Prescription drug trends and their effect on health plan costs - part one
Part one of a two‐part series for employers facing rising drug costs
If you offer health insurance to your employees, it's not news to you that premiums continue to climb. One of the key drivers of those increases is rising prescription drug costs. From 2011 to 2013, increases in prescription costs had slowed to only a 3 to 4 percent annual growth rate.* “Things were going pretty smoothly up until 2014. That's when costs really spiked,” notes Pam Olson, Employee Benefits Account Executive, Johnson Insurance. In 2014, prescription costs increased 10.2 percent overall, with a 19.2 percent rise in specialty drug costs.*
Since 2014, the trend in prescription drug costs has reflected double‐digit annual increases. A number of factors have conspired to increase costs, including:
Increased utilization of more costly specialty and non‐specialty drugs
New specialty drugs introduced to the market, most notably drugs for hepatitis C
Price inflation from drug manufacturers
An increase of new high‐cost, brand‐name drugs introduced to the market
Decrease in new generic drugs introduced to the market
Increased advertising efforts for new, high‐cost brand‐name drugs
Fewer patent expirations. Generic drugs are usually introduced after the patent protections afforded to a drug's original developer expire, providing lower costs for the consumer and the health plan.
Strategies to face the challenges
Health plans have employed strategies to control rising prescription costs. A few approaches to consider include:
Implement a mandatory generics program. “These are becoming the norm, but there are many variations,” Olson says. “Plans that cover brand‐name drugs when generics are available typically tack on a penalty. Members might pay the difference in cost between the generic and brand‐name drugs, plus the brand copay. And as a further disincentive for using brand‐name drugs, these penalties don't count toward deductibles and out‐of‐pocket maximums.”
Adjust member cost‐sharing provisions. Many plans have added more tiers to drug benefits with higher copays or coinsurance for non‐preferred brand‐name and specialty drugs. Tier structures and definitions are also being tweaked, for instance with some costlier generics landing in higher tiers with higher copays. Another possibility is moving from flat copays to coinsurance, where members pay a percentage of the drug cost. Minimum and maximum amounts are often added to coinsurance‐based structures. “For instance if a member uses a $4,000 a month drug, his or her copay might be a flat $100, but coinsurance might be 30 percent with a minimum of $100 and maximum of $300. In this example the member's portion would be $300,” Olson says. “That would offer an annual cost savings of $2,400 to the plan.”
Use a narrow pharmacy network. “Pharmacy Benefit Managers (PBMs) can offer pharmacy networks that exclude higher‐cost pharmacies or pharmacy chains to get deeper discounts,” Olson says. “Limiting options for obtaining specialty drugs to one or a limited number of specialty pharmacies can also help keep costs down,” Olson comments.
Add a 90‐day at retail option for maintenance medications. “Not all plans offer 90‐day at retail, but it's becoming more prevalent,” Olson says. “It typically offers deeper discounts on drugs, plus you save on dispensing fees since members get a 90‐day supply rather than a 30‐day supply.”
Adopt a more restrictive drug formulary (covered drug list). Medications that have lower‐cost alternatives—either generic or brand‐name—may be moved to non‐preferred status with higher copays,” Olson says. “Or some may be excluded from the formulary entirely.”
An experienced insurance partner can help you stay abreast of changes in the market and put you on solid footing to offer attractive employee benefits programs at an affordable cost. Contact your Johnson Insurance advisor today to learn more about how we can help your business and your employees.
In part two of this two‐part series, we'll take a closer look at Pharmacy Benefit Manager clinical programs and other opportunities available to manage prescription drug costs.
*Source: Pharmacy Benefit Management Institute®, “2015‐2016 Prescription Drug Benefit Cost and Plan Design Report.”