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The Redesign of Consumer Cost Sharing for Specialty Drugs at the California Health Insurance Exchange
James Robinson, PhD; Anne Price, BS; and Zachary Goldman, MPP

The Redesign of Consumer Cost Sharing for Specialty Drugs at the California Health Insurance Exchange

James Robinson, PhD; Anne Price, BS; and Zachary Goldman, MPP
Patients can be shielded from the most onerous cost-sharing burdens for specialty drugs while keeping premiums affordable for the entire enrolled population.
The catalyst for specialty drug benefit redesign at Covered California came from advocacy organizations representing patients suffering from HIV, multiple sclerosis, epilepsy, hepatitis C, and other chronic conditions where the standard of care includes the use of specialty drugs. In 2015, Covered California formed a workgroup of agency staff, patient advocates, and representatives of participating health plans to provide input on benefit redesign for the 2016 plan year. The principal focus was on increased financial protection and access to high-cost drugs. Design changes were made to the pharmacy deductible, the ability for insurers to assign all high-cost drugs to the specialty drug tier, and the cost-sharing limit. The Table presents the pharmaceutical cost-sharing requirements for individuals and families selecting each of the 4 standard and 3 enhanced plans at Covered California for 2016.

Prior to the benefit redesign, the Bronze and Silver plans had required that enrollees meet their medical deductible before receiving any financial support for specialty drugs. This was particularly important for enrollees in the Bronze plans, which featured a deductible of $6250. Enrollees in the Silver plan faced deductibles of $2250 unless they were eligible for one of the subsidized cost-sharing plans.

The first component of the benefit redesign was to create a separate deductible for pharmaceutical expenditures, with a commensurate reduction in the deductible for other (medical) expenditures. Now a patient would only need to meet a much more modest deductible before receiving some financial protection for specialty drugs. As illustrated in the Table, the pharmacy deductible was established at $250 for the most commonly selected products (the Silver tier), with reductions off that level for low-income patients eligible for federal subsidies. For Bronze plans, the pharmacy deductible was set at $500 in order to keep the AV of those products in line with the 60% requirement.

Covered California imposes dollar co-payment and percentage coinsurance requirements that patients must pay after meeting their deductibles. Prior to the benefit redesign, requirements for nonspecialty drugs were expressed in terms of dollar co-payments, such as $15 for generics, $50 for preferred brands, and $70 for nonpreferred brands. In contrast, cost-sharing requirements for specialty drugs were expressed as percentage coinsurance, including 20% in the standard Silver plan. 

Coinsurance constituted the greatest financial risk for patients suffering from severe medical conditions. Many patients had no ability to limit their financial exposure since their health plan had assigned all the drugs for their condition to the coinsurance-based specialty tier. As part of the redesign, health plans must now assign at least 1 specialty drug for each therapeutic class to a nonspecialty tier. This offers to patients at least 1 treatment option for which they are not exposed to coinsurance. This requirement was limited to therapeutic classes where there existed 3 or more specialty drugs.18

The use of coinsurance for specialty drugs also focused the workgroup’s attention on the maximum out-of-pocket payment limits. The ACA had established an annual maximum for 2016 of $6850 for individual coverage and $13,700 for families. Covered California had set the maximum lower at $6500 for individuals and $13,000 for families. Without additional protections, patients needing specialty drugs could be required to pay this amount, even after satisfying their pharmaceutical deductible. As part of the benefit redesign, Covered California implemented a monthly payment limit of $250 for each specialty drug prescription. Going forward, a patient who is responsible for 20% coinsurance will only pay $250 per month (after having met the pharmacy deductible), even if the monthly price of the drug is $2000 or more. Patients eligible for cost-sharing reduction plans will face lower per-prescription maximums. Patients selecting the Bronze plan, however, will be required to pay up to $500 per prescription per month, in addition to meeting a $500 pharmacy deductible.

In addition to structuring the standardized benefit design to increase financial protection, Covered California instituted requirements on the participating health insurers that would increase the ability of enrollees to understand their coverage options. The workgroup agreed to a standard definition of which classes of drugs could be assigned to each of the 4 formulary tiers (generic, preferred brand, nonpreferred brand, and specialty). Individual plans retain the right to assign particular drugs to particular tiers or to exclude them from the formulary altogether, but they will need to clearly indicate which drugs are in which tier, maintain a dedicated pharmacy customer service line, clearly message the plan’s exception policy for patients needing drugs not on the approved formulary, and provide an estimate to enrollees of their out-of-pocket obligations for each drug.


Despite improvements in financial protection for patients using specialty drugs, insurance design efforts are vulnerable to escalation in the underlying cost of health services. As pharmaceutical firms launch effective but expensive new products, health plans either must raise their premiums, increase consumer cost sharing, or both. The Covered California staff has discussed additional protections for patients using specialty drugs, but they fear that cost sharing may need to increase, not decrease, in light of the continuous escalation in specialty drug prices. After almost a decade of stability, national prescription drug spending grew by 12.6% in 2014, and CMS expects outpatient prescription drug spending to grow at annual rates of 6% or more in the coming years.19 Premiums now must incorporate the cost of new drugs for hepatitis C, coronary artery disease, cancer, and other prevalent conditions. Over the long term, patient access to effective care will only be guaranteed if the health system finds a way to stimulate innovations that decrease, rather than increase, the total cost of care.

Author Affiliations: University of California (JR), Berkeley, CA; Covered California (AP, ZG), Sacramento, CA.

Source of Funding: None.

Author Disclosures: The authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (JR, ZG); acquisition of data (JR, AP); analysis and interpretation of data (JR); drafting of the manuscript (JR); critical revision of the manuscript for important intellectual content (JR, AP, ZG).

Address correspondence to: James Robinson, PhD, University of California, Berkeley, CA 94720-7360. E-mail:

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