How drug and device pricing shape insurance underwriting

The pace of medical innovation in the U.S. is extraordinary. Curative gene therapies, specialty biologics, and breakthrough devices are redefining what's possible in patient care. But the price of progress is steep. U.S. drug costs are almost 2.8 times higher than in other nations-and prices continue to climb-putting patient access to treatment at risk.

For insurers, each jump in launch price impacts underwriting assumptions, stop-loss layers, and premium calculations. The challenge is building underwriting strategies resilient enough to manage rising healthcare costs while ensuring members have timely access to the therapies they need.

Pricing as the first domino

Prices sit at the top of an insurer's cost structure. A therapy's launch price or a device's reimbursement code sets the starting point for claims forecasts and risk assumptions. A $50,000 cardiac device that becomes standard of care can upend actuarial tables; a gene therapy with a multimillion-dollar price tag can threaten solvency if not priced into reserves. Even rare disease drugs, while serving small populations, can generate outlier claims large enough to distort trend projections if not fully understood.

Manufacturers often defend steep prices with evidence of clinical value, research and development investment, or potential downstream savings like reduced hospitalizations or fewer complications. For underwriters, the task is to translate list prices, minus rebates or discounts, and expected uptake into projected claims and credible cost curves.

Ultra-high-cost therapies and actuarial exposure

The new generation of one-time or curative treatments illustrates the stakes. Casgevy, a gene therapy for sickle cell disease, lists at roughly $2.2 million per patient. Lyfgenia, another therapy for the same condition, is priced at $3.1 million. These figures don't just challenge pharmacy budgets; they require sophisticated actuarial modeling to estimate how many members might qualify, how quickly uptake will grow, and what reserves are needed for catastrophic claims.

As the pipeline for high-cost therapies expands, payors must scenario-test prices at launch and over time. Even a modest deviation from assumed price points can result in multi-million-dollar variance in plan spending.

Real-world utilization matters

Knowing the launch price is only part of the equation. Insurers must also account for rebates, discounts, and other contracting terms that shape the net cost and then layer in how a therapy is used once it reaches the market-how often, in which settings, and what downstream costs follow. Without this intelligence, costs can balloon unexpectedly or leave carriers exposed. In short: understanding today's real-world utilization is key to forecasting tomorrow's cost.

GLP-1s are a prime example: initially approved for diabetes, drugs such as Ozempic, Wegovy, and Mounjaro are now widely prescribed for weight management. From 2018-2023, spending on these agents rose by more than 500%, reshaping formulary strategy and driving premiums higher. Factoring in this kind of utilization trend is just as critical as price.

Policy and market pressures on pricing

Price behavior doesn't exist in a vacuum. Patent expirations and biosimilar launches can pull branded prices down, while federal and state actions, like those around price transparency and cost-effectiveness evaluations, can shift negotiating leverage and influence how insurers approach contracting and trend assumptions.

For example, drugmakers have scaled back price increases for branded drugs after public scrutiny over mid-decade hikes. More recently, the Inflation Reduction Act (IRA) has allowed the Centers for Medicare & Medicaid Services (CMS) to negotiate prices for certain high-spend Medicare drugs directly with manufacturers. While the law applies only to Medicare, its benchmarks can affect broader market pricing and, by extension, how commercial insurers model costs and structure contracts.

For insurance underwriters, these policy currents and market dynamics matter because they inform projections-whether prices will spike, plateau, or slowly erode. A pending biosimilar launch, for example, may justify a softer assumption for trend two years out, whereas an FDA fast-track for a high-priced therapy may warrant extra margin or stop-loss coverage.

Underwriting in practice

Translating price intelligence into sound underwriting is where data meets strategy. Actuarial teams must account for list prices, net prices after rebates, and the potential for mid-cycle changes. They model how price escalations affect premiums, how stop-loss layers protect against single-shock claims, and how self-funded employer contributions might need to adjust.

Some carriers are adopting installment-payment arrangements or carve-out strategies for therapies above a defined price threshold. These funding mechanisms don't change the therapy's underlying price but can spread financial exposure over time, improving predictability.

Collaboration on pricing insight

Sustainable coverage depends on early, transparent discussions about pricing. Manufacturers, pharmacy benefit managers (PBMs), and payors all benefit from sharing assumptions about launch ranges, price-per-outcome frameworks, and the cadence of potential increases. Upstream intelligence allows underwriters to embed realistic numbers into budgets before rates are finalized.

Understanding pharmacoeconomics and market access trends is increasingly a core competency for insurance organizations. Teams that combine real-world clinical data like claims data with utilization dynamics and price analytics are better positioned to align premiums with actual exposure. The sharper the forecast is, the more competitively and responsibly carriers can set rates.

Data as the foundation for pricing decisions

As innovation accelerates, price discipline becomes the foundation of sustainable health coverage. Insurers that monitor pricing pipelines, anticipate regulatory shifts, and model multiple price scenarios can set rates that protect solvency while keeping lifesaving therapies within reach for members.

Biopharma and medtech innovation will continue to challenge traditional cost models, but a disciplined, data-rich underwriting process ensures that progress in medicine and patient access move forward together. By combining clinical insight with rigorous actuarial analysis, insurers can anticipate rather than react to trend shocks, protecting both solvency and member access.

To put this into action, Definitive Healthcare gives you the tools to see the full picture: track prescribing, monitor real-world utilization, and make smarter underwriting decisions. See how it works-get a demo today.