While the primary goals of the Affordable Care Act (ACA) were to expand insurance coverage and make healthcare more affordable, evidence suggests that these goals have not been met in the individual insurance market. Prescription drug costs are growing faster when compared with other markets, and enrollment has declined. This is especially troubling given the large taxpayer subsidies already dedicated to this market.
In a study published today in JAMA Health Forum, we used health insurers’ medical loss ratio reports from 2015 through 2019 to examine prescription drug spending in commercial markets. For large group plans, net drug spending (the net of manufacturer rebates) per member grew annually by only 2 percent on average. This is remarkable considering that many new therapies were marketed. In contrast, net drug spending per member for individual plans grew annually by 11 percent on average. The result is a marked difference in spending per member between the two types of plans.
In 2015, the net drug spending per member was 6 percent lower in individual plans ($644) than in large group plans ($686), but by 2019, it was 35 percent higher in individual plans ($995) than in large group plans ($738). Gross spending (pre-rebate) shows a similar trend. Higher net spending implies higher insurance premiums, while higher gross spending indicates higher patient out-of-pocket costs. In the meantime, enrollment in individual plans dropped by 24 percent, from 16.1 million to 12.3 million.
What could explain this rapid divergence in affordability between individual plans and large group plans? Individual plans might have begun to provide more generous drug coverage or have become less effective in implementing cost-containment strategies to promote the utilization of more affordable medications. Also, since 2014, individual plans must conform to certain regulations set forth in the ACA, while large group plans do not. These regulatory constraints might have raised premiums, causing millions of healthy individuals to opt-out of insurance and deteriorating the risk pools.
Regardless of the explanation, the existence of this health insurance equity issue is undeniable — unsubsidized Americans enrolled in individual plans don’t have the same access to more affordable prescription drug plans as enrollees in large group plans. In 2022, unsubsidized Americans include individuals with incomes greater than 400 percent of the Federal Poverty Level, such as single individuals with income greater than $51,520 and households of four with income greater than $106,000, who do not have access to affordable health insurance through their employer. Employer coverage is considered affordable if premiums are less than 9.61 percent of household income.
For these Americans, whether they work for a large employer dictates their ability to access affordable prescription drug plans. This employment-based affordability imposes financial burdens on these Americans or exposes them to financial and medical risks by incentivizing them to remain uninsured. It also creates a roadblock for entrepreneurship by raising premiums for the self-employed and smaller businesses.
The increasingly unaffordable prescription drug plans on the individual market contradict what the ACA aims to accomplish. A primary goal of the ACA is to improve affordability — especially in the individual market — but unsubsidized enrollees experience the opposite. Another primary goal of the ACA is to expand insurance coverage in the individual market. Instead, enrollment in individual prescription drug plans is shrinking.
These hard-working Americans ineligible for ACA subsidies have been left behind.
One solution is to identify why individual prescription drug plans have experienced decreasing affordability while large group plans have not. By addressing these root causes, constructive policy actions can be taken to at least contain the downward trend of affordability in the individual markets.
An alternative is to make more Americans eligible for ACA subsidies. Once subsidized, their premiums will drop precipitously and the affordability problem will appear to be solved.
However, taxpayers are already subsidizing $55 billion for insurance purchased through the ACA marketplaces each year, growing to $70 billion in 2029. Having observed large group plans’ ability to offer much more affordable prescription drug plans without ACA subsidies, taxpayers are entitled to question why more subsidies are justified. Do these subsidies merely provide the illusion of affordability without actually making individual plans more affordable?
While subsidies may make plans appear more affordable for some enrollees, current and future taxpayers are bearing increasing costs.
Ge Bai, Ph.D., CPA is a professor of accounting at the Johns Hopkins University Carey Business School, professor of health policy and management at the Johns Hopkins Bloomberg School of Public Health. Elizabeth Plummer, Ph.D., CPA is a professor at Texas Christian University’s (TCU) Neeley School of Business and the TCU School of Medicine.