Segal: State Plans Suffer High Drug Costs Too

March 8, 2004 ( - Like private sector prescription drug plans, state plans have seen prices steadily increase as plan sponsors for those plans look for strategies to contain costs.

The overall average, annual, per employee/retiree cost (paid claims net of co-payments) for prescription drug coverage was $1,288 in 2002. This is approximately 6.5% higher than average annual paid claims reported by several pharmacy benefit managers (PBMs), adjusting for the mix of the employee (74%) and retiree (26%) populations of the states participating in the survey, according to the Segal Company’s 2003 Segal State Health Benefits Survey.

On average, nearly 24 prescriptions were dispensed per participant in 2002. This utilization level is six percentage points lower than Segal’s private-sector client benchmarks, adjusting for the same mix of actives and retirees. The retail generic dispensing rate – the percentage of all prescriptions filled that were for generic drugs – for 2002 averaged 39% for the participating states. This was slightly below the private sector average of 45%.

Most common among state plans was the three-tier co-payment plan design, used by two-thirds of all states.The use of three-tier plan designs varied dramatically by region, states in the West had the highest prevalence (90%) of three-tier co-payment plan designs. In contrast, Northeast states were still predominately two-tier designs. Only 14% of the Northeast states offered a three-tier co-payment design.

Under three-tier plans, retail co-payments for employees averaged $19 for brand drugs and $8 for generic drugs, compared to co-payments under two-tier designs that were slightly lower. In dollar figures, non-preferred prescription co-payments for participants averaged $34 at retail pharmacies and $61 for mail order – mail order co-payments are adjusted to reflect a 90-day supply. Average retiree co-payment amounts did not dramatically differ from employee amounts. It follows that states in the West had the highest co-pays amounts utilizing a three-tier system.

Looking to cut costs, 72% of participating states required prescription drug prior authorization for certain listed high-cost drugs and 47% used prescription drug clinical intervention where a pharmacist contacts the participant and/or prescribing physician to encourage that the prescription be changed to a more cost-effective drug. Other differences were noted in the 18% of state plans offered a percentage co-payment plan design instead of a flat-dollar co-payment structure. Not as common is the use of deductibles as a cost sharing feature. Only 8% of state used this strategy for active employee plans, and 11% for retiree plans. Over one-quarter of all states capped employee out-of-pocket expenses for prescription drugs.

Segal notes it will get worse before it gets any better. Referencing the company’s 2004 Health Plan Cost Trend Survey (See Segal: 2004 Health Cost Hikes Start to Slow ), Segal predicts high increases in the costs of prescription drug coverage are expected to continue this year. Retail prescription drug costs are expected to increase by 18.1% and mail order prescription drug costs are expected to increase by 17.4% in 2004 for active employees and retirees under age 65. Although the expected increase is slightly less than

for 2003, at these double-digit rates of increase, the cost of prescription drug plans may be expected to double within only five years, Segal found.

A copy of the2003 Segal State Health Benefits Surveycan be found at