NCPA - Daily Policy Digest - Cost-Sharing Reduces Prescription Drug Spending

NATIONAL CENTER FOR POLICY ANALYSIS
/ / / /

Cost-Sharing Reduces Prescription Drug Spending

With drug costs rising rapidly for working-aged adults, many employers and health insurance providers have changed benefits packages to encourage the use of fewer or less expensive drugs. The results were impressive:

Doubling co-payments to $10 for all drugs reduced the annual average drug cost from $725 to $563 per member - a savings of 22.3 percent.

Doubling co-payments in a 2-tier plan from $5 for generics and $10 for brand drugs to $10 for generics and $20 for brand drugs reduced costs from $678 to $455 - a savings of 32.9 percent.

Adding an additional co-payment of $30 for nonpreferred brand drugs to a 2-tier plan ($10 generics; $20 brand) lowered overall drug spending by 4 percent while requiring mandatory generic substitution in a 2-tier plan reduced drug spending by 8 percent.

This also affects patients' costs. Doubling co-payments in a 2-tier plan increased the fraction beneficiaries paid out-of-pocket from 17.6 percent to 25.6 percent.

Recent research concludes adding an additional level of co-payment, increasing existing co-payments or coinsurance rates, and requiring mandatory generic substitution all reduced plan payments and overall drug spending among working-age enrollees with employer-provided drug coverage. The reduction in drug spending largely benefited health insurance plans because the percentage of drug expenses beneficiaries paid out-of-pocket rose significantly. However, a follow-up study showed most of the medications "skipped" by patients because of higher co-payments were for non-life-threatening conditions, such as allergies and arthritis. Researchers did not see a lot of evidence that people are going without essential medications.

Source: Geoffrey F. Joyce et al., "Employer Drug Benefit Plans and Spending on Prescription Drugs," Journal of the American Medical Association, October 9, 2002.

For more on Prescription Drug and Health Plans
http://www.ncpa.org/iss/hea/

12770 Coit Rd., Suite 800 - Dallas, TX 75251-1339 - 972/386-6272 - Fax 972/386-0924
601 Pennsylvania Ave. NW, Suite 900 South Building - Washington, DC 20004 - 202/220-3082 - Fax 202/220-3096
Copyright © 2002 National Center for Policy Analysis - All rights reserved.