Employer Pharmacy Benefits in 2017: More Cost-Shifting to Patients As Tiers and Coinsurance Expand

It’s time for our annual analysis of the Kaiser/HRET 2017 Employer Health Benefits Survey, which you can read online for free. The survey delves into employer-sponsored health coverage at more than 2,000 companies.

In the charts below, I summarize employers’ 2017 pharmacy benefits by examining (1) cost sharing tier structures, (2) average copayments, by formulary tier, (3) type of cost sharing (coinsurance and copayment), and (4) coinsurance structures. I’ll investigate the growing role of deductibles in a follow-up article.

This year’s results show massive cost-shifting for specialty drugs. For the first time, a majority of plans have four tiers. Economically-debilitating coinsurance—in some cases with no limit on out-of-pocket expenses—is common.

When people complain about “drug costs,” they are actually thinking about the share of costs that they pay. Last week, I highlighted Prime Therapeutics’ data showing very slow growth in post-rebate drug spending. Given the new Kaiser/HRET survey, it looks like patients may not always be getting the benefit of lower costs.

Read on for my analysis along with another annual Drug Channels tradition: tiers/tears puns!

TOO MANY TIERDROPS FOR ONE SAMPLE

The Kaiser Family Foundation and the Health Research & Educational Trust (Kaiser/HRET) conduct this annual survey of employer-sponsored health benefits. The 2017 report tracks health benefits at 2,137 firms. Two-thirds of the responding firms participated in either the 2015 or 2016 surveys, or both. Click here for the full methodology.

Drug Channels readers will be most interested in the survey data on Prescription Drug Benefits (section 9). If you prefer not to wade through the full report, please enjoy my highlights below.

YOU’RE GONNA CRY

For consumers with third-party pharmacy benefit insurance, a patient’s share of a prescription’s cost is usually linked to benefit cost tiers—categories that define a plan member’s copayment or coinsurance. In general, prescription drug plans financially reward patients for using generic and lower-tier drugs. They require the patient to pay progressively higher copayments or coinsurance for drugs on higher tiers. Allowing the beneficiary to pay less out of pocket for generic drugs, for example, supports the substitution of therapeutically equivalent generic drugs for brand-name drugs.

For more background on pharmacy benefits and comparisons between payers, see Chapters 5 and 6 of our 2017 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

Here are the Kaiser/HRET survey’s updated definitions for common terms used in the report and the charts below:

• Generic drugs: Drugs that are no longer covered by patent protection and thus may be produced and/or distributed by multiple drug companies.

• Preferred drugs: Drugs included on a formulary or preferred drug list; for example, a brand-name drug without a generic substitute.

• Nonpreferred drugs: Drugs not included on a formulary or preferred drug list; for example, a brand-name drug with a generic substitute.

• Fourth-tier drugs: New types of cost sharing arrangements that typically build additional layers of higher copayments or coinsurance for specifically identified types of drugs, such as lifestyle drugs or biologics.

• Specialty drugs: Specialty drugs such as biological drugs are high cost drugs that may be used to treat chronic conditions. Per Exhibit 9.10 from the report, 97% of covered workers at large firms work for employers whose largest health plan provides coverage for specialty drugs.
  

Note that I reproduced the definitions exactly as they appear in the report, despite the distressing lack of grammatical symmetry.

NINETY-SIX TEARS

In 2017, the four-tier design became the most common option, used in 44% of employer-sponsored plans. In 2004, only 3% of covered employees were in plans with four or more tiers. The “four or more tiers” category includes plans that have a separate specialty tier—including any plans with 96 tiers.

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Plans with four or more tiers have grown at the expense of three-tier plans. Last year, 32% of employees were in plans with four or more tiers, while 52% were in three-tier plans.

In the chart above, a small percentage of plans (5%) have the same cost sharing regardless of drug type. This results from the inclusion of employees in High-Deductible Health Plans with a Savings Option (HDHP/SOs), which have different cost sharing patterns for prescription drugs than do other plan types.

• For employees in HDHP/SO plans, 15% do not vary cost sharing based on drug type and 13% have no cost sharing after the deductible is met. 

• For all other plans, only 2% of beneficiaries face no cost sharing differences, and less than 1% have no cost sharing after the deductible is met.

• In HDHP/SO plan designs with no tier differences, the beneficiaries’ cost sharing almost always takes the form of coinsurance instead of a flat copayment. 

COME ON AND LET ME HEAR YOU CRY

Employer-sponsored plans with tiers continue to favor copayments over coinsurance. The chart below shows average copayments in 2004 and 2017 for employer-sponsored prescription drug plans with three or more cost sharing tiers. Average copayments have risen much more slowly than have overall drug spending and pharmaceutical prices.

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Dollar spreads between copayment tiers have widened, as indicated by the ratio of tier copayments. In 2017, copayments on the fourth tier are 10 times more expensive than those on the first tier, compared with only 6 times in 2004 (the first year that fourth-tier copayments were reported). Fourth-tier copayments grew by 86% from 2004 to 2016.

The 2017 survey also asked employers about specialty drug tiers. In 2017, 47% of covered workers are enrolled in a plan that has a separate tier for specialty drugs. In 2016 (the first year that this information was reported), 43% of workers faced a separate specialty tier. Smaller employers were less likely to have a separate specialty drug tier.

I WANNA HEAR YOU CRY

Coinsurance is more common on higher tiers. More than one-quarter of covered workers in employer-sponsored plans face coinsurance for drugs on the second and third tiers, and 40% have coinsurance for fourth-tier drugs. In plans with a specialty drug tier, 46% used coinsurance on that tier. Coinsurance rates for fourth-tier drugs average 28%. For specialty drugs, they average 27%. This means that on average a patient would pay more than $1,100 for a specialty prescription of about $4,000.

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The chart below examines the distribution of coinsurance structures for the drugs on the fourth and specialty tiers. More than half of covered workers are in a plan that limits out-of-pocket maximum dollar coinsurance payments. However, one-quarter of workers have no out-of-pocket maximum for fourth-tier specialty drugs, and one-third have no limit for fourth-tier drugs.

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THE OUTLOOK?

Employers’ most common benefit designs essentially discriminate against the very few patients undergoing intensive therapies for such chronic, complex illnesses as cancer, rheumatoid arthritis, multiple sclerosis, and HIV. Meanwhile, traditional therapy classes that treat larger patient populations have multiple generic drug options and fixed dollar copayments.

In a recent Morning Consult op-ed, Robert Goldberg of the Center for Medicine in the Public Interest referred to these benefit designs as “one of the most discriminatory features of our health care system: a prescription drug benefit design that maximizes profits but not health.”

Perhaps ? & The Mysterians are correctly forecasting how the number of pharmacy benefit tiers may expand. Click here if you can’t see the video.