Faced with fast-rising prescription drug costs, large employers are increasingly shifting costs to their workers, with nearly two-thirds using three-tiered co-payments and one-fifth passing on at least 30 percent of the tab, a new Mercer Health & Benefits survey shows.
Drug spending is a major factor in the rise of employer-based health insurance costs, Mercer has shown, with prescription costs for employers with 500 or more workers rising by 14.3 percent in 2004, compared with 9 percent for medical costs.
Increased utilization accounts for three-quarters of the pharmacy trend, Mercer has found – due to an aging population, consumer demand and the introduction of new drugs – while price inflation accounts for the remainder.
But large employers, who have the greatest control over their health benefits, aren’t taking the hit on their own, Mercer’s new survey of 529 U.S. employers shows.
Nearly two-thirds now require different co-payments for generic, preferred brand-name and non-preferred drugs, Mercer found, and some have added additional payment tiers for “discretionary” or high-cost specialty and biotech drugs.
Only 10 percent cover weight-loss drugs without limits, the survey found, and 59 percent exclude them altogether. With smoking cessation drugs, it’s 19 and 53 percent, respectively; for erectile dysfunction drugs, it’s 17 and 36 percent, respectively.
Fertility drugs are widely excluded or limited, as are, to a lesser extent, human growth hormones and dermatologic drugs. Even ADD/ADHD drugs, antihistamines and contraceptives are being restricted and excluded by some plans.
While a goal of tiered co-payments is to encourage employees to be “smarter shoppers,” Mercer concluded, the ultimate effect has been to increase workers’ share of the costs.
The numbers can add up pretty quickly, said Brandon Melton, senior vice president for human resources at Lifespan, which didn’t participate in the survey.
When Lifespan switched, in January 2004, from a $5 blanket co-payment to a $5-$20-$35 tiered system, workers’ share of drug costs rose from 7.7 percent to 14.8 percent, Melton said – even though many workers avoided the extra cost by using a new mail-order system that allowed them to pay $5 for three months’ worth of any prescription.
Such was the incentive effect of the co-payments that within a year, 41 percent of workers were using the mail-order system, Melton said, and overall, the share of prescriptions involving generic drugs rose from 40 percent to 49 percent.
The bottom line for Lifespan: a 9-percent drop in prescription drug costs. “We did see significant initial savings,” Melton said.
But costs have since begun to rise again, he acknowledged, and so the company is looking for new strategies, such as separating its pharmacy benefits management contract from its health plans, to gain more flexibility.
“We don’t want to shift any more costs,” Melton said, “so we’re working to see what else we can do.”
Textron, which since 2002 has offered a consumer-driven health plan through Definity (now part of UnitedHealth Group), has taken a different approach. Under its plan, which is financed in part by health reimbursement accounts, workers get a basic allowance for medical costs, including prescriptions, then are responsible for a deductible, then are partially covered above that amount, with “stop-loss” protection for catastrophic costs.
As George E. Metzger, vice president for human resources and benefits, described it, it’s entirely up to workers how they choose to use their allowance – whether to treat depression, for example, they choose psychotherapy, a Zoloft prescription, or a generic drug.
Their choices have been clear, Metzger said: more generic drugs vs. brand names, more mail-order purchases, slightly shorter-term use of prescriptions, and more “targeted” drugs.
The use of antidepressants, antihistamines and painkillers has declined, Metzger added, while the use of “maintenance drugs” (such as cholesterol reducers) has risen. Overall, drugs are now a bigger part of total spending than three years ago, Metzger said, but the annual increases are still below the consumer price index for medical costs.
Metzger also noted that many drugs have preventive value, so higher drug costs are, in many cases, “a tradeoff for seeing a reduction in hospitalizations or other medical interventions.”
That’s definitely how Melton sees it. Drugs account for 22 percent of Lifespan’s health costs, and prescriptions for Lipitor alone, which is taken by more than 1,000 people covered by the company, cost more than $628,000 last year. But some drugs are worth the expense, he said, and in fact, Lifespan is considering waiving co-payments for drugs that control such conditions as asthma, diabetes and high cholesterol, to encourage their use.
“If you take cholesterol management drugs and can avoid heart bypass surgery, it’s in the employees’ and in our interest to have you take that,” he said. (In this context, Melton also said he was puzzled by employers in the Mercer survey who were excluding weight-loss and smoking-cessation drugs.)
Only 3 percent of the survey respondents are waiving co-payments in this manner now, according to the survey, but 11 percent are considering doing so. Among employers with 20,000 or more workers, the numbers are higher, 9 percent and 21 percent, respectively.
Detailed survey results are available at www.mercerhr.com.
