A Look at Drug Benefit Tiers in 2011

The Employer Health Benefits 2011 Annual Survey, the annual study by the Kaiser Family Foundation and the Health Research and Educational Trust, made the news recently with the finding that employer-based premiums for families rose by 9% to more than $15,000 annually. See, for example, Kaiser Finds Huge Rise in Employee Premiums, but Can’t Pinpoint Why.

The report contains a wealth of data about prescription drug benefits at about 2,000 employers. Below, I discuss the following highlights related to formulary tiers:

• Co-payments for brand-name drugs are growing more slowly than overall prescription prices.

• Tier spreads are widening.

• Four-Tier plans keep expanding.

• High-deductible plans are less likely to use formulary tiers.

The full report is 225 pages long, which may make you want to shout and let it all out. I, of course, go head over heels for this sort of stuff.

EVERYBODY WANTS TO SURVEY THE WORLD

This year’s report is based on responses from 2,088 companies, 91% of which offer health benefits to employees. Drug Channels readers will be especially interested in the data on Prescription Drug Benefits (section 9). Here are links to the report and key sections:

• Main Report Page with links to full report and supporting documents
• Direct link to Section 9: Prescription Drug Benefits
• Methodology geeks (and who isn't, really?) can learn more from the Survey Design and Methods.

Below, I examine the data on benefit cost tiers—categories that define the plan member’s co-payment or co-insurance levels. In general, prescription drug plans financially reward patients for using generic and lower-tier formulary drugs by requiring the patient to pay progressively higher co-payments or co-insurance for drugs on higher tiers.

PBM-haters probably won’t believe me, but the employer—the PBM’s client—makes the ultimate decision about the overall prescription drug benefit it will offer to employees. The PBMI survey of 417 employers (both large and small) found that the responsibility for pharmacy benefit design fell to the in-house human resources staff or an outside consultant at two-thirds of the companies. PBMs were responsible for benefit design at only 14 (3%) of the 417 companies surveyed. (source)

TIERS FOR FEARS

Here are some fun facts about prescription benefits at employer-sponsored plans in 2011.

Co-payments for brand-name drugs are growing more slowly than overall prescription prices. The chart below shows average co-payments for consumers in the Kaiser/HRET sample of employer-sponsored prescription drug plans. From 2000 to 2011, Co-payments for second-tier (preferred) brand-name drugs rose at an annual rate of 6.2%.

This growth rate is less than two thirds the rate of overall brand-name prescription inflation. Average brand-name prescriptions rose at an annual rate of 10.7% from 2000 to 2011 (based on the 2011-12 NACDS Chain Pharmacy Industry Profile, projected forward to 2011). Thus, a consumer with employer-sponsored insurance has experienced slower growth in out-of-pocket costs than in prescription drug prices.

Tier spreads are widening. The ratio of higher-tier co-payments continues to grow. In 2011, co-payments for preferred (second-tier) brand-name drugs were 2.9X the generic co-payment, compared to 1.9X in 2000. In 2011, co-payments for nonpreferred (third-tier) brand-name drugs were 4.9X the generic co-payment, compared to 3.6X in 2000. Co-payments on the fourth tier are now 9.1X the first tier. Interestingly, the ratio of third-tier to second-tier co-payments has declined.

Four-Tier plans keep expanding. The three-tier formulary—generic drugs, preferred brand-name drugs, and non-preferred brand-name drugs—remains the most common (63% of plans). However, plans with four of more tiers have grown from 3% of employer-sponsored plans in 2004 to 14% of these plans in 2011. (See Exhibit 9.1, reproduced below.) Fourth-tier drugs are much more likely to have co-insurance (averaging 29%) rather than flat co-payments (averaging $91). Products on the top tier tend to be specialty or lifestyle drugs, so co-payment offset programs are least controversial. See Wake-Up Call for Co-pay Cards.

High-deductible plans are less likely to use formulary tiers. High-Deductible Health Plans with a Savings Options (HDHP/SO) are defined in the Kaiser/HRET data to be (1) health plans with a deductible of at least $1,000 for single coverage and $2,000 for family coverage offered with an Health Reimbursement Account (HRA); or (2) high-deductible health plans that meet the federal legal requirements to permit an enrollee to establish and contribute to an Health Savings Accounts (HSA).

Four out of 10 large employers (1,000 or more workers) offer an HDHP/SO vs. only one on four smaller employers (less than 1,000 workers). See Section 8 for more on these plans. According to Exhibit 9.2, 34% of employers with HDHP/SO have either no cost-sharing for prescription drugs or identical co-payments regardless of drug type. Alas, Kaiser/HRET did not report whether these plans are sowing the seeds of love with beneficiaries.

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