Health insurance once made essential medicines affordable and, for expensive brand-name drugs that can treat cancer or control rare diseases, it still does. But as insurance and intermediary practices have evolved, they have made generics pricier.

These medicines, which are identical copies of brand-name drugs whose patent protection has expired, can be profitably produced at a 99 percent discount from the brand-name price. This explains why generics account for only 18 percent of total drug spending. What’s more, their average price has been falling, from $22 in 2009 to $17 in 2018.

Yet insurance coverage has enabled middlemen to feast on billions of these prescriptions each year, keeping prices higher than they need to be. Consumers see the result in a crazy-quilt of price tags that vary from pharmacy to pharmacy and in insurance co-payments that often exceed the entire retail price of the drugs.

In 2018, Medicare paid 21 percent — $2.6 billion — more for generics than their cash prices at Costco, our research found. And that was for just 184 of the most common generic drugs.

Eliminating insurance for generics might make patients nervous at first, but the payoff would be stable and affordable prices. An opaque, profit-generating structure that provides no value for patients would be stripped away. Premiums could be reduced to account for the narrower coverage that results.

Insurance provides real value only when there is the chance of substantial loss, and that isn’t the case with cheap generics. A good analogy is auto insurance. A typical car-insurance plan doesn’t cover oil changes, because they are predictable and inexpensive. As a result, they are readily available from mechanics and express oil shops, and prices are transparent, comparable and kept low by competition. But car insurance is needed when accidents happen and repairs are expensive. In medicine, the insurance extends down to the equivalent of the oil change, making something that should be simple and cheap complicated and more expensive.

Insurance companies stay in the generics game through subsidiaries called pharmacy benefit managers. PBMs are middlemen that manage drug benefits for health insurers, employers, unions and government entities, and they contract with pharmacies to deliver the drugs to beneficiaries. PBMs capture profits from each prescription sold, and this artificially raises the costs of generic drugs. Their contracts commonly require pharmacies to give the PBM their lowest price when accepting reimbursement for a prescription. As a result, most pharmacies are careful to set cash prices higher than their negotiated PBM rates, which means they don’t offer competitive cash prices to customers at the counter.

What’s worse, PBMs sometimes take money directly from patients. Commercially insured patients’ co-payments for generic prescriptions exceed the total cost of the medicine 28 percent of the time, a practice known as a “copay clawback,” a USC Schaeffer Center study found. PBMs can also reimburse a pharmacy one price while charging health plans a higher one and pocket the difference, a tactic known as “spread pricing.” They also control formularies — the lists of drugs that their clients will cover — which can exclude cheap generics if higher priced brand-name drugs provide more room for PBM profits.

All these practices subvert the Hatch-Waxman Act, a 1984 bipartisan law that jump-started production of low-cost generics. Rep. Henry Waxman (D-Calif.) and Sen. Orrin Hatch (R-Utah) brought drug industry leaders together to agree on a strategy to provide brand-name drug makers longer monopolies (to encourage innovation) while giving generic drug makers an abbreviated approval process (to encourage access and affordability). Now, a market that is being gamed to inflate generic prices threatens that balance.

Cash-only pharmacies such as Blueberry Pharmacy and Mark Cuban’s Cost Plus Drug Company are already demonstrating the benefits of cutting out the middlemen in generic drug sales. But to establish a truly robust and transparent cash market in which consumers could decide whether to fill their prescriptions using insurance or cash, pharmacies nationwide would need to be protected against retaliation from PBMs. An important first step is to outlaw the anticompetitive “best price” contracts that PBMs impose on pharmacies and that keep them from offering competitive cash prices.

Saying goodbye to insurance for generic drugs might also mean that pharmacies would need to establish new systems to track prescriptions to check for drug interactions and other elements of care coordination. But the cost and difficulty of such efforts on behalf of patient safety are minuscule compared with the needless expense of middleman profiteering involved in generic sales today.