Tuesday, October 13, 2015

Employers Get Tougher About Pharmacy Benefits and Specialty Drug Management

It’s time for our annual review of the Kaiser/HRET 2015 Employer Health Benefits Survey, which you can read online for free. The survey delves into employer-sponsored health coverage at 2,000 companies.

Today, I profile the 2015 pharmacy benefit highlights from this well-executed survey. The charts below summarize (1) cost-sharing tier structures, (2), average copayments, by formulary tier, (3) type of cost-sharing (coinsurance and copayment), and (4) new data on specialty drug management strategies.

Bottom line: Employers didn’t make major changes this year, but they continue to shift prescription drug costs to beneficiaries and are focusing on specialty drug management. As I explain below, the plan details won’t give employees a glad expression.


The 2015 report tracks health benefits at 1,997 firms, 89% of which offer health benefits to employees. Nearly all (99%) covered workers in these plans have a prescription drug benefit.

The survey’s sampling methodology is solid. (Click here for the wonktatsic methodology.) Drug Channels readers will be most interested in the survey data on Prescription Drug Benefits (section 9). Unfortunately, the report does little to break-out pharmacy benefit results by employer size, industry type, and other categories.

The Kaiser team told me that they were too busy to release a PDF of the whole report, so you’ll have to wade through a complex series of web pages to read the full results. But it's worth doing, so don't let my brief lesson give you the wrong impression.


A pharmacy benefit covers outpatient prescriptions dispensed by a licensed pharmacy. For consumers with third-party pharmacy benefit insurance, the share of the prescription’s cost is usually linked to benefit cost tiers—categories that define the plan member’s copayment or coinsurance. In general, prescription drug plans financially reward patients for using generic and lower-tier drugs. The plans do this by requiring the patient to pay progressively higher copayments or coinsurance for drugs on higher tiers. For more background on pharmacy benefits, see Chapter 4 of our 2014-15 Economic Report on Retail, Mail, and Specialty Pharmacies.

Here is how the Kaiser/HRET survey defines the most common drug tiers:
  • Generic drugs: Drug products 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.
  • Non preferred 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.


In 2015, the three-tier design—generic drugs, preferred brand-name drugs, and non-preferred brand-name drugs—remains the most common, used in 65% of employer-sponsored plans. (See chart below.) Plans with four of more tiers have grown substantially. They accounted for 3% of employer-sponsored plans in 2004 to 23% in 2015. Compared with last year’s report, there was a small but statistically insignificant increase in four-tier plans: from 20% of covered workers in 2014 to 23% in 2015.

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In the overall sample, a small percentage of plans have the same cost sharing regardless of drug type (8%). This result comes 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, 22% do not vary cost sharing based on drug type. (By contrast, for Preferred Provider Organization (PPO) and Point of Service (POS) plans, only 5% of beneficiaries face no cost sharing differences.) In HDHP/SO plan designs with no tier differences, the beneficiaries’ cost sharing almost always takes the form of coinsurance, not a flat copayment.


The 88% of plans with tiers favor copayments over coinsurance. Average copayments in 2015 for employer-sponsored prescription drug plans with three or more cost-sharing tiers are comparable with those in 2014.
  • Tier 1: $11
  • Tier 2: $31
  • Tier 3:$54
  • Tier 4: $93
On higher tiers, coinsurance remains much more common than are copayments. About 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. Looking only at the fourth tier, however, copayments are more common than coinsurance.

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Coinsurance rates for fourth-tier drugs, which tend to be specialty products, averages 32%. This means that a patient would pay about $900 for an average specialty prescription of about $3,000. Most covered workers are in a plan that partially or completely limits out-of-pocket maximums.

Such coinsurance designs are becoming distressingly common. For example, plans on the ACA insurance marketplaces also have high coinsurance for specialty drugs. The AIDS Institute has just published an analysis of the Florida plans. It found that many insurers placed hepatitis drugs on the fourth and fifth tiers and had coinsurance rates as high as 50%. Check out its report here.


For the first time, the Kaiser/HRET survey asked employers about the strategies they use to manage specialty drug costs. As you can see in the chart below, large companies are much more likely to use these benefit management tools than are smaller companies. Surprisingly, the reported usage of such tools as utilization management and step therapies is lower than the usage reported in other surveys.

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Large out-of-pocket costs and high deductibles have an intriguing relationship with manufacturers’ co-pay offset programs. I’ll provide details in an upcoming post.


Here’s a prescient video from the great English Beat, who sing about the emergence of managed care and pharmacy benefits. Fun fact: When this cover of the Smokey Robinson & The Miracles classic was released, in 1980, consumer out-of-pocket funds—the sum of cash-paid prescriptions and consumer copayments—accounted for more than 70% of U.S. prescription drug costs. The consumer’s share was only 16% in 2014. That's quite a different subject.

Click here if you can’t see the video.

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