Trends in employer-provided prescription-drug coverage: prescription-drug costs have been rising faster than the rate of inflation; although coverage remains an integral part of employee health care plans, covered employees share a greater portion of the cost of prescription drugs and are being offered cost-saving incentives more than ever before
Prescription drugs are an integral part of the high-quality health care those living in the United States have come to know. More than 60 percent of Americans fill at least one prescription annually. (1) U.S. expenditures on prescription drugs reached $162.4 billion in 2002, more than 10 percent of the total spent on all health care. (2) From 1993 to 2003, while the general rate of inflation remained relatively low, medical care costs continued to rise rapidly, with prescription-drug costs one of the contributing factors. (3) Chart 1 depicts the Consumer Price Index (CPI) growth rates in the prices of prescription drugs and medical supplies, all medical care, and all items over the 1993-2003 period.
As one of the main sources of health coverage in the United States, private-sector employers are striving to contain the cost of employee medical plans and, along with them, the cost of prescription-drug coverage. Employers have implemented a variety of methods to stem the rising costs of providing such coverage. This article examines Bureau of Labor Statistics (BLS, the Bureau) data on employer-provided prescription-drug coverage and discusses how cost-saving methods have emerged over the past decade.
Since the late 1970s, the Bureau has produced information on the incidence and detailed plan provisions of employer-provided medical benefits. The most recent data are from the benefits portion of the 2002-03 National Compensation Survey (NCS), a forerunner of which was the Employee Benefits Survey (EBS). Among the differences between the NCS and the EBS are that (1) the 1993, 1995, and 1997 EBS data cited in this article represent full-time workers in private establishments of 100 or more workers, (2) the 2000 NCS data pertain to full-time workers regardless of establishment size, and (3) the 2002-03 NCS data represent all private-industry workers regardless of establishment size or part- or full-time status. (4) Despite these differences, there is still enough similarity in the surveys for a valid comparison of prescription-drug coverage over the 10-year period examined. Given the relatively small portion of part-time workers that have prescription-drug coverage, (5) it is unlikely that prescription-drug data for part-time workers have much impact on estimates for all workers. As for the difference between the surveys in the scope of the establishment size, the pattern of prescription-drug provisions tends to be similar in larger and smaller establishments. For example, the 1996 EBS data on full-time workers in establishments with fewer than 100 workers were similar to the 1997 data on full-time workers in establishments with 100 or more workers. (6) Also, the 2002-03 NCS benefits data show that the percentage of workers with prescription-drug coverage is similar in larger and smaller establishments. (See table 1.)
Prescription drugs in the economy
U.S. aggregate spending for prescription drugs more than tripled over the 1993-2003 period. (7) Two main factors drove the increase in expenditures: rising prices and increasing utilization of prescription drugs. As regards the first factor, the average price of a prescription rose from $22.06 in 1990 to $45.79 in 2000. (8)
Although this price rise, most notably for newly marketed drugs, accounted for 29 percent of the increase in spending, growing consumption was responsible for the bulk of the increase. (9) From 1992 to 2002, the number of prescriptions purchased increased 74 percent (from 1.9 billion to 3.3 billion), while the U.S. population grew 12 percent; the average number of prescriptions filled per person per year increased from 7.3 to 11.6. (10) With an aging society, a longer average lifespan, and the increasing use of prescription drugs to treat chronic illnesses and an expanding scope of maladies, expenditures are expected to continue to rise rapidly, reaching $445.9 billion, or 17 percent of all personal health care spending, by 2012. (11)
This scenario is of considerable concern to private employers, which are a primary provider of health insurance. More than 160 million Americans--approximately 64 percent of the entire U.S. population--are covered by an employer-based health plan. (12) More than 93 percent of private health insurance coverage was obtained through the workplace (from a current or former employer or union) in 2001. (13) Among people 18 to 64 years, 82.0 percent of workers had health insurance that year, compared with 74.3 percent of nonworkers. (14) Health plans are a major benefit cost to employers, having commanded 6.5 percent of the total compensation dollar in December 2003. (15) Chart 2 illustrates the volatility of health insurance costs in comparison to the cost of benefits as a whole and the cost of wages and salaries. Prescription drugs account for less than 20 percent of all employer health costs, but they are among the most volatile. 16 Although employer-provided medical insurance coverage (17) has declined over time--from 63 percent (18) of all private-industry workers in 1992-93 to 45 percent (19) in 2002-03--prescription-drug coverage has remained a component of almost all these plans. In 2002-03, 41 percent of workers surveyed had prescription-drug coverage.
Cost containment measures
The most basic way for a health insurer to contain costs is to limit the goods and services covered. For goods associated with pharmacology, health plans typically exclude proprietary medicines, medical appliances or devices, nonprescription drugs, in-hospital drugs, (20) blood and blood plasma, and immunization agents. Also, plans generally place limits on the quantity dispensed in any one prescription. In addition, some plans require precertification, or preauthorization, of medications by a pharmacy review panel. One type of precertification is "step therapy," the practice of requiring the patient to use a covered medication and to be evaluated for whether the medication is effective on him or her before a similar, excluded medication is prescribed. (21) Some plans encourage the use of recently approved over-the-counter drugs by mailing coupons to purchase these drugs at a discount to enrollees who have been taking similar prescription drugs. (22) Other plans implement preventive measures such as health education programs for employees, (23) which tend to offset costs in the long run. Still other plans offer prescription-drug cards, which require a monthly fee and allow the card holder (and, often, family members) discounts on prescription drugs. (24)
In addition to adopting these cost-saving techniques, private employers have implemented methods designed to shift a portion of the price of prescription drugs to their health plan participants, and they have structured plans to give enrollees incentives to choose lower cost alternatives. The Bureau tracks data on several such methods. In the next section, selected methods are described, and data on their prevalence in the 1993-2003 period are presented.
Trends revealed in the data
The Bureau tracks data on the percentage of workers with prescription-drug coverage; specific types of limitations, such as copayments per prescription for brand-name drugs; annual deductibles; annual maximum limits on reimbursement; and the percentages of workers in plans that offer higher coverage for generic drugs, at selected (network) pharmacies, and for mail-order drugs. With the 2002-03 survey, the Bureau published data for the first time on the percentage of workers participating in prescription card plans and the percentage of those in plans that give higher reimbursement for formulary drugs (that is, drugs on a list of medications) than for drugs not on the formulary. (See table 1.) The survey data show that, among the methods listed, higher reimbursement for generic drugs is the most widely applied method of cost containment for private-industry workers, regardless of their occupational group, their bargaining status, the size of the establishment they work in, or the industry group to which they belong.
Copayments. Most workers are in plans that require a copayment for each prescription--a set amount, rather than a proportion of the prescription's cost. For example, under this type of plan, the enrollee would pay $10 for each prescription filled, regardless of whether the retail cost of the same purchase would be $10 or $100. According to the Kaiser Family Foundation, average copayments for generic drugs increased from $7.42 in 2000 to $9.47 in 2003. (25) BLS data show that copayment amounts for brand-name drugs rose dramatically from 1997 to 2003. (BLS data on copayment levels and averages traditionally have been published by fee arrangement and are discussed later, under the subsection titled "Prepaid and indemnity plans compared.")