Mark Cuban has an interesting tweet:
If you run a self-insured company, I STRONGLY suggest you compare how much you spend on generic drugs to our pricing. We analyzed what the Mavs spent over the last 2 years. It was $165k. With @costplusdrugs it would have been $19k ! For more info https://t.co/N2By7eQwdg
— Mark Cuban (@mcuban) September 25, 2022
Many large employers are self-insured for health insurance. This means that the employer pays all the claims. They contract with an insurer to run the process but the insurer only charges a monthly per member per month fee. The insurer processes claims and negotiates rates with clinicians and hospitals to produce a network. The insurer does not make or lose money if spending is higher or lower than expected. The employer takes on all of the risk and thus takes on the upside of saving money.
There is a lot of evidence that self-insured plans pay the highest rates. Self insured plans pay a bit more for the same clinician and the same service than the insurer that is processing their claims pays for plans where the insurer takes on all of the risk. There is a good amount of evidence that there is a huge mismatch in plan selection between what benefits most of the workforce and the plans actually presented/chosen by HR.
Cuban is raising a good point that the most expensive part of the US health care system routinely leaves a massive amount of money on the table where they are buying absolutely nothing. Switching generic drug supplier to save 80% of spend in a given category has no obviously downside for the payer (the employer) or the beneficiaries. Beneficiaries are either unaffected if the benefit design is either no cost-sharing for generics or co-pay only or better off if the the cost-sharing design is deductible or co-insurance based. The payer is better off because they are paying less. The big losers are the other generic drug manufacturers and perhaps the insurer’s prescription benefit manager (PBM) who can move fewer covered lives to get rebates.
The Mavericks are not a big company. They’re tall but not big. They are leaving a lot of money on the table. Much larger companies are also likely leaving money on the table. I was having a discussion with a fellow insurance nerd a few weeks on this topic. We were scratching our head as to where the incentive mismatch occurs and we don’t have great explanations. Is it a matter of brokers and insurance agents mostly being captured by insurance companies instead of their theoretical clients? Is it a matter of incentive mismatch between HR and the C-level? Is it a matter of rational ignorance or very high transaction costs to negotiate distinct contracts? Is it inertia? We don’t know, but whomever can figure this out will be making a lot of money wringing out a notable inefficiency in the most expensive slice of the US healthcare spending budget.