Study: Fewer Retirees Using Drug Benefits Than Thought

July 25, 2003 ( - Despite the vast majority of companies offering some form of retiree prescription drug benefit, retirees are using these benefits less often than the Congressional Budget Office has concluded.

This comes at a time when many companies are doing what they can to not only continue offering retiree prescription drug benefits, but also make them affordable. In fact, almost 90% of the Business Roundtable (BRT) members surveyed by PricewaterhouseCoopers offered benefits that “wrap-around” existing Medicare benefits, and all plans include outpatient prescription drug coverage.

Retiree health care plans, which those surveyed report have seven of on average, primarily use prescription benefit managers (PBMs) or insurers that use private sector methods to ensure high quality and cost-effective services are provided. Among the methods utilized:

  • utilization management (91.4%)
  • formularies (72.4%)
  • tiered pricing (72.4%)
  • prior authorization (65.5%)
  • increased out-of-pocket costs for brand name products (60.3%).

Additionally, employers report using innovations such as disease management and greater consumer education as methods of slowing the growth of the cost of retiree health plans. As of 2002, total spending for 1.4 million Medicare-eligible retirees totaled $3.8 billion or roughly $2,333 per year per beneficiary. Of this amount, $2 billion was expended on outpatient prescription drug coverage or roughly $1,498 per year per beneficiary.

Further, two-thirds of all the retiree plans have a catastrophic limit for total out-of-pocket spending by the retiree. The average limit was $1,744 per year. Only 2.4% of companies’ retirees exceeded the defined limit and in plans where there was a separate catastrophic limit for prescription drugs, 5.6% of Medicare-eligible retirees exceeded the defined limit.