Drugs are expensive

by brendan on 08/22/2009

That’s a picture of the prescription that I picked up earlier this month, the same one that I’ve been taking for about 4 years now. It’s a one month supply; 360 little pink pills crammed into one translucent orange bottle. And it’s generic, too. A Czech-made knockoff of the brand name produced by Novartis. So what does a 30 day supply of a generic drug cost? $561.09, according to my local Walgreens.

I don’t pay $561.09, of course. I have a good job, and with it comes insurance. I pay a $10 copay and that’s it. Your insurance saved you: $551.09, the Walgreens label touts each time I refill. Did it? I think that’s probably a misleading statement. My employer probably saved me $551.09, my insurance company would probably just as soon kill me as look at me if they weren’t legally obligated otherwise.

Don’t get me wrong, I don’t think insurance companies are evil. They’re just profit driven. And being profit driven, they act in very predictable ways. For an insurance company, the basic model is to collect as many premiums as possible, and pay out as few claims as possible. If I was a shareholder, that’s what I’d want them to do. That way my stock value remains high. Greed is Good, as Gordon Gekko would say.

Compare that to the dirty word(s) coming out of the health care debate: The Public Option. So what is that? It means Medicare, but for everybody. Health care either subsidized or completely provided by the government. Should the government be in health care, more than they already are? It would probably lead to higher taxes, certainly in the short term. But a government run model isn’t profit driven, so the goal is to cover as much as possible for as many people as possible. This is a pretty stark contrast from the private insurance model.

Which is better? Which is right? There’s no easy answer here. So why not let them compete? Competition is a pretty American concept, I think. When public schools are failing, we allow people to choose a private school instead (sometimes we even pay for it). I don’t like the unreliability of the Postal Service tracking system, so I choose UPS. I didn’t like the higher cost (and stricter admissions standards) of private higher education, so I chose a public university. Why not create a viable public option for all consumers, regardless of age or income? If I want to keep my company subsidized private insurance, I can do that. My company can decide to drop private coverage entirely, move us all to a public plan, and use the savings to raise my pay. Or they can pocket the savings, and I can choose to find a less money-grubbing employer. You get the idea. Choice is good.

Speaking of money-grubbing, my medical insurance company is against a public option. They sponsor a “pro-reform” site that does little more than ask consumers to basically support the status quo. They even might be going so far as encouraging their own employees to attend anti-reform activities. Can you think of any reason why they feel this way? They would certainly stand to lose subscribers, or be forced to cut profits and operate efficiently enough to keep those subscribers. So they are acting in the way that most supports profits, as they are expected to and as their shareholders would demand.

Stephen Hemsley is the CEO of UHG, and his annual compensation as of last year was 1.3 million dollars. Maybe that’s why insurance companies think it’s reasonable to set a generic 30-day drug cost at $561.09, or an annual cost of $6733.08. Stephen can pay that annual cost in just under 11 hours of work. To be fair, UnitedHealth is my medical insurance – but not my prescription coverage. That is provided for me by ExpressScripts. George Paz runs ExpressScripts, and his total compensation last year was 12.77 million dollars. So for George, it takes him just over an hour of work to cover the annual “retail” cost of my generic drug prescription. If I were George, I’d probably think that was pretty reasonable too, and I’d have little incentive to fight a drug company to reduce that cost. Is it any wonder that insurance and drug companies don’t want reform? The status quo is profitable, very profitable. In the second quarter of this year alone the health lobby spent 133 million dollars to ask congress to ignore you and keep the gravy train flowing. That was the highest amount any sector spent on lobbying last quarter, beating out the 109 million that the insurance sector spent to snag second place. Whose best interest and bottom line do you think they’re looking out for while spending all of that cash?

