BILL ANALYSIS
AB 2170
Page 1
Date of Hearing: May 19, 2010
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2170 (Lowenthal) - As Amended: April 27, 2010
Policy Committee: Health Vote:12-6
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill prohibits health plans and insurer contracts that
include prescription drug benefits from increasing copayments or
deductibles for the length of the contract. This bill excludes
Medi-Cal, the Healthy Families Program and Medicare supplemental
policies from the requirements of this bill.
FISCAL EFFECT
1)Increased annual GF costs of $30 million to $35 million to
CalPERS to hold the enrollee share of costs related to
copayments and deductibles steady for the length of contracts.
This estimate relies on data about pharmaceutical expenditures
in preferred provider organizations, but not in managed care
plans. Therefore, actual CalPERS costs will be greater.
2)It is likely the language of this bill is intended to apply to
the relationship between a patient and an insurer. However it
appears the term "contract" in this context may be understood
to apply to contracts between employers and pharmacy benefit
managers or health plans and pharmacy benefit managers. These
types of contracts may run longer than a 12-month period and
sometimes up to five or 10 years in duration. If applied to
these contracts, fiscal impacts will increase further.
3)Significant premium pressures in the private insurance market
to the extent this bill increases overall drug costs.
Prescription drug costs account for 10% of total health care
costs or about $10 billion in the private California insurance
market. Prescription drug costs are at times among the fastest
growing components of health care spending. To control costs,
health plans and employers use cost-sharing (copayments and
AB 2170
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deductibles) for patients. Higher cost sharing arrangements
steer patients toward less expensive, generic medications when
clinically appropriate. An increase of 1% to 3% in
prescription drug spending may result in premium pressures of
$100 million to $300 million.
4)Secondary unknown but potentially significant fiscal impacts
to the extent this bill prevents insurers and pharmacy benefit
managers from employing utilization management approaches such
as fail-first protocols. These protocols may determine what
medications are prescribed and in what order. Unknown impacts
on negotiations related to manufacturer rebates. Such rebates
reduce overall pharmaceutical expenditures.
COMMENTS
1)Rationale . This bill prohibits health plans and insurers from
increasing prescription drug copayments or deductibles during
the length of a contract. Some patients choose health plans
during open enrollment based on the out-of-pocket cost of
specified medications. According to the author, some patients,
especially those with chronic diseases, find themselves in a
bind when copayments increase unpredictably or significantly.
This bill increases pricing stability for patient
out-of-pocket expenses related to medications.
2)Background . Health plans, insurers, and pharmacy benefit
managers rely on formularies to encourage the use of the most
clinically and cost-effective medications. A formulary is a
list of preferred prescription medications. The primary
purpose of a formulary is to balance patient access and safety
with the most cost-effective treatments available. There are
three types of formularies. An open formulary provides
coverage for all medications, whether listed on the formulary
or not. With a closed formulary, drugs not listed will not be
reimbursed by the payer. A partially closed formulary is an
open formulary with select classes of drugs not covered.
3)Concerns . Health plans and insurers are opposed to this bill.
Insurers indicate prohibiting plans from altering copayments
for drugs hinders the ability to offer incentives for patients
to use more affordable drugs that are medically equivalent.
Cost-effective generic alternatives enter the market
throughout the year and do not coincide with the timing of an
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individual or group contract. According to opponents, limiting
the ability to move drugs from one formulary tier to another
will have the unintended consequence of increasing the overall
costs of care.
4)Related Legislation . AB 1826 (Huffman), also being heard in
this committee today, requires health plans and health
insurers to provide coverage for a medication prescribed for
pain without first requiring a patient to use an alternative
prescription or over-the-counter product.
Analysis Prepared by : Mary Ader / APPR. / (916) 319-2081