The Truth About Drug Pricing
In advance of the 2020 election, AARP has launched a Stop Rx Greed campaign that is demanding elected officials and candidates “crackdown on price gouging and the greedy practices that keep prices artificially high.”
That’s a noble objective. But if AARP wants to crack down on such behavior, it should start with its own profiteering.
AARP is a for-profit financial juggernaut with $4 billion in assets (including $365 million in cash) that generates nearly $1 billion a year in fees and royalties from marketing Medicare Part D prescription drug and health plans for United Healthcare.
AARP- United Healthcare Medigap plan (insurance that covers certain drugs and other expenses not covered by the traditional Medicare program) currently serves 4.9 million seniors nationwide through various Medicare Supplement products in association with AARP. With 34 percent of the market, AARP is the largest Medigap insurer in the country. That’s three times the share of its closest competitor Mutual of Omaha.
Anyone who buys Medigap insurance knows, premiums keep climbing. Yet AARP doesn’t use its buying power to help offset such increases. Instead, nearly 60 percent of AARP’s total revenues— $940 million - comes from a 4.95% rebate paid to them by United Health Care and other insurance companies who license the AARP name to sell Medicare supplemental plans and other insurance products. In fact, the 4.9% rebate is the single largest expense of United’s Medigap program and more than double the 1.85% profit that UnitedHealthcare makes on the insurance product.
Next, AARP also collects premium payments for United Healthcare. It holds the payments for 31 days. During that time, AARP invests the money in real estate, hedge funds, bonds and stocks before transferring the money to United. All told, AARP collected $11.8 billion in premium dollars in 2018. It has used that money to build a portfolio of about $4 billion in net assets that generate about $300 million a year in cash, tax-free.
AARP also gets a flat fee for sponsoring United HealthCare Medicare part D and Medicare Advantage plans. Both forms of insurance have the largest share of their respective markets. Such plans get cash rebates from drug companies in exchange for covering specific medicines. Those rebates don’t reduce the out of pocket cost of drugs patients take. Indeed the biggest portion of rebates come from expensive new drugs used by people with life-threatening conditions such as cancer, autoimmune diseases, and HIV. Patients taking such medicines don’t get to use rebates to reduce their spending. Indeed, AAPR plans require them to pay up to 40 percent of the retail cost of such medicines.
And the rebates don't reduce premiums either: While the Stop Rx Greed campaign claims drug prices are skyrocketing rebates reduced net brand drug prices by 52 percent between 2014-2019 Meanwhile, AARP Medicare Part D premiums jumped by 68 percent during the same time period.
The campaign criticizes the rising price of insulin medications. But AARP plans do not cover Basaglar a less expensive biosimilar version of brand-name insulin’s, Lantus. The retail price of Lantus has increased, but the net price has fallen due to rebates, which the AARP part D plans pocket. It covered Neulasta, a drug that boosts the immune system of cancer patients, that retails for $6100 a month but not biosimilars Udenyca and Fulphila which retail for $4100.
Even when they cover generic versions of high-priced brand drugs, AARP plans still have seniors pay up to a third of the retail price of medicines. AARP plans cover a brand drug for versions hepatitis C called Epclusa as well as its generic formulation. It turns out that the post-rebate prices of these drugs are about the same. As a result, AARP plans will maximize the spread between list and net prices even when generics are available.
You would think that AARP and its campaign support passing rebates dollars to patients. Think again. AARP aggressively lobbied against government regulations that would have required part D plans to use rebates to reduce out of pocket costs. Then again, AARP makes billions from plans that profit by forcing the sickest patients to pay the most. Perhaps before campaigning against price gouging, AARP should first stop screwing the consumers they claim to represent.