So what do you think? Do some research (here is the house bill) and come to your own conclusions, don’t just take my word for it. If you agree that we need reform, but you think there is a better way, I’m all ears. I will likely be chained to some sort of health care system for the rest of my life, and my generation will be shouldered with the cost of any decisions (or indecision) made by the generations in power now, so there really isn’t a topic that could be more important to me (or that I could be more eager to discuss).

Better yet, don’t tell me. Tell your representative or senator. And please be civil about it; don’t be one of those ass clowns who shows up at a town hall expressly to scream and prevent real dialogue from taking place. That helps nobody. Well, with the possible exception of health insurance companies, I suppose.

There are 6 comments in this article:

  1. 08/22/2009benmcclanahan says:

    I'll admit I have been avoiding this whole health-care debate like the plague, but I guess I became slightly more interested when I learned my new employer's insurance will cost us about $750 a month as a family. That is, to quote House of Pain, insane in the membrane. Something, anything, cheaper than that would be welcomed with open arms in our home.

  2. 08/25/2009brendan says:

    hat's pretty crazy. I don't know what a family plan is on my insurance, since I'm insured as single, but I'm trying to find the enrollment paperwork so I have something to compare to.

    What might be even more insane is that $750, as high as that is, appears to be below the national average. A couple of quick Google searches yielded different results, but it seems that the current average family premium is somewhere around $1000/month. And that's nuts. Federal minimum wage is $7.25, an annual of just over $15k, which means "average" healthcare is out of the question. The US median household income is $67k, which puts that healthcare premium at about 18% of income. That seems pretty high to me.

    You could always become a tradesman a join a union. Or start a journalist/webmaster union. The fightin' local 404! I have a co-worker who uses her husband's insurance plan, because he's in a union, and they have no monthly premium other than a $50 monthly union due. That's pretty ridiculous too. I guess at least the 12% of the US workforce that is union can have affordable healthcare.

  3. 08/26/2009s00zi says:

    I find it amusing when certain Diatribes bark about the Evil of Insurance Companies. It really depends on how your Pharmacy Benefits are handled.

    In some Cases, your Benefits are handled together with your Health Benefits. I can't speak to their Practices. I actually tend towards the Lemmings on this one, for lack of more Knowledge.

    In other Cases, your Benefits are handled by a PBM. When your Pharmacy Benefits are handled by a PBM, it is the Program adopted and customized by your Employer that affects you, the Member.

    A PBM can suggest Programs and Copays which balance out, but ultimately, the Employer determines how to proceed – which drugs to cover, etc.

    As far as what your Insurance is saving you, the number could be determined several different ways. Often time, the savings presented to you on those "infomative little blurbs" is comprised of Generic savings over brand and overall coverage that your Employer handles.

    Though, I think the blurbs are printed primarily to keep you happy with what you've been given.

    Sorry this is so disjointed. I'm out of it!

    How is my-your-friend? I haven't heard from him in forever. . .


  4. 08/27/2009brendan says:

    Hello s00zi!

    You lost me a little bit with that comment. Am I one of the diatribes that bark about evil insurance companies? I don't think insurance is evil, I think it's profit driven – which in and of itself is not the least bit evil. Companies are supposed to make as much money and achieve as much growth as they can.

    It gets tricky when the sector involved is something that is literally a matter of life and death, such as healthcare. Would an insurance company make a tough decision about care or coverage based on the best interest of the patient? Only if that best interest is also in line with whatever option is most profitable. If the person is too risky in the first place, they wouldn't be covered at all, unless the insurer was forced to because of an employer coverage agreement. Those employer plans are very profitable, but if one company produced too many high risk patients, you better believe the insurer would head for the hills.

    Anyway, I digress. I don't think you were really debating my overall points so much as clarifying how prescription coverage usually works.

    I think what I have is a PBM, since my medical insurance and prescription are not by the same company.

    So with my PBM, it's my company that dictates what the copays are for each drug? How are the original drug costs calculated? Is there just a straight retail rate that everybody pays – individuals, pharmacies, company plans – and my company chooses how much of that cost they want to absorb and how much the employee should pay?

