New Jersey May Become Latest State to Cap Out-of-pocket Cost of Medications

There’s a bipartisan push to cap what patients pay for drugs. It could cut their bills in half, but not everyone’s on board

New Jersey officials hope the Garden State will join a growing number of states that have capped out-of-pocket patient costs for pharmaceuticals, an approach advocates said could cut annual medical expenses by one-third — or even in half — for some people suffering from complex diseases such as blood cancers and HIV/AIDS.

But the bipartisan proposal to cap the costs, which was approved Thursday by the Senate budget committee, has prompted concerns among business groups and health insurance companies. They acknowledge patients are suffering from the high costs of medications, but fear the bill will actually drive up the cost of coverage over time — by as much as $1.9 billion over five years in New Jersey, according to one study commissioned by the insurance industry.

The bill (S-814), sponsored by Senate Majority Leader Loretta Weinberg (D-Bergen) and Senate Minority Leader Tom Kean Jr. (R-Union), would cap patients’ out-of-pocket costs at $100 or $200 a month, depending on the type of plan, for a 30-day supply of any medication. These limits would apply even if the patients hadn’t reached their deductible in a traditional plan; those in so-called high-deductible plans would need to pay the full deductible before the caps would kick in.

As drafted, these limits would apply to individual and small business insurance plans; coverage sold through the state’s Affordable Care Act “exchange;” and programs that cover state, county and municipal workers, as well as teachers. It would not apply to millions of New Jerseyans insured through self-funded plans used by many large corporations and the federal government, or those covered by FamilyCare or Medicaid, which already limit patient costs.

At least half a dozen states have passed similar “copay cap” laws in recent years, championed by a diverse array of patient advocates — representing those with arthritis, AIDS, epilepsy, multiple cancers and mental health and addiction issues — and backed in some cases by the pharmaceutical industry. The New Jersey measure, first introduced in 2015, now requires a full vote in both the Senate and the Assembly; the Assembly version was approved by a committee in October.

Studies show that skyrocketing drug costs are a growing component of the nation’s escalating healthcare costs, with some specialized treatments costing tens of thousands of dollars each. Some drug makers have taken heat for the increases — like Mylan, which hiked the cost of its lifesaving EpiPen from $75 to $600 in recent years.

But pharmaceutical costs are also impacted by a complex matrix of purchasing and contracting decisions that play out between pharmaceutical companies, insurance providers, and firms that act as middlemen. Earlier this month Gov. Chris Christie signed a law directing the state to hire a high-tech firm to provide oversight of its drug-purchasing process, which he estimated could save $200 million a year. New Jersey now spends some $2 billion on medicine for its roughly 700,000 public workers.

And while state regulation and federal law, under the Affordable Care Act, place some restrictions on copays, experts said a growing number of insurance plans also involve co-insurance, in which patients must cover a percentage of the cost for a drug or service (in addition to a copay.) For those with complex cancers, persistent pain or chronic conditions like lupus, treating their disease can cost them hundreds of dollars each month for drugs alone.

“Excessive out-of-pocket costs for prescription drugs can be financially draining for residents who are suffering with serious and chronic health conditions, and in some cases may leave patients unable to get the treatment they need,” Weinberg said. “Capping these costs will provide greater access to critically-needed medications and financial relief to residents who are spending a significant portion of their income on these drugs.”

Tina Jacobs with the Susan G. Komen North Jersey office relayed the story of 63-year-old Debbie Biase, of Berkeley Heights, who is deep into her second battle with cancer — and was too sick to attend Thursday’s hearing in person. Even with health insurance, the cost of Biase’s hospital-based treatment has meant the loss of her day-care business, relocating to live with her daughter’s family, and giving up her own car.

“Many times these patients must chose to pay their rent, their utilities, their food bill — or for their medicine, which is keeping them alive,” said Jacobs, who was among the more than three dozen advocates who issued their support for the bill. “This is a choice no one should have to make.”

But representatives of the insurance industry and small business groups said that, while they agree pharmaceutical costs are a huge problem, this bill is not the right solution. The measure, in their view, fails to address the root of the problem — the high prices charged by drug makers — and may actually escalate costs over time, as insurance companies and employers would have less latitude when trying to negotiate discounts with pharmaceutical companies.

“We think this is actually a cost driver,” explained Ward Sanders, president of the New Jersey Association of Health Plans, which represents commercial insurance providers. “It is in fact a cost shifting bill, rather than a cost saving bill.”

Mary Beaumont, with the New Jersey Business and Industry Association, said that while protecting customers is laudable, a cap is likely to add to employers’ burden. “These small businesses are already struggling to pay the cost” of health insurance, she said. “Even the slightest increase in premiums would make this much more difficult.”

Sanders shared an actuarial analysis by Oliver Wyman, a consultant hired by the Pharmaceutical Care Management Association, which represents the pharmacy benefits managers who serve as intermediaries between insurance companies and drug makers. The report predicted the cap envisioned by the bill would add $1.9 billion to the cost of insurance premiums over the next five years. Capping drug costs also would reduce the patient’s incentive to opt for lower-cost treatments that may be just as effective as those with a higher price tag, the consultants found.

However, an analysis conducted by Milliman Inc., a consultant hired by the patient advocates, suggests the impact of a cap bill would be limited. With the State Health Benefits Plan — which covers state, county, and local workers — limiting costs to $100 a month for each medicine would trigger premium increases of less than 1 percent, Milliman found, or 1.6 percent for a $200 monthly cap.

The cap would benefit certain patients significantly, Milliman found. For patients taking one of a half-dozen specialty drugs, annual savings ranged from 32 percent for blood cancer patients to 42 percent for arthritis sufferers to 55 percent for those with HIV/AIDS. “Patients are struggling every day with the cost of these medicines,” Jacobs said, “and just having insurance is not always enough.”

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