Modern medicines have resulted in longer, more productive lives for many of us. Prescription drugs soothe sore muscles after a strenuous workout or manage the conditions of a chronic disease. Unfortunately, this use of prescriptions drugs can come with a hefty price tag.
Americans are spending more money on prescription drugs than ever before and the United States as a nation spends more per capita on prescription drugs than any other country. With the cost of some drugs exceeding thousands of dollars for a 30-day supply, this can translate into financial hardship for many Americans.
For employers sponsoring a medical plan, managing the cost of these prescription drugs is also becoming a task. Insurance companies and employers struggle with the ability to provide affordable medical plans, and the ever-increasing prescription drug costs are a primary driver of this difficulty. As a result, prescription drug plan designs are changing shape – moving to a model that helps push more of the cost of these drugs to the member along with increasing awareness of the true cost of the prescriptions.
Flat dollar copay plans have become an expected norm in medical plans for almost a decade. However, insurance companies underwriting fully insured medical plans and employers sponsoring self-funded medical programs now need to make modifications to these plan designs to manage the ever-increasing prescription drug costs. As a result, we are seeing more prescription drug plans combining some aspect of coinsurance along with or in place of the flat dollar copayments.
According to the 2016 UBA Health Plan Survey, copay models are still the most popular, with a three-tier copay structure the most prevalent. Median retail copayments for these three-tier plans are $10 for generic drugs, $35 for preferred brand drugs (drugs on the carrier’s prescription drug list) and $60 for non-preferred brand drugs (drugs not on the carrier’s prescriptions drug list). While 54.5 percent of all prescription plans are copay only, approximately 40 percent of all prescription drug plans have co-insurance along with (or in lieu of) copays--a plan design that is particularly common among four-tier plans.
Coinsurance models have many unique designs. Some plans are a straight percentage of the cost of the drug; some may involve a maximum or minimum dollar copayment combined with the coinsurance. For example, a plan may require 40 percent coinsurance for a preferred brand drug, but there is a minimum copayment of $30 and a maximum copayment of $50. Typically, we see a higher coinsurance percentage for non-preferred brand drugs and specialty drugs. The member cost of the drug is calculated after any negotiated discounts, so members covered by a coinsurance plan are reaping the benefits of any discounts negotiated with the pharmacy by the pharmacy benefit manager (PBM).
Coinsurance plans do provide several advantages to managing prescription drug costs. Under a flat dollar copay plan design, members may not truly understand the full cost of the drug they are purchasing. Pharmacies are now disclosing the full cost of drugs on the purchase receipts. Yet, most consumers do not take note of this disclosure, focusing only on the copayment amount. When a member pays a percentage of the cost of the drug as in a coinsurance model, the true cost of the drug becomes much more apparent.
Another advantage of the coinsurance model is that it automatically increases the member share of the cost as the price of the drug increases. Under the flat dollar copayment model, as the true cost of the drug increases, the member pays a smaller portion of the total cost. When the member’s portion is determined by a coinsurance percentage, the member pays more as the cost of the drug increases.
As the costs of health care overall continue to increase, we all need to become better consumers of our healthcare. Members covered by a prescription drug plan with a coinsurance model will have a better understanding of the true cost of their prescriptions. As members become more aware of the true costs of their care, they make better health care decisions, managing the overall cost of care.
We expect to see prescription drug benefit plans change even more as the cost of health care – especially prescription drugs – escalates. These changes will likely result in more of the cost being pushed to the patient. There are resources available to patients for assistance with some of these out-of-pocket costs. It is vital for the patient to understand their costs and know how to maximize their benefits. In a few weeks, the UBA blog will highlight some of these resources and provide information on how to educate employees on maximizing their benefits and the industry resources available to them.
For all the cost and design trends related to health and prescription drug plan costs by group size, industry and region, download UBA’s Health Plan Survey Executive Summary.
By Mary Drueke-Collins, FSA, Vice President of Employee Benefits for Swartzbaugh-Farber & Associates, Inc.
A UBA Partner Firm