theory of adverse selection — functions in practice is critical to the continued reform of the managed-competition health insurance markets.”

While these measures are meant to remove selection incentives for drug classes, many patients with chronic conditions are predictably unprofitable, the researchers reported.

The most unprofitable patients are individuals prescribed Biological Response Modifiers, such as the MS drug Copaxone. Researchers found these patients typically create $61,000 in claims, but the insurers are only reimbursed $47,000 from risk adjustment and reinsurance payments.

This large discrepancy may incentivize insurers to avoid providing coverage for these patients. ACA plans sold must cover at least 1 drug in each class, but there are no requirements on how the drugs must be tiered in their formulary, which causes insurers to place specialty drugs in higher tiers with large out-of-pocket costs.

The researchers also found that in drug classes with strong incentives to avoid the corresponding patients, the drugs were 50% more likely to be placed on a specialty tier, compared with the same drugs in employer plans, according to the study. In employer plans, these incentives do not exist.

For typical silver plans sold on the marketplaces, this formulary design could potentially lead to $1000 per month out-of-pocket.

“While the current regulatory framework goes a long way toward weakening insurer incentives to avoid unhealthy enrollees, some patients still imply large insurer losses, and insurers recognize that the benefit design can act as a screening mechanism,” Geruso concluded. “The bottom line for consumers is exposure to high out-of-pocket costs and a system in which no plan will offer good coverage for certain illnesses.”