Do HSAs Lead to a Shift in Prescription Drug Use?

Study raises issues about health savings accounts and Rx drugs

By Stephen Miller, CEBS April 2, 2014

last updated 5/8/2014

Using data from a large U.S. employer that fully replaced traditional managed-care health insurance with a high-deductible health plan linked to employee health savings accounts (HSAs), new research from the nonprofit Employee Benefit Research Institute (EBRI) found that the move to the HSA-eligible plan reduced the number of generic and brand-name prescriptions filled. Some HSA advocates, however, raised issues with the findings.

Funds contributed into an HSA on a pretax basis—whether by employees or their employer—can be used to pay for most prescription drug costs paid out-of-pocket by employees, but not for over-the-counter medications except for diabetes supplies and some other eligible expenses.

EBRI reported that, at the end of a four-year period following the adoption of the full replaced HSA plan at the unnamed large employer, the use of generic drugs instead of more expensive brand-name medications had increased by 4.5 percentage points for hypertension, 15.4 percentage points for dyslipidemia (fat levels in blood), and 7.8 percentage points for asthma/chronic obstructive pulmonary disease (COPD). No significant effects were detected for diabetes prescriptions.

However, the EBRI report also noted that generic drug rates, or GDRs, can rise if the number of filled brand-name prescriptions decreases, whether or not the brand-name drug is replaced with a generic version. After adopting the HSA plan, the study found that higher GDRs in the case study were largely achieved due to individuals discontinuing use of brand-name drugs without substituting generic alternatives.

The full report, “Brand-Name and Generic Prescription Drug Use After Adoption of a Full-Replacement, Consumer-Directed Health Plan With a Health Savings Account,” was published in the March 2014 issue of EBRI Notes.

HSAs and Rx Coverage: Common Misperceptions

Kevin McKechnie, executive director of the American Bankers Association's HSA Council, told SHRM Online in an interview that people who shift to HSA-qualified plans tend to move strongly into generic drugs rather than discontinue taking needed medication, and he raised issues with EBRI's methodology "with respect to the conclusions drawn, which is to say its reliance on findings from a case study focused on one employer" in an undisclosed industry.

McKechnie also addressed what he called a common misperception about the ability of high-deductible, HSA-linked plans to cover prescription drugs outside of the deductible. "To the extent that an insurer considers a prescription drug preventative in nature, you can offer those drugs with no cost sharing, outside of the deductible. It's not something plans are required to do, however." As an example, he pointed out this drug formulary for HSA-compliant high-deductible plans offered by Blue Cross of Idaho.

"This is just one area in which there seems to be a great deal of misunderstanding," McKechnie added. "If you look at the formularies of certain plans, you'll see [that] drugs for chronic conditions, such as high blood pressure or high cholesterol, are considered preventative medications excluded in whole or part from the deductible. But it's not done in all cases."

Many people would like to see those kinds of drugs required to be covered on a first-dollar basis, he noted, "but that necessarily makes plans more expensive."

Plans that require all drugs and most procedures to be covered subject to cost sharing—paid for by employees under the deductible—have lower premiums, he explained, "but it does require plan members to be more judicious in how they spend their dollars," which need not be a negative outcome.

However Paul Fronstin, director of EBRI’s Health Education and Research Program and author of the report, noted on EBRI's website that, based on the report's findings, sponsors of HSA-linked health plans may want to have maintenance medications deemed as preventive and treated as exempt from the deductible. “Although lower prescription-drug use can save pharmacy costs for plan sponsors, it could also result in even higher downstream medical costs if people stop taking maintenance drugs for chronic diseases,” Fronstin said.

First-Dollar Coverage for Preventative Care

The issue of allowing first-dollar insurance coverage for HSA-compliant high-deductible health plans (HDHPs) also is addressed in a May 2014 report from the University of Michigan’s Center for value-Based Insurance Design. The report, Health Savings Account-Eligible High-Deductible Health Plans: Updating the Definition of Prevention, notes that IRS Notice 2004-50 offers guidance on preventive care prescription drug benefits allowable by an HSA-qualified HDHP without satisfying the minimum deductible requirement.

For instance, question and answers 26 and 27 of Notice 2004-50 state:

Q-26.  Does a preventive care service or screening that also includes the treatment of a related condition during that procedure come within the safe harbor for preventive care in Notice 2004-23?  

A-26.  Yes. Although Notice 2004-23 states that preventive care generally does not include any service or benefit intended to treat an existing illness, injury, or condition, in situations where it would be unreasonable or impracticable to perform another procedure to treat the condition, any treatment that is incidental or ancillary to a preventive care service or screening as described in Notice 2004-23 also falls within the safe-harbor for preventive care. For example, removal of polyps during a diagnostic colonoscopy is preventive care that can be provided before the deductible in an HDHP has been satisfied.

Q-27.  To what extent do drugs or medications come within the safe-harbor for preventive care services under section 223(c)(2)(C)?

A-27.  Notice 2004-23 sets out a preventive care deductible safe harbor for HDHPs under section 223(c)(2)(C). Solely for this purpose, drugs or medications are preventive care when taken by a person who has developed risk factors for a disease that has not yet manifested itself or not yet become clinically apparent (i.e., asymptomatic), or to prevent the reoccurrence of a disease from which a person has recovered. For example, the treatment of high cholesterol with cholesterol-lowering medications (e.g., statins) to prevent heart disease or the treatment of recovered heart attack or stroke victims with Angiotensin-converting Enzyme (ACE) inhibitors to prevent a reoccurrence, constitute preventive care. In addition, drugs or medications used as part of procedures providing preventive care services specified in Notice 2004-23, including obesity weight-loss and tobacco cessation programs, are also preventive care. However, the preventive care safe harbor under section 223(c)(2)(C) does not include any service or benefit intended to treat an existing illness, injury, or condition, including drugs or medications used to treat an existing illness, injury or condition.

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

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