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Benefit-based Copays in the Real World: The Employer Perspective

Benefit-based Copays in the Real World: The Employer Perspective

As seen in Table 1, annual costs of care for diabetes and asthma decreased 6% and 15%, respectively, between 2001 and 2003. Overall, average pharmacy costs decreased 7% and 19%, respectively. Drop-in drug costs are directly related to decreased use of drugs to treat complications from these diseases.13,14

Additionally, ED visits for plan participants with diabetes decreased 26% in absolute terms, whereas cost savings for asthma was driven by fewer and shorter hospital admissions.12,13

Pitney Bowes also realized savings in short-term disability. The rate for those with diabetes decreased from 0.06 days per 100 employees in 2002 to 0.03 days in 2004, whereas the average duration per incident decreased 29.3%, from 58 days in 2002 to 41 days in 2004. This translated into short-term disability cost savings of 75% (Table 2).13

Finally, as seen in the Figure, Pitney Bowes has experienced 7% compounded annual growth rates in healthcare costs since 2000, whereas growth rates for benchmarked companies were 12% to 15%.14

Humana Inc
Humana Inc is a $6.9-billion Fortune 500 company headquartered in Louisville, Kentucky. It is one of the nation's largest publicly traded health benefits companies, with approximately 11 million medical members and 18 500 employees.

Since 1994, the company has seen plan pharmacy costs increase from between 3% and 4% of the healthcare dollar to between 18% and 20% on the commercial side and 10% on the Medicare side. Humana was the first to launch a 4-tiered pharmacy benefit (the fourth tier [Rx4] encompasses specialty-injectable drugs), and remains one of the few in the country offering such a benefit.15

The company also uses its “Maximize Your Benefit†program to drive down consumer and, ultimately, employer drug costs. Under this approach, about 5% to 8% of Humana members receive targeted information (by mail, phone, or e-mail) about lower-cost drug alternatives to the medication they have chosen and are encouraged to discuss drug options with their doctors. More than 20% of the members contacted switch to a lower-cost alternative, with average member and employer savings of $125 to $200 per drug annually.15 This consumer program is used for all membership and benefit types.

Recognizing that drug copays limit employee engagement and force employers to absorb cost increases, the company launched its RxImpact allowance-based drug benefit in 2003 (patent pending). The benefit groups drugs into tiers based on their impact on medical events and the time required for the impact of their use on those medical events to be seen. The process used to group the drugs into tiers considers drugs that offset medical events and provide a specific return related to outcomes. In other words, value is based on the return on investment to the employers. Employees receive an allowance for each month's supply of medication within a tier, and each tier includes a maximum out-of-pocket protection for the consumer.15

Drugs are grouped into 4 categories15:
- Group A: Encompasses drugs with evidence-based, short-term effectiveness, primarily for acute conditions. Examples include antibiotics, antidepressants, and asthma and diabetes medications. These drugs represent about 45% of drugs dispensed to commercial members, which accounts for about 33% of drug plan costs. The employer typically provides the highest allowance to members for this category. The member pays anything in excess of that amount (with out-of-pocket limits).
- Group B: Encompasses drugs shown to have long-term, evidence-based effectiveness. Examples include drugs for cardiovascular disease, multiple sclerosis, and cancer. These represent about 27% of drugs dispensed to commercial members, which accounts for about 33% of drug plan costs.
- Group C: Encompasses drugs that provide symptom relief, but do not necessarily prevent additional medical costs. These include antihistamines, anti-inflammatories, and antacids. These drugs represent about 26% of the drugs dispensed to commercial members, which accounts for about 33% of drug plan costs.
- Group D: Encompasses drugs that may impact lifestyle. These include sexual dysfunction, cosmetic, obesity, and smoking cessation medications. This tier typically has the lowest allowance.

