The Marketplace Pulse series provides expert insights on timely policy topics related to the health insurance marketplaces. The series, authored by RWJF Senior Policy Adviser Katherine Hempstead, analyzes changes in the individual market; shifting carrier trends; nationwide insurance data; and more to help states, researchers, and policymakers better understand the pulse of the marketplace.
In a recent poll, nearly all respondents (92%) identified reducing prescription drug costs as a top health priority. Examining the cost-sharing structure in health insurance makes it easy to see why this is the case, as consumers that use brand or specialty medications can have sizable out-of-pocket obligations.
The major mechanisms that determine out-of-pocket costs for prescription drugs are formulary tier placement and the corresponding cost-sharing. Drugs in lower tiers, like generics, usually require a modest co-pay. But in higher tiers, consumers are more likely to pay co-insurance, which exposes them to the negotiated prices of their medications.
In the individual and small group market, the benefit design generally requires more out-of-pocket spending than in the employer market as a whole. For example, 51 percent of plans in the large group market had four or more tiers, compared with 86 percent in the small group and 93 percent in the individual market. Because the level of cost-sharing increases at higher tiers, more tiers typically translate into higher costs for patients. Plans in the small group and especially the individual market are also more likely to have benefit designs where cost-sharing for drugs is subject to the deductible.
For generic medications, modest co-pays are the norm, with a median of $15 for silver plans on both the individual and small group markets. Yet even in this tier, more than 25 percent of silver plans in both markets have cost-sharing that is subject to the deductible, meaning that members pay the full price of the medication until their deductible is met, before paying a co-pay or co-insurance.
At the higher tiers, out-of-pocket spending increases considerably and differences between the individual and small group markets widen. For specialty drugs, less than 10 percent of silver plans in the individual market use co-payments that are not subject to the deductible. For those that do, the median co-pay is $550. In the small group market, about one-quarter of silver plans use co-pays before the deductible for the specialty tier, with a median copay of $250. In the large group market, cost-sharing is more moderate; more than 40 percent of plans use co-payment in the fourth formulary tier.
Nearly three-quarters of individual market silver plans employ the most austere type of benefit design in the specialty tier - co-insurance which only kicks in after the deductible is met. The median co-insurance is 40 percent, not insignificant when the average monthly cost of a specialty drug can exceed $5,000. In the small group market, less than one-third of silver plans have this design, and the median co-insurance is somewhat lower at 30 percent.
There are a few mitigating factors. Some plans using co-insurance have a maximum dollar value per prescription, most commonly for the specialty tier, and some plans have a drug deductible that is separate from and smaller than their overall medical deductible. Plans that are combined with Health Savings Accounts allow enrollees to use pre-tax dollars for their out-of-pocket spending. Enrollees with incomes below 250 percent of federal poverty level qualify for Cost-Sharing Reduction plans that require much lower out-of-pocket spending. But the differences between the individual and small group markets in the specialty tier are not trivial, which could be relevant for small employers and brokers that are interested in taking advantage of the recent HRA rule to migrate enrollees to individual coverage.
The benefit design determines how much of the cost of expensive medications is borne by patients with prescriptions versus being shared more broadly among all enrollees. Manufacturers have for many years provided patients with co-pay coupons to offset cost sharing for expensive medications. This essentially negates the impact of the plan cost-sharing design and maximizes expenditures from plans. As a countermove, plans have recently introduced “co-pay accumulators,” which are intended to essentially neutralize co-pay coupons, by prohibiting them from being applied to patient deductibles and maximum out-of-pocket limits. The use of accumulators has become widespread, including in the individual market, where surveys in a number of key states have found co-pay accumulators being used by many carriers, with information about their use sometimes buried deeply within plan documents.
A number of states have passed or are considering passing legislation to limit the use of co-pay coupons, particularly when a generic is available. CMS took a similar position for the ACA market in the recently released Notice of Benefit and Payment Parameters. Yet a number of states have regulated aspects of prescription drug cost-sharing in ways that also seek to reduce exposure for enrollees with prescriptions, by limiting the number of formulary tiers, establishing a maximum co-pay, setting a patient spending cap, and otherwise standardizing benefit design. At the same time, some patient advocacy groups are now asking states to restrict the use of co-pay accumulators. While much of the broader policy discussion about drug costs has focused on list prices, plan design will continue to be an important issue for consumers and many other stakeholders.
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