On March 23, 2010, the U.S. health care system changed dramatically with the passage of the Affordable Care Act, triggering a wave of new regulations, system updates, and policy revisions. While the immediate focus was on compliance and operational changes, a deeper issue loomed in the background: the high cost of health care in the U.S. Despite spending nearly 18% of GDP on health care, which is almost twice as much as other developed nations—the U.S. continues to rank low in care quality, pointing to systemic inefficiencies.

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In response to rising concerns over these disparities, the Society of Actuaries (SOA) and the Kaiser Family Foundation launched Initiative 18|11 in 2017, joined later by the Healthcare Financial Management Association. Their goal was to examine cost drivers and identify ways to address them, focusing particularly on the price of services and the chronic disease burden. At the initiative’s 2018 event, experts from across health care disciplines highlighted the fragmented nature of U.S. health care and the lack of transparency in pharmaceutical pricing as key barriers to cost control.

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To address these challenges, the SOA created a new initiative called “Actuarial Perspectives on Prescription Drug Financing,” aimed at analyzing the pharmacy ecosystem from an actuarial standpoint. This series of research articles explored four main topics: the drug development process, economic and consumer impact, and the regulatory framework. Actuaries involved examined how drugs are created, priced, distributed, and regulated, offering insights into how each stage influences overall costs and patient access.

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Among the key findings were the roles of stakeholders such as manufacturers, wholesalers, PBMs, and pharmacies, as well as the impact of pricing mechanisms like rebates and manufacturer coupons. One article also focused on direct-to-consumer advertising, a practice rare outside the U.S. and its influence on health care decisions. The analysis showed how opaque pricing, misaligned incentives, and rising use of specialty drugs all contribute to escalating costs that burden consumers and the health system alike.

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From these studies, four common themes emerged as opportunities for meaningful reform: improving transparency, fostering competition, aligning stakeholder incentives, and mitigating rising health care costs. Actuaries, with their analytical skills, are uniquely positioned to create new models that measure the real-world effects of pharmaceuticals such as cost savings, treatment adherence, and life expectancy to design value-based contracts that reward outcomes rather than volume.

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Looking ahead, the initiative plans to release further research on pharmacy regulations and specialty drug development. As the U.S. continues to grapple with how to control prescription drug costs, actuaries will play an increasingly vital role in shaping data-driven, equitable, and sustainable solutions. For students entering the field, this work illustrates how actuarial science extends beyond insurance and pensions that impact public health, policy, and economic well-being.

 

Reference:

https://www.theactuarymagazine.org/actuarial-perspectives-on-prescription-drug-financing/