Insurers brace for pharmaceutical tariffs

Modern Healthcare – Wednesday, May 7, 2025
By Lauren Berryman

Looming tariffs on pharmaceuticals are creating uncertainty for health insurance companies and their clients, distressing a sector that relies heavily on accurately predicting costs.

President Donald Trump has signaled “major” tariffs for imported medicines are coming, putting drugmakers, health systems, medical technology companies, insurers, employers and patients on edge. What the drug tariffs would look like — if they even happen — remains to be seen, fueling unease.

“Things could change on a dime, but it does introduce a lot of uncertainty into an industry that has to do a lot of forward prognostication to try to hit a target,” said Michael Lutz, managing director at consulting company Avalere Health.

Here’s what to know about how tariffs on pharmaceuticals could affect the health insurance industry.
What has Trump said about drug tariffs?

On Monday, Trump issued an executive order directing the Food and Drug Administration, the Environmental Protection Agency and other agencies to facilitate domestic pharmaceutical production and to raise fees for inspecting foreign drug plants.

Trump has voiced interest in tariffs on imported pharmaceuticals for months. On April 1, the Commerce Department launched an investigation into whether imported medications are a national security threat, which industry leaders consider a precursor to tariffs. Now, the drug industry is bracing for taxes as high as 25%.

While drugs are typically spared from tariffs, Trump has said the aim is to strengthen the supply chain, drive business to domestic manufacturers and create jobs.
Would health insurers be immediately affected?

The health insurance industry would likely be immune from drug tariffs — at first. The ability of drugmakers to quickly pass on price increases is limited by existing contracts, government regulations and market competition.

For instance, the short-term effects of drug tariffs would be dampened by price controls under Medicare and Medicaid, which would discourage pharmaceutical manufacturers from raising prices.

The Inflation Reduction Act of 2022 mandates drugmakers pay rebates to the federal government when they hike prices for drugs covered under Medicare Part B and Part D above the inflation rate. Drugmakers similarly have rebate agreements with the federal government committing to pay back a set portion of the cost of drugs Medicaid covers.

More broadly, pharmacy benefit managers, which negotiate prices with pharmaceutical manufacturers and pharmacies on behalf of health plans, already have price contracts locked in with drugmakers.

In addition, the health insurance industry is almost entirely domestic, which shields their services from the direct impact of tariffs, said Michael Ha, senior research analyst at the investment bank Baird. Health insurers are a “safe haven” from tariffs, he said.

What are insurers saying?

Aetna parent company CVS Health has perhaps been most outspoken about potential effects of pharmaceutical tariffs, which is fitting because it also operates the leading PBM, CVS Caremark, and the biggest U.S. retail drugstore chain, CVS Pharmacy. The company also owns an Ireland-based biosimilar subsidiary, Cordavis, which would be subject to tariffs.

CVS Health so far has been the only insurer or insurance company owner to call out tariffs as a headwind in 2025. “Implementation of new tariffs create exposure for increased costs and supply chain disruptions that can adversely impact consumer demand or financial results,” the company wrote in an annual report published in February.

Last Thursday, CVS Health President and CEO David Joyner told investor analysts that the company is considering the effect of drug tariffs on its pharmacy and insurance businesses. “Because we’re in the midst of preparing for our ’26 Medicare bids for both Part D and MA, we are obviously watching closely the impact,” he said.

Similarly, Centene Chief Financial Officer Drew Asher told analysts on the insurer’s first-quarter earnings call April 25 that it’s pricing for potential tariff impacts in bids for government health programs.

In contrast, UnitedHealth Group CEO Andrew Witty signaled less concern about drug tariffs during the UnitedHealthcare and OptumRx parent company’s earnings call April 17.

“We feel pretty good — in fact, I think better than pretty good — in terms of the degree of price-protection mechanisms we have in preexisting contracts and also various pieces of legislation which also limit the ability of manufacturers to pass price increases down through the system,” Witty said.
What are the longer-term implications for insurers?

The dynamic changes quite a bit if tariffs remain in force for a prolonged period.

“If this sticks around, it’s hard to imagine that it’s not going to have a pretty major effect on every player in healthcare, including UnitedHealth Group,” said Katherine Hempstead, senior policy officer at the Robert Wood Johnson Foundation, a healthcare research philanthropy.

In particular, commercial health insurance carriers have fewer price protections once pharmacy contracts expire. “The commercial players like your Cignas of the world would probably be, relatively speaking, more exposed than the government insurers,” Ha said. Cigna also owns the PBM Express Scripts.

In addition, tariff challenges felt by providers could push them to demand higher reimbursements once multiyear contracts come up for negotiation.

To compensate for pharmaceutical tariffs, insurers may slim down drug formularies by preferring medicines from domestic manufacturers over drugs produced abroad.

“Assuming the tariffs stay in place, I can imagine we’ll get into a place where formularies change significantly plan to plan, depending on the philosophy of that plan, whether it’s an ‘adjust for and try to hold the line on costs’ or ‘pass the cost through in premiums,’” Lutz said.
What does that mean for health insurance costs?

Drug tariffs would likely increase costs for commercial insurers already struggling to keep expenses in check.

“Depending on the duration of tariffs, consumers in the commercial market will likely begin to see the incremental effects in their insurance premiums later this year and into next year as policies are renewed,” according to a report the credit agency Fitch Ratings published April 28.

Patients taking brand-name medications are most likely to feel an effect when higher list prices translate into greater out-of-pocket costs.

“Tariffs bring uncertainty and are likely to influence the actions of employer health plan sponsors in 2026 and beyond,” experts from the consulting firm WTW wrote in a blog post published April 22. The firm recommends employers strategize to dampen the effects of looming tariffs, including by questioning insurers and PBMs on how they’re responding to tariffs in requests for proposals.

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