Drug Costs Pose Smaller Financial Burden Amid Generic Boom
By BRUCE JAPSEN

Thanks to greater use of generic drugs, the financial burden of prescription costs has become less of an issue for families in the United States, according to a new study by the RAND Corporation.

The study shows that the number of Americans living in a family that spent more than 10 percent of its income out of pocket on prescription drugs decreased from 2003 to 2008. The decrease in costs to families is in contrast to the preceding five-year period, from 1999 to 2003, when drug costs rose year after year and were a financial burden for an increasing number of families.

The study, released Wednesday afternoon, is published in the February issue of Health Affairs, an academic journal.

The study examined people under the age of 65, which is generally when people obtain drug coverage under the Medicare health insurance program for the elderly. Researchers studied uninsured Americans as well as those with public and private insurance, defining families with a “high financial burden” as those that spent more than 10 percent of their income on out-of-pocket costs for drugs.

The number of Americans with this financial burden rose to 4.3 percent of the United States population, or 10.8 million people, in 2003, when researchers said the burden of drug costs peaked. This compares with 2.9 percent of the population, or 7.1 million people, in the same situation in 1999.

Since 2003, the percentage of people living with a high cost burden fell to 3.1 percent of the population, or 8.3 million people, in 2008, the study showed.

“If prescription spending had not decreased, we’d be talking about an even higher overall burden for health care costs,” said the study’s lead author, Dr. Walid Gellad, who is a RAND researcher and an internist at the Veterans Affairs Pittsburgh Healthcare System. “There are still more than eight million people living in families with a high burden and drug prices are going up, but more people are being helped by taking cheaper drugs.”

The study, which used data from the 1998 to 2008 Medical Expenditure Panel Surveys of the federal Agency for Healthcare Research and Quality, said drug costs slowed as employers and health plans began to provide incentives for choosing generics. For example, many health plans placed more expensive brand-name drugs into higher tiers on their preferred list of drugs, known as a formulary. Drugs in higher tiers have higher co-payments or deductibles, pushing consumers and their doctors to consider less expensive generic alternatives.

“The financial incentives put in by the marketplace worked to contain prescription spending, and that is a positive in this study,” Dr. Gellad said. “Many insurers and employers went to tiered formularies in the last 10 years.”

Americans also began to benefit from widely used brand-name drugs that lost their patent protection in recent years, like the cholesterol pill Zocor, which became open to competition from cheaper generic copies in 2006.
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The RAND study showed that use of prescription drugs continued to increase even while the financial burden declined from 2003 to 2007. That, researchers say, is partly because of increased use of generic drugs, which can be 30 to 80 percent cheaper than branded ones, analysts say.

Between 36 and 39 percent of Americans under 65 filled prescriptions with generic drugs from 1999 to 2003. By 2008, that share had risen to more than half, or 56 percent, who filled their prescriptions using generic drugs, the study showed.

Americans, though, could still have reason to be concerned about future drug costs. For example, the study’s authors said that state governments in need of cash have been looking to increase co-payments for people covered by state-run Medicaid health insurance programs for the poor.

In addition, it remains unclear what kind of drug coverage will be offered by private health plans expected to participate in state-regulated insurance exchanges, which will be the primary choice for uninsured Americans as they look to purchase health benefits under federal health legislation.

“On the exchanges, plans are all going to have essential benefits, but no one has decided how generous the drug benefits are going to be,” Dr. Gellad said.