Do Insurance Companies Profit from Rising Drug Costs?

Rob Wipond

Many insurance companies have little interest in slowing the rise of inappropriate over-prescribing of pharmaceutical drugs, according to a study in Health Policy. That’s because many insurers ultimately make larger profits from the expanding costs of health care and insurance coverage, stated the researchers.

Though the Canada-based researchers looked specifically at barriers to reducing drug costs in unionized settings, most of their analysis focused on private drug benefit plans. The researchers conducted 18 interviews with companies, unions, insurers and health care drug plan advisors. “Respondents were asked questions on how employee benefits are negotiated; the relationships between the players who influence drug benefit design; the role of these players’ strategies in influencing plan design; the broad system that underpins drug benefit design; and the potential for a universal pharmacare program in Canada,” the researchers wrote.

One of their findings was that insurers are not overly concerned with paying ever-higher costs even for drugs that may provide little or no benefit. “Private-for-profit insurers were described as administrators of plan design who differ in some respects from their not-for-profit counterparts. As one of the insurers puts it, a not-for-profit insurer ‘will always look to reduce costs’ and ‘additional claims’ for their groups, while ‘a for-profit insurer may want the additional claims because they get paid per claim’.”

(Abstract) (Full text) Reforming private drug coverage in Canada: Inefficient drug benefit design and the barriers to change in unionized settings (O’Brady, Sean et al. Health Policy. Published Online ahead of print November 22, 2014. DOI:

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Rob Wipond
Rob Wipond is a Victoria, British Columbia-based freelance journalist who has been writing on mental health issues for fifteen years. His research has particularly focused on the interfaces between psychiatry, the justice system, and civil rights. His articles have been nominated for three Canadian National Magazine Awards, six Western Magazine Awards, and four Jack Webster Awards for journalism. He can be contacted through his website.