Should Health Plans Cover Medical Cannabis Costs?

Since the passing of the Marijuana Tax Act in 1937, which effectively criminalized cannabis, the United States has made little progress towards its federal legalization. It was not until 1996, when California passed Proposition 215, allowing for the sale and medical use of marijuana, that things began to change. With the passing of Proposition 215 in California, 37 states and the District of Columbia legalized some form of the medical use of cannabis and, according to a November 4, 2021 article by Gallup, support for the federal legalization of cannabis reached an all-time high in 2021 of nearly 68% of Americans.

Most recently proposed is the Marijuana Opportunity Reinvestment and Expungement Act of 2019, which passed the House of Representatives on April 1, 2022. This act would remove cannabis from the federally controlled substances list and establish a 5% sales tax on cannabis, among other changes. The U.S. government could gain billions in tax revenue and create hundreds of thousands of jobs from its legalization. It begs the question, is it only a matter of time before cannabis is federally legal?

Health Plans and the Cost of Medical Cannabis

As we inch closer to the federal legalization of cannabis, everyone is wondering, are my health plans going to start covering the cost of my medical cannabis?

It is a great question that will be a long and treacherous process that could take years to see through. There are some hurdles that health plans could go through if cannabis became federally legal before there could be cannabis coverage.

The first and biggest hurdle for cannabis coverage is that cannabis would need to be FDA approved. This process could take weeks, months, or even years to complete. Each drug that goes up for approval takes place within a framework that includes assessing benefits and risks from clinical data, strategies for managing risks, and analysis of target conditions and available treatments. All this is done to determine if the drug provides benefits that outweigh its known and potential risks for the intended population. All health plans have a “Drug Formulary.” These are listings of prescription drugs covered by a prescription drug plan. If the drug is not on the list, the participant will have to pay full price instead of a copayment or coinsurance, though there are some exceptions. Most, if not all, of the drugs listed on these drug formularies, are FDA approved, and it is highly unusual for a health plan to add a drug to the formulary if the drug has not been FDA approved.

If FDA approval were obtained, health plans would then focus on the cost of insurance benefits and other factors during the implementation of medical cannabis coverage. This would include several studies and cost analyses to determine the true cost of covered benefits for health plans.

In a Milliman report on “Mandated coverage of medical cannabis: Costs and Implications,” commissioned by Greenwich Biosciences, Inc., health plans will have to deal with the following “other costs” outside of the costs of claims, such as:

  • One-time start-up costs: Commercial insurers and Medicaid programs would have initial start-up expenses prior to incorporating medical cannabis into their benefits. There would likely be costs associated with research and project claims to calculate premiums or capitation rates, enhance existing claims systems to integrate with dispensaries and medical cannabis transactions, expand utilization management programs to monitor patient use of medical cannabis, and ensure compliance with state legal requirements concerning medical cannabis regulation.
  • Ongoing Administrative Expenses: There would be additional costs for insurers to administer a medical benefit going forwards. This could include hiring additional employees to lead efforts to negotiate with dispensaries, adjudicate and track claimants and administer staff training and licensing to meet state and/or federal requirements.
  • Ongoing Patient and clinical education: There may be costs associated with educating both patients and clinicians on how the benefit would be administered.
  • Equipment and supplies: Certain forms of cannabis require additional materials to administer properly, such as rolling papers and vaporizers. Furthermore, the manner in which any additional equipment and supplies are incorporated into the benefit design may affect how much of the cost is covered by the plan versus the patient.

Health plans will also need to determine how benefits will be distributed and what ailments will be eligible for medical cannabis coverage. This process could take years to complete. For example, Canada, which federally legalized cannabis in October 2018, still has health plans that do not offer medical cannabis benefits. The ones that provide benefits have specific ailments where medical cannabis can be approved. While the number of plans that offer these benefits has increased since legalization three years ago, there are still health plans doing their due diligence to determine how to roll out medical cannabis benefits.

What Can Health Plans Expect?

Though there are many obstacles in the way of the legalization of cannabis and health plan coverage, the U.S. Government has made strides over the last few decades in moving toward the medical use and coverage of cannabis. The FDA has approved drugs that contain synthetic THC as early as 1985 and as recently as 2016. They have even approved a CBD oral solution for treating seizures associated with epilepsy. All of these drugs are covered by health insurance. As more states legalize the use of medical cannabis and support within the U.S. Government grows, it is only a matter of time before plans will contain cannabis coverage.

Contact Us

For more information on this topic, please contact a member of Withum’s Multiemployer Benefit Plan Services Team.