Rx Drug Plans Shift Costs to Employees

Plan design changes include added drug tiers, blended co-pay/co-insurance

By Stephen Miller, CEBS Jul 11, 2016
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Nearly half of employer-sponsored prescription drug plans in the U.S. now use three tiers (generic, formulary brand and nonformulary brand), with employees bearing an escalating portion of the cost for medications in the nongeneric tiers.

Just over 44 percent of employers offer four or more prescription drug tiers in their plans, typically adding a tier for expensive specialty or biotech drugs, with significantly higher co-pays that let employers pass along more of the cost of these drugs to employees. Significantly, over the past two years, the number of plans with four or more tiers grew by 58 percent, making this a rapidly growing strategy to control costs.

These findings are from Special Report Trends in Prescription Drug Benefits, from United Benefit Advisors (UBA), an Indianapolis-based network of employee benefits advisory organizations. The report draws on data from last year's UBA Health Plan Survey of more than 10,000 employer-sponsored health plans in the U.S.

"The market will continue to adapt and, in fact, we're already seeing the advent of six-tier prescription drug plans," said Scott Deru, president of Layton, Utah-based Fringe Benefit Analysts, a UBA partner firm.

More Self-Funded Plans

On average, 11.9 percent of prescription plans are self-funded, with the vast majority (88.1 percent) of employers choosing to fully insure their prescription plans, according to the report. Self-funding has increased 9 percent from the previous year's survey.

Typically, the larger the employer, the more likely it is to self-fund the prescription drug plan. Over 60 percent of plans among employers with more than 1,000 employees are self-funded.

Soaring—and Shifting—Costs

Besides funding options, UBA's report finds that employers are using other cost-containment strategies—such as blended co-pay/co-insurance models and penalties for brand-name drugs—as part of their effort to control the soaring costs of specialty pharmacy drugs (injectable drugs and biologics).

"In the early 2000s, prescription costs were around 20 percent of total medical claim spending. This number stayed relatively unchanged for a number of years. Recently, this number has been increasing at an alarming rate," noted Carol Taylor, director of compliance at D & S Agency, a UBA partner firm in Roanoke, Va.

In reviewing medical claim data on employer groups, the prescription spending average is now 30 percent of claims or more. The higher percentage costs are often due to these specialty pharmacy medications.

"As more specialty pharmacy drugs are coming onto the market with high price tags, we will continue to see premiums rise, along with increased co-pays or co-insurance for prescriptions, shifting more costs onto consumers," Taylor predicted.

A co-pay is a fixed amount that an employee pays when purchasing a prescription drug or other health care service, while the insurer covers the rest of the cost. With co-insurance, the employee pays a fixed percentage of the cost. Co-pays and co-insurance usually don't kick in until the employee has paid 100 percent of his or her plan deductible.

According to the UBA report, 30 percent of prescription drug plans use varying combinations of co-pays and co-insurance, a 14 percent increase from the previous year. For example, some plans may use a co-pay structure in the first two tiers and then employ a co-insurance model for the higher tiers.

Other plans contain a percent-based cost-sharing model to accommodate higher priced specialty medications (for example, the employee pays 20 percent with a $100 maximum).

"This cost-containment trend will continue, with the pharmacy industry focusing its research and development on the specialty/biologic therapies," Taylor said.

The rising prescription drug costs directly impact the premium amounts that insurance carriers charge. "With some groups' pharmacy spending increasing by 40 percent or more in one year, there will be no choice but to reduce benefits and increase the employee contribution for coverage," said Taylor. "The only other steps that can be taken to rein in the cost of specialty medications is to implement stricter step therapy protocols or exclude certain medications altogether."

Step therapy requires that a patient first try high efficacy, lower cost medications before an approval is granted to cover a higher cost specialty medication. There are usually several medications that must first be tried, with no or unfavorable results, before moving on to the higher cost medications.

"Watch for this trend to continue, as well as raising co-pays and out-of-pocket costs for medications," Taylor said.

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