HIV-Prevention Drug Correlates with Income Gap

What sparked your interest in this particular drug and its impact on the market?

I’m from Ireland and have been in the U.S. for 15 years. Coming from a country that has a very different healthcare system, I was interested in this space and wanted to learn about the U.S. system. When I began studying it, I learned a lot of wacky pieces of information—one being that, for employer-sponsored insurance, the cost to the firm varies with the medical expenditures of their workers.

It’s experience rated, meaning if I have workers with lots of expenditures, over time I can get charged more when my contract comes up for renewal. Firms are worried about the costs, and workers are continually paying a greater and greater share of those costs. But employers still pay the vast majority. This could mean employers could be sensitive to hiring certain kinds of workers. It might not have been a big deal 30 years ago. Even if one employee was more expensive, it wasn’t as huge, because healthcare costs were much lower. But now, just a 10% difference could be a big deal.

If you look at the latest data from Kaiser, the annual cost per worker was around $7,800 in 2021 for individual healthcare coverage. [According to the Kaiser Family Foundation, single coverage in 2021 was $7,739, and family was $22,221. The average family premium has risen 47% over the past decade.] If you can have a lot of workers in your firm that are lower cost, you can reduce your healthcare expenses; that is a key insight from experience-rated health insurance plans. Think about the distorted incentives that creates. If you hire one worker who will cost less and do the job as well, you will favor that worker. It could make an employer seek out younger, healthier, nonsmokers, or people who are not obese—a low-risk workforce.

And this is the space you’ve been studying?

I have a number of papers, and the most recent is on Truvada. I was shocked when I found out about a research paper on the effectiveness of the drug. [According to the Centers for Disease Control and Prevention, taking PrEP as prescribed can decrease the risk of sexual transmission of HIV by 99%.] It’s designed to reduce HIV acquisition rates, but as an economist, the kinds of questions you ask are: it works well in trials, it prevents spread, but does it lead to those same effects in real time? For instance, are those who are already super careful the ones taking it, which would skew the numbers. I also noticed that it costs $24,000 per year to take. My thought was, if you hire someone taking it, that is going to dramatically increase healthcare costs for a business.

What is the uptake on the medication?

About 30% of eligible men are taking this drug. Those are sexually active gay and bisexual men between the ages of 18 and 45. That’s lots of money. Lots of people are having this drug paid for or partially paid for by insurance. Employers should be on the hook for the whole thing, because it is considered preventive care and has to be paid for fully under the Affordable Care Act.

How did you perform the study? Were the data difficult to tease out?

This drug, in particular, was ripe for a research study, because it affects a very particular group of workers. They are a relatively easy-to-identify group of people and are often discriminated against already. With other expensive drugs, unless the employers can figure out who is taking it, it’s more difficult to pass along cost. You need motive and opportunity for this.

So I looked at the earnings of men likely to take it and compared that to the salaries of heterosexual men. I estimated the gap in earnings before Truvada was approved and compared it to the same gap after Truvada was approved. I found that about a $2,600 difference emerges. It was only after Truvada’s approval, and it happened pretty sharply after that.

I have some figures in my paper that show a gap in 2009 and then in 2012 and in 2013, and you see an immediate jump in that gap. That $2,600 represents about a 3.9% gap in earnings size.

That is nowhere near the drug’s cost of $24,000 per year, which is what you would expect to see if every gay and bisexual man who could take it was taking the drug.

So employers can’t completely recuperate what they are spending on a medication but can mitigate some losses through payroll?

They can’t completely close the gap. But not all of the men who can are using the drug, so there is not a huge increase in costs. But even with all of the people who are taking it, that would probably lead to a $7,000 to $8,000 cost in employing this group. Employers aren’t able to pass along the costs perfectly, only some of it to some of the workforce. So someone who is already employed and starts taking the drug—that kind of person should not be affected—so they work against me finding anything in the data.

An employer can’t reduce someone’s salary because of a health condition. Then how do these kinds of reductions take place in the workforce?

This could play out in the labor market in multiple dimensions. What you would expect could be an employer not hiring someone who could be on Truvada because the worker would cost more to insure. In my study, I found a 10.7% increase in part-time employment, which an employer can do to avoid giving someone benefits. Someone may not get a promotion or switch to a firm where they are paid better, where someone who is not openly gay or bisexual could get that promotion. A gay male worker may not get as big of a raise as everyone else. Or if a company is downsizing, those might be the first workers to go.

My work isn’t the first to show this. It follows in a long line of literature from the 1990s that found, when states required maternity benefits to be covered by insurance, young females who were married suffered big declines in jobs. And 30 years later, we are still seeing it. It is discriminatory, and treating people differently based on their health status is illegal. But someone doesn’t have to be prejudiced toward a particular group to behave this way; it’s just a response to the increase in costs. If there was an expensive drug taken by smokers to help them quit, there could be a similar response to the increased costs.

And your theory is that experience rating allows this kind of knowledge for employers even though using it in a discriminatory manner is illegal?

I don’t think it’s legal to say which workers or groups led to an increase in healthcare costs. But a third-party administrator (TPA) is allowed to say which procedures and drugs are adding to an employer’s costs. They can tell an employer what categories their spending went up in and what was contributing to those costs.

But if they say 5% of your workforce is using Truvada and an employer sees that, then they have told the employer who is taking the drug. The system is supposed to be set up to avoid that happening, but if certain medications or procedures are taken by a small group of workers that are easy to target, it can be obvious. And any good TPA should be communicating with their clients about what is adding to their costs.

Your findings showed that the changes were specifically among gay men, not others who may be taking the drug?

Yes. That’s the key thing. The strongest argument in support of the research is, when I repeated the exercise for lesbian and bisexual females, I found no comparable effect for that group. And if it were affecting all homosexual couples, I would expect to see the same thing for females, not just gay and bisexual men.

It seems the focus tends to be on younger, white men who are more likely to be taking the drug. And you find larger effects, over the $3,000 earnings gap, that emerge among younger groups and white men. I would expect them to suffer the biggest decline in earnings. During the study period, it was a relative decline. Wages were going up for everyone, but they went up a lot more for nongay, non-bisexual people.

What are other possible repercussions? Are other meds/high-cost treatments potential places employers may start cutting?

It depends on whether they are able to figure out who is making costs rise. There are so many expensive drugs, and they are becoming increasingly more so. There is not enough research on how that affects those workers more likely to use the drug.

Another class of medications I’m looking at are GLP-1, obesity breakthrough drugs. They are extremely expensive, and there is an easily identifiable group of workers who are likely to take them. We’ll have to wait to see how many people use it and if it is covered by insurance to understand its impact.

It seems from the research that it is those kinds of workers—minorities, women and people with disabilities—that have historically faced discrimination in the labor market for different reasons that could see this happen.

But the way I see it is employer-sponsored health insurance doubles down that expenditures are correlated with minority status or females. On average, a female employee will have 20% more expenditures per year than a male, which makes it more expensive to employ females. And this isn’t just during childbearing years; it varies over time but proceeds through the life cycle. Women are just better at going to the doctor and filling prescriptions, and they use their health coverage more than the typical man, all else being equal. This creates a big distortion in the labor market that employers have to think about when hiring.

Research shows this kind of behavior has been going on for decades, but you don’t see it in the courts in discrimination cases. It’s happening, and no one is watching. That’s probably because it can be difficult to prove discrimination. If someone files a claim, the employer can pull out their file and show the number of times someone was late to work and when that employee didn’t do things perfectly. Or an employer can try to avoid it just by not hiring those workers in the first place.