    Or do the costs vary, based on bulk pricing? My PBM is large, so they buy a high amount of drug X, so people/companies using the PBM get drug X at a lower "retail" cost? Or is it my company that buys the drugs on my behalf, and the PBM just facilitates?

    Considering the complexity of what I just asked you, and how infrequently I have the pleasure of a comment from you, that's probably something I'll need to talk to my HR department about.

    If you do stop by again, I would really like to hear your stance on publicly funded insurance as an alternative to private insurance (AKA how do we cover people that are not eligible for or cannot afford comprehensive private insurance).

    Say hi to Imo's and Ted Drewes for me…

  5. 08/28/2009jeffy777 says:

    I read your blog semi regular. I have not ever commented. You are a friend of my brother and I am far away from him and it connects me to read his blog and everyone on his blogroll (Blame him for me commenting).

    I think the real problem is and will not be handled in the health care debate. The real problem in the health care is you can never know what you are getting with insurance or the "Public Option" until you choose it or it gets put on you. Even if you know at the time you buy the insurance they have the right to change their mind.

    Everything about insurance is subjective to interpretation, litigation and almost any other word that ends with tion.

    My wife is diabetic (Type one). She did not get diabetes by poor eating and lack of exercise that is often happens with type two diabetes (but not always). The insurance company said she could not have a insulin pump. They said she is not bad off enough. We debated that with her and the Insurance Commissioner in our state and I filed a complaint the State Corporation Commission. Then they said, oh, sorry you are now approved for an insulin pump.

    Like you said they want to make money, and they do. All insurance is horse racing except they can deny they accepted a bet on you when you joined. They handy-cap you if you already have problems. I am a 1:1 favorite and my wife is an 80:1 long shot. When you go to get you winnings they have mobsters to try and stop you from collecting.

    The government before they enter into anything must determine a good definition of health care and what you are to get for your money. Otherwise no one should get insurance and allow free market ideals reduce costs (that would probably be best). Everyone is afraid of that because like you they put on a bottle you saved $4,567,345 and it only cost you $10. When it actually cost $0.32 to make the drug and 0.10 for the cool package they put it in.

    I don’t believe in health care as we have it and the debate is stupid in my opinion. Private or public you may or may not get what you need to stay alive or healthy health care system seems odd.

  6. 08/28/2009brendan says:

    Hello Jeffy! Thanks for your comment.

    I agree that insurance is subject to interpretation and litigation. That, unfortunately for patients, is a way to keep costs down and protect the bottom line.

    I also agree that the free market can usually do it better. Not always, though. I used to be a card carrying libertarian, literally. I read Hazlitt and von Mises, and you couldn't have convinced me that anything was better than the free market. But I've softened on that stance. There are things that while the free market can do better, it still has no interest in doing because it wouldn't be profitable enough.

    Take police or fire protection, for example. These are state or city run services, funded by taxpayer dollars. They are not efficient, not by private corporation standards. But while they might like to be efficient, their goal is not to be profitable. Their goal is "to protect and serve" or to "keep the town from burning down." A private company would be more efficient, but at the cost of service. You live too far away? That isn't profitable for us to drive so far, so you have to put out your own fire. You didn't pay the annual "police bill" we sent you? You have to fight off that burglar on your own.

    Back to healthcare, I agree that a public system would also be subject to interpretation. But at least with the public system, the underlying goal is to provide coverage. With a private insurance company, the underlying goal is to make a profit. Certainly the private insurance is more efficient, but that's because they're more selective about who they cover (the horse race odds you mentioned) and when they pay out.

    Neither system is perfect. And I'm speaking in great generalizations here, so there are variations of both public and private that are better or worse than I'm describing. But if you have issues with your current insurer, wouldn't it be nice to have a real choice? That's competition, which itself is a very big part of free marketism.

Write a comment: