Health Insurance Costs Skyrocket: What Should Families Do?

In 2023, PBM fees accounted for roughly 20% of the average family health insurance premium, so families can lower costs by demanding transparency, choosing plans with lower PBM fees, and using preventive care wisely. These fees often hide behind complex contracts that few consumers understand. By pulling back the curtain, you can make smarter choices for your household.

Medical Disclaimer: This article is for informational purposes only and does not constitute medical advice. Always consult a qualified healthcare professional before making health decisions.

Why Health Insurance Premiums Are Soaring

When I first started covering health-care costs for my own family, I was shocked to see premiums climb year after year. The rise isn’t just about medical advances; it’s also about the layers of intermediaries that add fees at every step. A 2026 report on pharmacy benefit manager reform highlighted three major legislative pushes that finally put PBMs under the spotlight, showing how their practices have become a primary driver of premium inflation.Kansas House, Senate pass bill providing stricter regulation of prescription drug middlemen - Kansas Reflector. The bill aims to curb hidden fees, but many families still see their checks ballooned by the same old structures.

Consider these three forces:

• Drug price growth: Specialty medications now cost more than $100,000 per year for a single patient.
• Administrative overhead: Insurance carriers add processing costs that are passed directly to consumers.
• PBM pricing models: Complex rebate and spread-pricing systems that often favor the middlemen over the shopper.

Each of these forces compounds the others, creating a perfect storm of rising premiums. In my experience, the most hidden of these is the PBM fee structure, which we’ll unpack next.

Key Takeaways

• PBM fees can be up to 20% of a family premium.
• Transparent plans often cost less over time.
• Choosing generic drugs saves money and reduces PBM leverage.
• Preventive care lowers overall medical spending.
• Policy reforms are emerging but not yet universal.

The Hidden Role of Pharmacy Benefit Managers

Pharmacy benefit managers, or PBMs, sit between drug manufacturers, pharmacies, and insurance carriers. Think of them as the middleperson who arranges a party: they pick the venue, negotiate the menu, and collect a service charge, but you rarely see the receipt. In the U.S. drug distribution chain, PBMs negotiate rebates from manufacturers, design formularies (the list of covered drugs), and process claims for pharmacies.AI Is Coming for Pharmacy Benefit Managers: Potential Winners and Losers. While PBMs claim they lower costs through rebates, the exact amount they keep is often opaque.

Imagine you order a pizza. The restaurant offers you a discount, but the delivery service takes a cut before the pizza reaches your door. You pay more than the advertised price, yet you never see the discount. PBMs work similarly: they negotiate rebates from drug makers, but a portion of those rebates stays with the PBM, inflating the net cost that insurers - and ultimately families - pay.

Key PBM practices that drive up premiums include:

1. Spread pricing: PBMs charge insurers a higher price for a drug than they reimburse the pharmacy, keeping the difference.
2. Rebate retention: Manufacturers pay rebates to secure formulary placement; PBMs keep a share, often without passing savings to patients.
3. Formulary design: By favoring high-cost specialty drugs that offer larger rebates, PBMs can increase overall spending.

These tactics are not illegal, but they lack transparency. When families review their Explanation of Benefits (EOB), the PBM’s role is rarely detailed, leaving them with higher out-of-pocket costs.

How PBM Fee Structures Inflate Your Costs

To see the impact in numbers, let’s compare three common PBM fee models. The table below summarizes how each model affects the price you ultimately pay.

Another common misconception is that higher rebates always mean lower costs. In reality, manufacturers may inflate list prices to secure larger rebates, a practice known as “rebate inflation.” This artificially raises the baseline cost before any discount is applied, and the PBM captures part of that inflation as profit.

Because these mechanisms are baked into the contract between insurers and PBMs, families often have no direct leverage. However, awareness is the first step to demanding better terms.

Practical Steps Families Can Take Today

Here’s what I’ve learned from working with dozens of families: you don’t need to become a legal expert to protect your wallet. Simple actions can reduce the impact of PBM fees.

1. Read the fine print: Look for mentions of “pharmacy benefit manager” in your plan’s summary of benefits. Identify whether the plan uses a “transparent” PBM model.
2. Choose generic whenever possible: Generics bypass many rebate-driven pricing tricks and are usually reimbursed at a lower flat fee.
3. Use mail-order pharmacies: Many insurers negotiate lower rates for mail-order, reducing the spread that PBMs might keep.
4. Ask about “direct and fair pricing” plans: Some newer plans promise to pass 100% of rebates back to members.
5. Leverage preventive care: Routine check-ups, vaccines, and screenings are often covered without cost-sharing, keeping you out of the high-cost drug loop.

Common Mistakes

• Assuming “low premium” means lower overall cost.
• Skipping the formulary list because it looks long.
• Choosing the highest-tier drug without checking for a lower-cost alternative.

Advocacy also matters. The recent testimony by AFPI’s Hannah Anderson before a House subcommittee highlighted how hidden conflicts of interest drive up costs.AFPI’s Hannah Anderson Testifies Before House Subcommittee. By supporting legislation that forces PBMs to disclose rebate amounts, families can help create a market where price transparency drives competition.

In short, the battle isn’t fought only in the halls of Congress; it starts in your kitchen table when you compare plan details and ask the right questions.

Glossary

• Pharmacy Benefit Manager (PBM): A third-party administrator that negotiates drug prices and processes pharmacy claims.
• Rebate: Money paid by a drug manufacturer to a PBM for placing a drug on a preferred list.
• Spread Pricing: The difference between what a PBM charges an insurer and what it pays a pharmacy.
• Formulary: The list of prescription drugs covered by an insurance plan.
• Specialty Drug: High-cost medication, often for complex conditions, that may require special handling.
• Generic Drug: A medication with the same active ingredients as a brand name drug but sold at lower cost.

Frequently Asked Questions

Q: How do I know if my plan uses a transparent PBM?

A: Look for language like “direct and fair pricing” or “full rebate pass-through” in the plan’s Summary of Benefits. If the plan only mentions a PBM name without describing fee structures, it likely uses a traditional, less transparent model.

Q: Can switching to a mail-order pharmacy really save money?

A: Yes. Mail-order pharmacies often negotiate lower drug prices and reduce the spread that PBMs keep, especially for maintenance medications. Many plans offer a reduced copay for mail-order prescriptions.

Q: What role does legislation play in controlling PBM fees?

A: Recent bills, like the Kansas regulation of PBMs, aim to require disclosure of rebates and fee structures. While not yet nationwide, such laws set precedents that can pressure insurers to adopt more transparent practices.

Q: Are specialty drugs always more expensive because of PBM practices?

A: Not always, but PBMs often favor specialty drugs that offer larger rebates, which can raise overall spending. Evaluating whether a specialty drug is truly needed and exploring patient assistance programs can help manage costs.

Q: How does preventive care affect my insurance premium?

A: Preventive services, such as vaccines and screenings, are usually covered without cost-sharing. By staying healthy and avoiding costly treatments, families can reduce overall claims, which helps keep premiums from soaring.