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How do prescription costs affect my premium?


This is a complex question that should be addressed from several angles to help shed light on the seriousness of this issue.  It is estimated that nearly 35-40% of every premium dollar you pay for health insurance is set aside for Rx costs. That doesn't leave allot of room for ER coverage, regular physicals, planned or unplanned procedures, disease treatment, maternity and the list goes on.

  1. First I need to point out that the number 1 reason for health insurance premiums on the rise is the cost of medications.  The national health insurance rate increase last year (2004) was 22%  It is projected that this year alone should be nearly 27%  I want to indicate that if you are a current client whom we manage we combat these type of increases affectively through various strategies some of which can be viewed here> http://www.texas-health-insurance-online.com/Health-insurance-shopping-tips.html .  After you have had a chance to read this article about prescriptions please take a minute to go here to read what the Texas State Insurance Board says > http://www.tdi.state.tx.us/consumer/serg01.html. There you can see what the "Base" rate is in your area and the complex formula to determine it.  I say "Base" because it reflects normal health and not high risk or current health conditions which causes rates to be more.
  2. Secondly, I need to illustrate the differences of charges between a "hospital facility"  vs. "prescription".  Those of you whom have been in a hospital for a procedure can remember getting statements (EOB) from the insurance carrier. On that statement you may have noticed the total bill AFTER the discount. You see the hospital contracts with the insurance carrier for "discounted" rates.  In turn the hospital shows that "discount" as a loss.  As long as the hospital retains in JACO certification they are able to submit that loss to federal and state government agencies for reimbursements.  This achieves cost control overall for a insurance carrier. Not to mention "reinsurance policies" that a carrier buys from another insurance entity to cover large one time claims. BUT prescriptions are different. When you submit a prescription at a pharmacy for payment, you pay a copay. Right?  The insurance company pays the difference of the cost of that medication.  Whatever the cost is with NO predetermined discounts and the insurance carrier can't purchase "reinsurance policies" to cover these types of losses.  You can remember when we had just "Generic" and "Name Brand" Rx copays?  Now we have all kinds that get my head swimming. We have Generic, Name Brand, Formulary, Non Formulary, Discounted, and least but not last % copay. Carriers have come out with these copay options to combat the rising costs of medication as well as the hundreds of medications that are released into the market through FDA approval.
  3. This brings the third point. Do you remember the presidential debate about allowing prescriptions into the United States from Canada?  How can that help health insurance rates?  Competition combats inflationary pricing.  That is really the bottom line and history has proven that.  Everyone knows that many prescriptions in the United States are "inflated" in pricing.  I will address this latter in the article. Why hasn't Canadian prescriptions been allowed in the United States? FDA must approve any prescription for open market use prescribed by physicians.
  4. My fourth point here will begin to stab at the heart of the issue.  When the FDA approves a medication for general release into the market just about all health insurances do not cover it very well or even at all.  Especially if it is a "Elective" medication used to treat symptomatic issues not related to maintenance of a health standard.  Some examples are Viagra and Weight Loss medications.  When these medications are released into the market they still undergo field studies and FDA gathers results from general public use. Some medications are found "Unsafe" and pulled off the market.  Some recent medications pulled from market are like VIOX.  Legal damages are estimated to reach 18 million. See> http://www.vioxx-center.com/ .  So what does Merck pharmaceutical do to stabilize such losses.  Current medications they distribute and any new RISE IN COST.  Who pays for that?  You and mostly insurance carriers. This is why President Bush is fighting to place "CAPS" on medical and pharmaceutical judgments.  It is the most effective way to get overall costs down.
  5. To summarize there are no regulatory mechanisms in place to control the cost of prescriptions.  Federally this can be done by applying a cap on the time period a pharmaceutical manufacturer can exercise "Patent" restrictions.  This will push Name Brands into Generic distribution faster. (See bullet below). The other mechanism that can regulate costs is open market competition.  The FDA is already strained now to breaking point.  A entire arm of the FDA would need to be created to "police" the quality of medications allowed into United States or manufactured so that the "patient interest" is always #1 concern.  In closing, hopefully this article helps shed a little light on the issue of why health insurance increases every year and what we do to combat it for you.  More importantly what you can do to voice your concern with your state representative or senator.

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Health Savings Accounts
Out of Pocket Costs
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Texas House Bills introduced March 05
Texas House Bills Confirmed April 2005