Retirement Matters
November 2024
Michigan Sues Pharmacy Benefit Managers (PBMs) — On October 24, 2024, Michigan Attorney General (AG) Dana Nessel filed a lawsuit against OptumRx and ExpressScripts PBMs for their role in the Opioid Epidemic in Michigan. In 2022, Michigan reported 2,998 overdose-related deaths. This followed a pattern of increased deaths between 2000 and 2020, as Michigan’s opioid death rate rose by an average 13.9 percent per year. Nessel alleges that these PBMs colluded and conspired with opioid drug manufacturers for years. They negotiated with the manufacturers to award favorable placement on their formularies, or list of covered drugs, in exchange for financial kickbacks. This lawsuit is likely to impact the industry as more than 80 percent of Michigan’s PBMs come from OptumRx, ExpressScripts, and CVS Caremark. Nessel already entered into a national settlement with CVS in 2023.
AG Nessel alleges, “PBMs created common-law and statutory nuisance by allowing and promoting opioid use in Michigan and committed negligence in breaching their own contracts by failing to employ reasonable standards of care in the sale, delivery, and dispensing of opioids. The Attorney General further alleges that the PBMs participated in illegal marketing of a controlled substance and that the People of Michigan were injured by those who abused those substances, establishing a claim under the Drug Dealer Liability Act.”
PBMs Seek Profits Over Lower Prices — State employee retirees receiving Defined Benefit Health Insurance will recognize Optum Rx as the company providing their Rx drug benefits. State retirees in our particular OptumRx plan don’t receive rebates directly. The Federal Trade Commission (FTC) alleges that PBMs are reaping profits instead of lowering prices. PBMs can negotiate discounts and rebates with drug manufacturers, contracts with pharmacies, and develop and maintain drug formularies. Since a PBM decides which drugs it covers, it can bargain for rebates from drug companies who want to get their products on its formularies.
These shady practices reveal how PBMs can influence the prices for regular Rx drugs like insulin. The FTC determined that as insulin prices rose, the PBMs kept rebates that should have helped beneficiaries buying Rx drugs at the pharmacy. Vulnerable patients with deductibles and coinsurance can pay the unrebated higher list price and do not benefit from rebates. They may pay more out of pocket for their insulin drugs than the entire net cost of the drug bought commercially. Yet, these PBMs continued these practices that shifted to high list prices for patients. The FTC alleges that PBMs violated Section 5 of the FTC Act, prohibiting “unfair or deceptive acts or practices affecting commerce.”
Michigan’s Proactive PBM Regulation — At the federal level, PBMs have been unregulated for decades. States like Michigan have taken action to protect consumers and pharmacies, although they have been challenged by the PBM industry. In 2022, Governor Whitmer signed three laws, based on the recommendations of the Prescription Drug Task Force she established. It authorized the Michigan Department of Insurance and Financial Services (DIFS) to regulate PBM licenses and establish licensing and renewal fees. It prohibits using “gag clauses”and “spread pricing”to increase costs, confusion, and reduce transparency. It requires PBMs to file transparency reports with DIFS on how the cost and profit of medications was determined.
The 2025 Social Security (SS) Cost of Living Adjustment (COLA) — On October 10, the Social Security Administration announced the 2025 SS COLA of 2.5 percent, based on the inflation report by the U. S. Bureau of Labor Statistics. On average, SS retirement benefits will increase by about $50 per month starting in January 2025. The calculation for the new year COLA rate is based on price increases from July, August, and September of the current year, compared to the same months of the previous year. COLA is tied to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). It is based on average prices of household items like food, housing, and transportation. The good news is that the high inflation rate of 2022 has subsided.
State of Michigan Investment Board (SMIB) — Michigan’s state government officials, alongside investment and actuarial professionals, have managed our retirement systems wisely, with strong funding policies in place, and by reinvesting the earnings back into the plan. The State Employees’ Retirement System (SERS) pension investments have earned consistent long run rates of return. The cumulative, ten-year time-weighted rate of return was 8.9 percent as of 6/30/24. These returns continue to be strong, despite global and domestic volatility and challenges.
SMIB Members — These rates of return don’t just happen in a vacuum. Achieving them requires strong leadership. Within the Michigan Department of Treasury, the board is comprised of the State treasurer, who serves as the board’s chairperson, the State budget director, and three individuals. These individuals have institutional investment or extensive financial experience. They are appointed by the Governor to serve four-year terms. These appointments are not subject to the advice and consent of the Michigan Senate.
The SMIB Structure — It is an important benefit to retirees because it allows the SMIB to act as a fiduciary for the State’s pension funds. This means they have a legal duty to prioritize the best interests of their beneficiaries. The board structure supports investment strategies that may require rapid adjustments, based on market conditions, without getting mired down in political considerations. Further, this structure allows the Governor to appoint highly skilled financial and investment experts without needing to negotiate political issues through the confirmation process.
Dina Richard Reappointed to SMIB — In October, Governor Whitmer reappointed Dina Richard of Kewadin to the SMIB for a four-year term. She brings with her vast professional financial knowledge and experience. Richard is a financial professional with knowledge and understanding in securities investment, pension administration, pension law, and fiduciary management experience of investment pools that are like the Michigan Retirement Systems. Richard brings the experience of serving in leadership roles on several boards impacting retirement systems. She is a certified public accountant and a Master of Business Administration in finance and international business from Wayne State University.
Editor’s note: Joanne Bump serves as feature columnist for “Retirement Matters.” Column content is time sensitive and is based on information as of 11/10/24. Joanne can be contacted by e-mail at joannebump@gmail.com.
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