Drug Cost Hikes Still Powering Health Coverage Expenses

October 31, 2005 (PLANSPONSOR.com) - US employers have responded to continued price hikes in prescription drugs by redesigning drug benefits to shift more cost to plan members.

That was a key conclusion of the most recent larger employer survey by Mercer Health & Benefits. Growth in spending on prescription drugs has been one of the forces driving up the cost of employer-sponsored health insurance, rising by double digits in 2004 even as overall health plan cost slowed to a 9% rise.

Nearly two-thirds of large employers now have three-tier member copayments and some have added additional payment tiers for discretionary or high-cost specialty drugs. While one goal of tiered copayments is to encourage employees to be smarter shoppers – choosing generics over brand-name drugs – the ultimate effect has been to increase employees’ share of the total expense, according to Mercer.

“A 30% member cost-share is about as high as most employers are willing to go,” said Debbie Martin, a member of Mercer’s pharmacy benefit specialist team, in a Mercer news release. “If you’re there already, as many employers now are, you’re probably looking for alternative ways to manage pharmacy costs. Fortunately employers have a number of options.”

Co-Payment Waivers

Some employers would rather use a carrot than a stick when it comes to encouraging greater use of generics. A small number of survey respondents (2%) waive generic copays for a period of time as a way of getting members to at least try the generic version of a drug, and an additional 8% say they are considering implementing a generic waiver within the next two years. About half (48%) of respondents include targeted communications to members and/or prescribers to educate them on generic alternatives.

Another tactic to promote more cost-effective drug utilization is step therapy, a requirement that certain drugs be used only after preferred “first-line” drugs have been tried and proved ineffective. Step therapy is required for asthma and arthritis treatment by about a fourth of respondents, and for anti-depressants and cholesterol medications by about a fifth. Uptiering, or removing all brand-name drugs from the formulary for a certain therapeutic class, is used most commonly for antihistamines (21% of respondents), according to the survey.

Employers reported that, for the most part, they are satisfied with the performance of their own Pharmacy Benefits Manager, with more than eight in 10 indicating they are satisfied or highly satisfied with the account and member services the PBM provides. About a fourth of employers using a PBM said they are likely to change approaches over the next two years.

Employers that use their medical carriers for pharmacy benefits also were satisfied with account and member service, but less satisfied with their medical carrier’s cost management performance. Nonetheless, they are even less likely to make a change over the next two years.

The survey revealed little action on the part of employers in pursuing transparent pricing arrangements (the pass-through and disclosure of arrangements with pharmacies and pharmaceutical manufacturers), with only 6% of employers reporting that they are utilizing a pharmacy benefit administrator, or “transparent” PBM, and only another 2% likely to engage one in the next two years.

Employers did indicate a higher level of interest in collective purchasing of pharmacy benefits: 35% of those using a PBM are either in or considering this arrangement.

Cost Efficiency a Priority

In terms of employer priorities in the prescription drug area, the priority most often rated important or very important (by 78%) was to implement incentives for cost-effective drug utilization. But nearly as many (73%) said that better management of costly specialty or biotech drugs, such as those used in treating rheumatoid arthritis or multiple sclerosis was a priority.

Some employers have added special limitations or higher copayments for these very expensive drugs. Over a third of respondents (36%) plan to review their coverage policies for 2006.

The survey asked about coverage for a range of discretionary or so-called “lifestyle” drugs. The drugs most likely to be excluded from coverage are weight-loss drugs (not covered by 59%), fertility drugs (not covered by 53%) and smoking cessation drugs (not covered by 53%). Drugs used to treat male erectile dysfunction are usually covered, but with limits.