How Can Employers Contain Prescription Drug Costs?
Over the past five years, prescription drug costs have risen at a rate of almost ten times the annual rate of inflation. Due to the impact on corporate-sponsored healthcare plans, many employers are looking at ways to contain the ever-rising costs of prescription drugs. The 2018 Employee Benefits Survey conducted by the International Foundation of Employee Benefit Plans, provides data on the steps employers are taking to manage the hefty price increases.
Tiered Cost-Sharing Initiatives are the most common, offered by 92 percent of responding organizations. The three-tiered system typically has one premium level for generic drugs, a higher level for preferred brand-name drugs and an even higher level for non-preferred brand-named drugs. Some employers offer four or even five tiers for prescription drug cost sharing.
Coverage and Limits Based on Drug Type: In the survey, employers responded that they utilize varying ways to control what medications can be covered. Below are some of those methods used in order of popularity:
- Seventy percent of employers use a drug formulary that lists the medications covered by the plan – typically those drugs that are considered the most effective and economical.
- Fifty percent of organizations use step therapy, which requires a beneficiary to try the most cost-effective treatment before proceeding to those that are more expensive or difficult to use.
- Almost 40 percent of employers encourage the use of generic drugs by using financial incentives, while 36 percent mandate the use of generic options.
- More than 20 percent of employers place specific limits on specialty and biotech drugs.
- One in five organizations limit or do not cover lifestyle drugs that target conditions that are deemed not medically necessary, such as treatments for obesity, infertility or cosmetic issues.
- Close to 20 percent of organizations utilize preferential pricing agreements that are negotiated directly with pharmacies or manufacturers.
- A smaller number of employers (13.4 percent) cover select over-the-counter (OTC) drugs or utilize reference-based pricing (6.5 percent) where the price or reimbursement level of a specific drug is set by drug group or class.
While these measures help employers contain the cost of prescription medications, they don't focus on improving the underlying health conditions that necessitate the need for medicine. Due to the high cost of prescription drugs, employers that implement a comprehensive well-being program can improve the health of their workforce, which reduces the need for certain medications. The Centers for Disease Control states that chronic conditions such as heart disease, cancer and diabetes account for 75 percent of the nation’s health spending. These chronic diseases are largely preventable when employees make healthy lifestyle changes including improving nutrition and making a commitment to physical activity. Contact us to learn how we help employees make simple behavior changes that improve their health.