Source: Centers for Medicare & Medicaid Services

The Trump administration's plan to force insurers to pass on drugmaker discounts to seniors at the pharmacy counter would upend the market and raise consumer premiums in the end, health insurance executives warned investors this week. "Our perspective is that that would raise premiums for the broader populations. And that in of itself I think creates some disruption in the marketplace that we have to think through," Humana Chief Financial Officer Brian Kane told investors on a call discussing the company's earnings Wednesday. The Trump administration proposed a ban one week ago on confidential discounts pharmacy benefits management plans negotiate with drugmakers when it comes to government Medicare and Medicaid plans. Health regulators do not have the authority to ban them for private commercial plans, but Health and Human Services Secretary Alex Azar is pressuring Congress to adopt laws that would do so.

Higher premiums, less choice

The move would require individual drug discounts to be passed directly to those buying high-cost drugs at the pharmacy counter to reduce their out-of-pocket costs. But some argue that those discounts are now used to lower overall drug plan insurance premiums, so the proposal would likely result in higher premiums and less consumer choice, executives said. It also presents a major challenge for companies now with an uncertain future and planning to determine coverage for 2020 beginning this spring. "As a company we completely support what the administration is trying to do … to lower the drug costs. We believe that's the right thing to do," said Bruce Broussard, Humana CEO, on the company's earnings call with analysts Wednesday. But the proposal comes down to "just reallocating dollars." Humana executives say seniors in the standalone Medicare Part D market are drawn to plans with the lowest monthly premium costs. This year that will result in the company's co-branded Medicare Part D plan with Walmart losing market share to competitors that offered cheaper plans; the company forecast a decline of 700,000 to 750,000 in its Part D enrollments for 2019. Humana reported fourth-quarter profits of $2.65 per share, which exceeded Wall Street analyst estimates, on revenues of $14.2 billion, which also topped expectations. Despite warning of lower Part D prescription drug plan enrollment for 2019, the insurer reaffirmed its expectation that its Medicare Advantage growth will be on track to add more than 375,000 members.

Change in 2020

Humana executives say the uncertain timing of when the new rebate rules would be implemented could also pose a challenge for insurers as they begin to prepare rate plans for 2020 this spring. "To keep your prescription drug plan extremely competitive … you could either try to target larger rebates or you can make it more narrow and push more market share to fewer products," said Steve Miller, chief medical officer of pharmacy benefits firm Express Scripts, now a unit of health insurer Cigna. He predicts the new regulations will result in more restrictive Medicare Part D plans. Using those negotiation tactics, Express Scripts claims in its 2018 Drug Trend report that it was able to bring drug spending down 0.3 percent for its plans that served Medicare members last year. While Express Scripts, UnitedHealth Group and CVS Health started offering plans that pass on rebates to their individual customers this year, trying to get ahead of the debate over so-called middlemen fees, the firms say their commercial pharmacy benefits clients have generally not made the switch.

Beyond rebates

Rival Centene told investors it is already looking to move beyond rebates on all of its plans. The nation's leading Medicaid and Obamacare exchange insurer says it is working with its new tech pharmacy benefits partner, RxAdvance to develop new data-driven drug coverage models. "I have a commitment to figure out is there some way to move to net pricing as opposed to rebates," Centene CEO Michael Neidorff said on the company's earnings call Tuesday. "It's not going to be instant," he added. "As we're able to demonstrate more and more of it, you'll see it." The proposed rule must undergo public review, with a comment period of 60 days, which is likely to conclude in the spring just as insurers are preparing to price new plans for 2020, which could make some insurers more uncertain about offering Part D plans next year.

Exodus

"I think (the administration's plan) is going to further contribute to the exodus of beneficiaries" out of Part D plans, said John Gorman, founder of the Gorman Group health policy consulting firm, adding that could actually benefit insurers' ability to sell private Medicare Advantage plans which cover both medical and drug benefits. "Prescription drug plans ... (are) a product that has become a conversion platform to Medicare Advantage," which is more profitable for insurers, he explained. "Humana and Walmart have defined that art … it's been their biggest growth engine, bar none." Indeed, Humana chief executive Broussard says stand-alone prescription drug plans have become a commodity, and the rebate debate underscores the need for them to evolve. "We want to use these changes as actually a way to enhance the value proposition outside of just running the price down," Broussard said.

Lowering costs