Employer Pharmacy Benefits 2020: Some Good Coinsurance News, But Many Still Face Prescription List Prices

It’s time for our annual deep dive into employer-sponsored coverage for prescription drugs.

Consistent with our previous analyses, coinsurance and deductibles remain common for specialty and fourth-tier drugs, leaving patients exposed to the undiscounted list price of their prescriptions. 

However, there is also some good news: The use of copayments—instead of coinsurance—grew for people with both traditional and high-deductible plans. Perhaps nothing ever lasts forever.

Read on for my overview of cost sharing tier structure, copayment vs. coinsurance, and average copayments and coinsurance rates—along with our annual Drug Channels tiers/tears puns. 

In a follow-up post, I’ll examine how today’s benefit designs continue to challenge—and confuse—patients.

EVERYBODY WANTS TO SLIDE RULE THE WORLD

We rely on the Kaiser Family Foundation’s (KFF) 2020 Employer Health Benefits Survey, which you can read online for free.

This survey of employer-sponsored health benefits tracks benefits at nearly 1,800 companies. More than 70% of responding firms for the 2020 report participated in either the 2018 or 2019 survey, or both. Fellow data nerds can click here for the full methodology.

Employers remain one of the largest payers of prescription drugs, though their share has been declining over time. Nearly all large employers and more than half of all small employers offer health benefits to employees. Nearly all (more than 99%) covered workers in these plans have a prescription drug benefit.

Employers offer plans with and without high deductibles. For 2020, almost one-third (31%) of employees were enrolled in High-Deductible Health Plans (HDHPs). The Kaiser survey defines an HDHP as having:

• HDHP/HRA: A deductible of at least $1,000 for single coverage and $2,000 for family coverage, offered with a Health Reimbursement Arrangement (HRA), or

• HSA-Qualified HDHP: A high-deductible health plan that meets the federal legal requirements to permit an enrollee to establish and contribute to a Health Savings Account (HSA).

For simplicity of presentation, we refer to both types of plans as HDHPs. As we discuss below, benefit designs and cost sharing for prescription drugs in HDHPs differ from those of plans that lack high deductibles.

BENEFITS FROM THE BIG CHAIR

For consumers with third-party pharmacy benefit insurance, the 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.

For more background on pharmacy benefits and comparisons among payers, see chapters 5 and 6 of our 2020 Economic Report on U.S. Pharmacies and Pharmacy Benefit Managers.

Here are the Kaiser survey’s updated definitions for common terms used in its 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 such as blood disorder, arthritis or cancer. Often times they require special handling and may be administered through injection or infusion.

Note that I reproduced the definitions exactly as they appear in the KFF report. For instance, fourth-tier drugs are not really a “new type” of coverage at this point. I also didn’t correct KFF’s grammatical errors.

TIERS FOR FEARS

The chart below summarizes the structure of different benefit plans:

• In 2020, more than half (54%) of employees in plans without high deductibles are enrolled in plans with four or more tiers. An additional 35% of employees are in plans with three tiers. (See chart below.) These results are comparable to the 2019 figures.

• For HDHPs in 2020, four-tier plans are now the most common, accounting for 36% of enrollment. That figure compares to 27% in 2019. Three-tier plans now account for 33% of enrollment—a sharp decline from the 49% in 2019.
  
  There was some good news, however. In 2020, 17% of employees in high-deductible plans are in plans in which cost sharing is the same regardless of drug type, compared with only 10% of employees for 2019. An additional 9% of employees in high-deductible plans have no cost-sharing after the deductible is met. Only 3% of employees in traditional plans face either of these tiers.

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COINSURANCE OVER HEELS

Below, we compare cost sharing for prescription drugs in HDHPs/SOs with plans that lack high deductibles.

The chart below shows the utilization of copayment vs. coinsurance in employer-sponsored plans without a high deductible. Compared with last year’s figures, the prevalence of copayments (instead of coinsurance) declined slightly for drugs on the second and third tiers. However, the use of copayments for higher-tier drugs has grown, from 47% of plans in 2019 to 62% of plans in 2020.

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By contrast, HDHP/SOs continue to favor coinsurance on lower tiers. For second- and third-tier drugs, the share of employees with coinsurance in HDHP/SOs is more than twice that of more traditional plans. The coinsurance share increased slightly compared with 2019. However, the prevalence of coinsurance for fourth-tier drugs in HDHPs dropped, from 39% in 2019 to 30% in 2020. The 2020 figure for HDHPs is comparable to the 36% figure for traditional plans, shown above.

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The 2020 survey asked employers at firms with 200 or more workers about separate specialty drug tiers. In 2020, 45% of covered workers are enrolled in a plan that has a separate tier for specialty drugs. In plans with a specialty drug tier, 53% use coinsurance on that tier. Unfortunately, KFF did not report results by plan type for specialty drug coverage.

SOWING THE SEEDS OF COST

The chart below shows average copayments and coinsurance rates for employer-sponsored prescription drug plans with three or more cost sharing tiers. (The data are not available for HDHP/SOs vs. other plans.) The copayment levels and coinsurance rates are similar to the figures for the 2019 benefit year.

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Coinsurance amounts are typically based on the negotiated rate between a pharmacy and payer. These amounts approximate a drug’s undiscounted, pre-rebate list price. Consequently, out-of-pocket coinsurance amounts can be quite high, especially for more expensive specialty drugs. It also means that most patients pay a much greater share of the prescription's net price than might be apparent from the coinsurance percentage. 

Some workers are in plans that limit out-of-pocket maximum dollar coinsurance payments for drugs on higher tiers. For 2020, 24% of all workers have no out-of-pocket maximum for fourth-tier specialty drugs, and 16% have no limit for specialty drugs. These figures are better than those for 2019, when 43% had no out-of-pocket maximum for fourth-tier specialty drugs and 27% had no limit for specialty drugs.

What's more, almost four in 10 covered workers with employer-sponsored insurance are expected to pay for prescriptions within a deductible phase. The lack of first-dollar coverage also forces patients to pay list price for their prescriptions.

All prescription cost sharing is subject to a plan's overall out-of-pocket maximum. However, the obligation can be very high. For single coverage in employer-sponsored plans, 62% of workers face an out-of-pocket maximum greater than $3,000. An additional 18% has an OOP max greater than $6,000. Note that these limits fall below the Affordable Care Act mandates.

Despite these challenges, I am encouraged to see that for 2020, fewer workers face coinsurance for fourth-tier drugs (although a majority of specialty drugs still have coinsurance). Another bit of positive news: one in five large companies waives cost sharing for drugs that treat chronic conditions.

THESE ARE THE THINGS I CAN DO WITHOUT

Welcome to your life. There’s no turning back. Even if you find your employer not acting on its best behavior.

Next week, I’ll examine how these benefit designs affect patients’ out-of-pocket obligations—and their perceptions of how much drugs cost. In the meantime, please enjoy this inscrutable ‘80s music video from a well-known benefit consulting firm.