Prescription Drug Insurance Plans: Potential Cost Reductions and the Pass-Through of Manufacturer Pharmaceutical Rebates to Premiums

In response to the recent moves to reduce prescription drug expenses and eliminate manufacturer pharmaceutical rebates for Medicare and Medicaid, this research investigates the pass-through of manufacturer pharmaceutical rebates to premiums and examines the potential prescription drug cost reductions through efficiency improvement. The results indicate that eliminating all pharmaceutical rebates but using 50% of the eliminated rebates to lower prescription drug list prices, the premium per member month would increase by $8.6 for the whole comprehensive line, and $19.1 for Medicare Advantage. Using the median efficiency as the efficiency goal, the total cost reductions on hospital/medical expenses, prescription drug expenses, and other expenses are always more than enough to offset any potential premium increases due to the elimination of pharmaceutical rebates, no matter how much of the eliminated rebates are used to lower prescription drug list prices.