The model begins by calculating the total cost of the drug to the plan over a year. This is accomplished by multiplying the monthly cost of the drug by the number of members receiving the drug by 12 (for the number of months in a year). This value is the numerator of the final equation.
The denominator of the final equation is calculated by totaling the number of patient-weighted months represented by the 25 percent 2013 MEPS sample across those insured by private insurance across single and family coverage. Since the MEPS sample is only 25 percent, the model multiples this total by 4 (to reach a 100 percent national estimate).
The total cost (the numerator) is then divided by the total number of insured patient-months (the denominator) to estimate the total monthly cost increase resulting from the addition of a new-to-market medicine.
This tool is meant as an illustrative example of how the costs of new treatments incrementally impact health care costs for a given population. The actual change in health insurance premiums from the introduction of a new drug would depend on a host of unique factors, including geography, plan design, rating requirements, and risk pool mix.