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Why can’t people afford their prescription drugs?

That’s been a hot question among lawmakers here in Michigan, and every other state. It’s a question we think about a lot, too, at Lilly.

We believe every American should have affordable access to the medicines they need. For every dollar in sales in the U.S., Lilly gives back 50 cents in rebates and discounts.

The problem is more and more people now have insurance plans with high deductibles, which require them to pay full sticker price for their medicines—with none of the rebates they’re supposed to get.

Companies and federal Marketplace plans have increasingly adopted high-deductible designs to keep premiums low. But the impact—especially for prescription drugs—is to shift expenses from the well to the sick. That’s the opposite of what insurance is supposed to do.

Legislators want to fix this problem. Some states have passed transparency laws in an attempt to force pharmaceutical companies to lower their sticker prices. What they don’t realize is that transparency of sticker prices already exists. GoodRx and other services already can tell us the list price of every U.S. medicine.

But no one with insurance is supposed to pay these sticker prices. They’re supposed to get the benefit of the $150 billion in annual rebates from pharmaceutical companies.

So the real problem we need to fix is the growing number of patients who are being required to pay sticker prices. To do that, state leaders need to address policies and practices that create high out-of-pocket costs.

Insurance plans require patients to shoulder nearly 20 percent of their prescription drug costs, but less than 5 percent of their hospital costs, according to an analysis by the PhRMA trade group. And that gap is widening.

In a survey of employers with health plans, 68 percent told the Pharmacy Benefit Management Institute that they use every dollar of rebates from pharmaceuticals to lower their own costs, sharing nothing with employees.

Many Medicaid plans do the same. Medicaid programs on average actually receive more in rebates than they pay for each vial of Lilly’s insulin. That’s the lowest price in the world. Yet in many states—including Michigan—those rebates don’t go to help patients with diabetes. They’re used in the general fund for other priorities.

In the long run, this is counterproductive for state governments, health insurers and employers.

That’s because nearly 90 percent of all health care spending goes to treat chronic disease or their complications. Making medicines more expensive—especially for chronic diseases—is more likely to lead to increased costs and worse health outcomes.

So what can states do? Two things: promote value and empower consumers.

State Medicaid programs can encourage the private health insurers they hire to try value-based arrangements—rewarding medicines that prove they keep patients’ chronic conditions in check and paying less for those that don’t.

Medicaid should also be encouraged to experiment with innovative funding, such as paying over time or uniting pharmaceutical and medical spending into one bucket, rather than managing them separately.

One of the best resources for these ideas is the Center for Value-Based Insurance Design at the University of Michigan. Since 2004, it has studied the most innovative experiments by employers.

The other key tool is to empower consumers, especially by making it affordable for them to control their chronic diseases.

Making prices transparent is a pre-requisite for empowering consumers. But to do that, we have to make rebates transparent, so patients can understand the true net prices of their medicines.

At Lilly, we pass through the rebates we receive to our high-deductible health plan members at the point of sale, so our employees who need the most financial help get it. UnitedHealthcare and Aetna will start doing the same next year. And we hope many other companies follow suit.

Lilly also excludes chronic medications like insulin from our deductible. That helps our workers afford their medicines and helps Lilly save on hospital bills. We think it would help patients and health plans at all employers, including state governments.

These practices can help everyone—drug companies, health plans and patients—achieve the goal we all share: keeping people healthy by giving them affordable access to the medicines they need.

David A. Ricks is chairman and CEO of Eli Lilly and Co., a pharmaceutical manufacturer based in Indianapolis, Ind.

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