The appeal for the employer depends on its level of investment in its employees and its employee needs. For example, a company responsible for retiree medical costs would be more likely to invest in Group B drugs with a lower copay, whereas a retail establishment with short-term employees would be more likely to invest in Group A drugs.14 A company dependent on low rates of absenteeism and presenteeism might be more inclined to invest in Group C drugs, whereas an employer looking to be the employer of choice and differentiate itself from other employers in the same market might invest more in Group D drugs.14

Humana piloted the program on its own employees, offering $40/$30/$20/$5 and $30/$20/$10/$5 copayment options, based on drug group, and a premium reduction for those who participated. It also provided tools to help in decision making, including online drug cost calculators, an “Ask the Pharmacist†program, and the “Maximize Your Benefit†program described earlier.14 Early data showed a decrease of about 10% in out-of-pocket costs for members compared with the 4-tier model. Members have no out-of-
pocket costs approximately 60% of the time, and 99% of pharmacy claims cost members less than $75 total (Table 3).14 Employers also pay less under RxImpact–slightly less than $21 per member per month (PMPM) versus slightly more than $29 PMPM under the Rx4 plan, a 30% drop. RxImpact also increased generic utilization from 52.2% under Rx4 to 55.3% under RxImpact, and led to a significant increase (40%) in utilization of Web-based tools that provide price and cost information.15

Rising healthcare costs, particularly for pharmaceuticals, coupled with increasing health insurance premiums, have driven employers to seek new approaches to health insurance benefits. These generally include greater cost shifting to employees and a greater reliance on disease management strategies. Increasing drug copays or coinsurance, however, typically reduces patient adherence, preventing the successful implementation of most disease management efforts.

By using a value-based approach, in which copays are inversely tied to the benefit of the drug for a particular patient and/or disease state, employers can reduce overall pharmacy costs as well as other medical costs by increasing adherence and reducing complications that lead to hospitalizations and ED visits.

1. McGlynn EA, Asch SM, Adams J, et al. The quality of health care delivered to adults in the United States. N Engl J Med. 2003;348:2635-2645.

2. Kaiser Family Foundation. Trends and indicators in the changing health care marketplace. Updated: February 2006. Available at:; Accessed August 1, 2006.

3. Kaiser Family Foundation. Employer health benefits: 2005 annual survey. Available at: Accessed July 31, 2006.

4. Kaiser Family Foundation. Prescription drug trends: June 2005. Available at: Accessed August 1, 2006.

5. Fendrick AM, Chernew ME. Value-based insurance design: a “clinically sensitive” approach to preserve quality of care and contain costs. Am J Manag Care. 2006;12:18-20.

6. Osterberg L, Blaschke T. Adherence to medication. N Engl J Med. 2005;353:487-497.

7. Fireman B, Bartlett J, Selby J. Can disease management reduce health care costs by improving quality? Health Aff (Millwood). 2004;23:63-75.

8. Ellis JJ, Erickson SR, Stevenson JG, Bernstein SJ, Stiles RA, Fendrick AM. Suboptimal statin adherence and discontinuation in primary and secondary prevention populations. J Gen Intern Med. 2004;19:638-645.

9. Goldman DP, Joyce GF, Escarce JJ, et al. Pharmacy benefits and the use of drugs by the chronically ill. JAMA. 2004;291:2344-2350.

10. Chernew ME, Rosen AB, Fendrick AM. Rising out-of-pocket costs in disease management programs. Am J Manag Care. 2006;12:150-154.

11. Fendrick AM, Smith DG, Chernew ME, Shah SN. A benefit-based copay for prescription drugs: patient contribution based on total benefits, not drug acquisition cost. Am J Manag Care. 2001;7:861-867.

12. Goldman DP, Joyce GF, Karaca-Mandic P. Varying pharmacy benefits with clinical status: the case of cholesterol-lowering therapy. Am J Manag Care. 2006;12:21-28.

13. Mahoney JJ. The clinical and economic impact of copays. Presentation at: Impact of Prescription Drug Copayments on Vulnerable Populations. Roundtable meeting; June 13, 2006; Philadelphia, Pa.

14. Mahoney JJ. Reducing patient drug acquisition costs can lower diabetes health claims. Am J Manag Care. 2005;11(5 suppl):S170-S176.

15. Fleming W. Impact of prescription drug copayments. Presentation at: Impact of Prescription Drug Copayments on Vulnerable Populations. Roundtable meeting; June 13, 2006; Philadelphia, Pa.

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