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How Does Drug Coverage Vary by Insurance Type? Analysis of Drug Formularies in the United States | Page 1

Published Online: April 21, 2014
Stephane A. Regnier, PhD, MBA
In the United States in 2010, approximately 63% of individuals who had health insurance were insured through private plans, 24% by government health programs, and 13% by both types of programs.1 The vast majority (approximately 85%) of privately insured Americans had access to health insurance through private employers.1

The main government programs are Medicaid and Medicare, covering 19% and 17% of the insured population, respectively. Medicaid is available to certain low-income individuals and families. Medicare provides health insurance for individuals older than 65 years, those younger than 65 years with certain disabilities, and people with end-stage renal disease. Additional information regarding source of health insurance can be found in eAppendix A, available at www.ajmc.com.

Health plans usually assign the drugs that they cover to “tiers.” A drug’s tier determines the degree to which the patient will have to contribute a payment for the drug—the lower the tier, the lower the copayment. Tier 1 is typically for generics, tier 2 for preferred brand name drugs, tier 3 for nonpreferred brand name drugs, and tiers 4 (and above) for coinsurance brands. Fixed-sum copayments are required from patients for drugs in tiers 1 through 3 to cover some of the drug costs. Coinsurance copayments are a percentage of a drug's cost and vary from drug to drug. An individual plan may include patent-protected brand name (“on-patent”) drugs, brand name drugs that are no longer patent protected (“off-patent”), and generic bioequivalents. For individuals receiving healthcare coverage via employment, the average 2012 copayment was $10 for first-tier drugs, $29 for second-tier drugs, $51 for third-tier drugs, and $79 for fourth-tier drugs.2 In 2009, the average Medicare Part D copayment was $10 for first-tier drugs, $37 for second-tier drugs, and $75 otherwise.3 The Medicare Part D coinsurance rate on the specialty tier ranged from 25% to as high as 335, with a median of 30%.3 The drugs assigned to each tier vary with individual healthcare plans, and this is one of the aspects of a plan on which the consumer may base their decision when choosing a plan.

From a patient’s perspective, plans that offer drugs relevant to their condition in the low copay tiers are likely to be more attractive, assuming the monthly premiums are comparable. Another factor that might make a plan more favorable is the degree of choice of drugs within a therapeutic class in the low copay tiers. The ability to choose (doctors, hospitals, and drugs) is seen as very important or extremely important by the vast majority of Americans when selecting healthcare plans.4 Evidence that the level of copayments for a given medication impacts the choice of health plans or pharmacies is limited, however. Zou and Zhang found that only 5% of Medicare Part D beneficiaries chose the cheapest plan available in their region given their medication needs.5 Linton et al found that 22% of Department of Defense beneficiaries older than 65 years used the option with lower copay.6 The ability to choose a drug may have implications for patient adherence to prescribed medication regimens. In particular, having access to, and a choice of, on-patent drugs at a reasonable copay level may be an important factor for patients (ie, for patients who have concerns regarding drug switching or generic substitution). There is evidence that increasing a drug’s copayment can decrease its utilization level, reduce adherence,7 or lead patients to switch drugs.8

The objective of this study was to assess whether the level of on-patent drug coverage varies according to:

  • Plan type. Some categories of plans (including some union plans) were expected to offer health insurance packages with generous benefits such as absence of copayments, deductibles, or prior authorizations, even for on-patent drugs for which an alternative generic is available. Those plans can be costly to employers, in which case they would be called “Cadillac plans.”9,10 In such plans, a range of on-patent drugs might be assigned to lower tiers.
  • Therapeutic class. The proportion of on-patent drugs covered by the plan (as a percentage of all on-patent drugs available in the same class) would be expected to be low in therapeutic classes where a large number of drugs are available. For those therapeutic areas, managed care organizations could be effective and aggressive in managing formularies and in influencing physicians’ prescribing behavior.11


The implications of the analysis are important for: (1) consumers and employers who, when choosing insurance, want to know whether certain types of plans provide more choice compared with others; (2) lawmakers who want to understand the impact on drug choice of curbing the use of Cadillac plans; (3) public health specialists who want to understand whether the population has affordable access to life-saving medications.

To date, the published literature reporting on drug tiers and formularies in the United States has focused mainly on: the decrease in drug utilization after a copayment increase12- 15; the association between the formulary position (tier) and value of a drug16; and the decision-making process in assigning a drug to a tier.17-20 For instance, Linton et al observed that the esomeprazole (Nexium) share of the proton pump inhibitor market dropped from 20.0% to 15.7% in the month after TRICARE moved esomeprazole from tier 2 to tier 3 (copay increased from $9 to $22).13 Similarly, in the antidepressant market, Hodgkin et al found that drugs that became non-preferred in insurance plans experienced a decrease of 11% in the number of prescriptions filled per enrollee (vs an increase of 5% in the comparison group).14 No articles have reported on the differences in coverage between insurance type and therapeutic classes. By analyzing such differences, this paper contributes to the more limited literature that advises patients on identifying plans that have limited drug formularies21 and whether formularies meet the needs of all patients.22,23

METHODS

Data Description


The data set used was the Fingertip Formulary (Fingertip Formulary LLC, Glen Rock, New Jersey), which is a collection of drug coverage data for 1768 health plans in the United States. Fingertip Formulary estimates that between 95% and 98% of the covered lives in the United States are in the database. The data were collected from health plans’ websites or by directly contacting the health plan providers. The information changes regularly; the data used in this paper were downloaded on May 15, 2011. While drug coverage typically changes once a year (before members enroll), it could change during the year if there is a market event (eg, an on-patent drug goes off patent) and/ or if the contract with a manufacturer was not renewed. The author accessed the website on May 15, 2011, and downloaded the information available that day. Since no angiotensin II receptor blockers (ARBs) and no proteintyrosine kinase inhibitors (P-TKIs) lost patent that year, it is likely that the conclusions would not have changed dramatically in 2011. The conclusions on HMG-CoA reductase inhibitors (HMGs) would have remained valid for most of 2011, since Lipitor lost its patent on November 30, 2011.

Fingertip Formulary data include a number of fields that are identical for all drugs: (1) health plan identifier; (2) provider (ie, company providing the health plan) identifier; (3) state(s) where the health plan operated; (4) lives covered (ie, number of enrollees in the plan); (5) plan/ insurance type (commercial, pharmacy benefit manager [PBM], employer, Medicare Advantage [MA], Medicare Part D plan [PDP], special needs plan [SNP], state Medicaid, commercial Medicaid plan [if the Medicaid plan was contracted to private health companies], union, municipal, discount prescription programs). In Fingertip Formulary, employer plans are those offered by organizations that arrange pharmaceutical benefits for workers as part of their total benefit plan and whose data. Fingertip Formulary can source in an ongoing basis. Commercial plans are set by non-Medicare and non-Medicaid organizations that offer pharmaceutical benefits to individuals and/or groups such as businesses and local governments. The database allows for information to be included on the tier status (whether a drug is in tiers 1-6, not reimbursed, or not available) for each drug within each plan. eAppendix B provides the number of plans and the number of insured individuals for each insurance type.

PDF is available on the last page.

Issue: April 2014
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