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Co-pays and Deductibles Up Sharply for High-Cost Drugs
Prescription plan designs shift more cost to employees

By Stephen Miller, CEBS  3/10/2014

For employer-provided drug benefits, median pharmacy retail co-pays for expensive fourth-tier drugs increased by 25 percent—from $80 in 2012 to $100 in 2013—and many employer plans are charging between 10 percent and 30 percent of the cost of fourth-tier drugs, according to the latest United Benefit Advisors’ (UBA) Health Plan Survey.

The fourth tier pays for biotech or other high-cost specialty drugs. This plan design enables employers to pass along the cost of the most expensive drugs to employees by segmenting these medications into another category with significantly higher co-pays. The number of employers offering four-tier drug plans increased 11.5 percent from 2012 to 2013, with 27.9 percent of employers now using this pharmacy plan design element, the survey found.

“We are seeing more employers, small and large, raising co-pays substantially on fourth-tier drugs,” said Carol Taylor, an employee benefit advisor with D&S Agency, a UBA partner firm, in an interview with SHRM Online. “With some of these drugs ranging from $1,200 to $20,000 per month—including some cancer drugs—it is very costly for the plans, which in turn affects their premium rates. We’ve seen this for quite some time with self-funded plans, but we expect it will become more popular among small and large employers with group health insurance.”

On average, the tier-four median co-pay was:

  • For small employers (less than 100 employees): $52 per prescription.

  • For mid-size employers (100-499): from $45 to $60.

  • For large employers (500+): from $80 to $100.

“There are a number of factors that would cause larger groups to have higher co-pays for brand name specialty prescription drugs,” added Rob Calise, UBA board chairman. “Small group markets are pooled by ratings areas, but larger groups are rated more independently. They have much more incentive, then, to raise co-pays, especially for items that will cause rate increases.”

A Related Perspective
According to a 2014 medical cost trend report by consultancy PricewaterhouseCoopers: "Until recently, widespread adoption of generic medicines helped dampen overall medical inflation, but the rise of expensive complex biologics will nudge spending trends upward. Approvals of new biologics now outpace traditional therapies, and that pattern will continue in 2014 as research efforts target complex cases such as cancer."

Higher Deductibles

The number of prescription plans subject to a major medical deductible increased by 3.5 percent, while the presence of a co-pay and/or co-insurance after the major medical deductible also increased by 5 percent, from 68 percent to 73 percent in 2013, the UBA survey found.

“It used to be that all drugs were applied to the deductible, then co-insurance on major medical,” said Taylor. “Now, quite a few carriers, particularly on high-deductible health plans, require the deductible, then co-pays. We’re also seeing small group and mid-market employers place generic brands before the deductible, but brand names after."

"It is very possible we could see co-pays disappear completely, with everything falling under the major medical deductible,” Taylor added.

Data in the 2013 UBA Health Plan Survey are based on responses from 10,551 employers sponsoring 16,928 health plans across the U.S.

Stephen Miller, CEBS, is an online editor/manager for SHRM.

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Soaring Cost of Specialty Drugs
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