Medical Savings Accounts and Prescription Drugs: Evidence from South Africa
Table of Contents
Taking a Closer Look at Prescription Drugs
"MSA patients control costs better than managed care, but without the costs of managed care."
Patients are often more effective and more efficient monitors of prescription drug therapy than third-party payers, even under a regime of strict managed care. The switch from a brand-name drug to a generic equivalent may affect some patients differently than others. Different dosage levels also have different effects on different patients. No one is in a better position to observe these effects and weigh the costs against the benefits of alternatives than are the patients themselves.
Case Study: Prozac. An analysis of the patterns of Discovery members' usage of Prozac and its generic equivalents shows the value of MSAs in encouraging members to consider shifting to generics. In South Africa, the retail price for a pack of 30 Prozac 20mg capsules is approximately R298 (US$42.90). Generic equivalents retail at approximately R112 (US$16), or 38 percent of the cost of the brand name drug. From a detailed analysis of the 76,072 Discovery members who hit their deductibles in 2000, we discover that people using an MSA were more likely to switch to generics:
- 4,494 families had at least one member using Prozac or a generic equivalent in 2000, with an annual expenditure of R7.214 million (US$1.03 million).
- When these members were below their deductibles -paying for their own medicines - Prozac accounted for 31.2 percent of the prescriptions and 49.3 percent of the amount spent.
- Above the deductible, when the insurer was paying, the use of the brand-name drug increased to 36.4 percent of the prescription and 55 percent of the amount spent.
- This represents a 16.6 percent increase in utilization of the more expensive drug once people exceeded their deductibles.
Other evidence of the MSAs' impact is no less striking. Prozac is also covered for some members under Discovery's tightly managed Chronic Illness Benefit (CIB), which involves clinical registration criteria, an ongoing drug utilization review and contracts with several providers of prescription drugs. This benefit has no deductible, since spending on drugs for members with chronic conditions is essential to avoid more serious complications and hospitalizations.
Under this benefit, 44.8 percent of the utilization and 66.1 percent of the expenditure is on the brand-name drug. This represents a 43 percent increase in usage when members are using insurance company money rather than their own. The results of this comparison, summarized in Table IV, show that patients using MSAs are better at managing drug costs than are managed care plans.
"Patients are more likely to choose a cheaper, generic equivalent when they are spending from their MSA."
Case Study: Ritalin. Ritalin is widely prescribed for children with Attention Deficit Hyperactivity Disorder (ADHD). However, many physicians and consumers contend that Ritalin may be overused. Figure I shows the amount spent on the drug (per member per month) by Discovery members in 1999 and 2000. The distinct seasonality - with substantial dips in usage during the school holiday months of April, June/July, September and December - suggests strongly that there is considerable discretion over the use of Ritalin in this population.
"Ritalin is widely prescribed for children with Attention Deficit Disorder (ADHD)."
In January 2000, a change in the design of Discovery's insurance product allowed Ritalin to be covered with no deductible if the member registered for the company's Chronic Illness Benefit (CIB) described earlier. Previously, the member had paid for the drug with MSA funds until he or she reached the deductible. The design change enabled a natural experiment that illustrates the changes in member behavior when discretionary items are covered in an MSA or in a fully insured, tightly managed care environment.
Since the choice of whether to apply for the chronic benefit relied on the member's initiative, those who moved to the chronic plan (with no deductible) were more likely to be the higher claimers. By the end of 2000, a substantial proportion of members were still paying for the drug from the MSA, reflecting either ineligibility for the chronic benefit or, more commonly, the fact that the member had not tried to register. For this reason, Discovery restricted its analysis to those members who moved to the chronic benefit before the end of 2000.
The results of the comparison are striking. Figure II shows the average cost per member to Discovery under the chronic benefit (managed care), compared with the average amounts paid from Medical Savings Accounts by those same patients one year earlier.
Several trends are clear:
- The average costs of Ritalin claims paid from MSAs have remained stable, at an average of R155.87 (US$22.44) (despite a small bump in November 2000).
- On the average, MSA claims paid are R39.76 (US$5.72) lower than chronic claims, almost a 20 percent reduction.4
Thus the MSA performs the same function as a costly, tightly managed, restrictive program at very little cost and with minimal hassle. The CIB management involves administrators, nurses and a call center, all of which are superfluous when members have a stake in their own discretionary spending.
"MSA patients spent 20 percent less on Ritalin than those same families spent under managed care."
Case Study: Postmenopausal Drugs. Some MSA critics contend that the introduction of deductibles might induce members to forgo necessary care in order to save money. The implication is that when members are paying for their own care, they might skimp on preventive treatment at the expense of their future health. The experience of Discovery's enrollees shows that this contention is simply untrue.
"Where patients believe a drug is necessary, there is no difference bet-ween spending from an MSA ans spending under managed care."
The January 2000 product change also shifted several prescription drugs used during and after menopause from the MSA to the CIB. Two of these drugs, Fosamax and Trisequens, are used primarily for the prevention and treatment of osteoporosis in postmenopausal women, with the latter being widely used for hormone replacement therapy. Discovery's product design change presented an opportunity to evaluate whether members in the MSA environment were forgoing necessary preventive care to save money, with the potential for more serious (and costly) damage occurring later.
The analysis was identical to that performed for Ritalin. Figures III and IV show the per-member-per-month costs for Fosamax and Trisequens respectively from January 1999 to December 2000, including a breakdown for the amount spent from the chronic benefit and from the MSA plan, respectively. The overall level did not increase with the introduction of complete coverage with no deductible, suggesting that MSAs were not keeping expenditure on the drugs artificially low. The relatively stable levels of overall expenditure are consistent with the nondiscretionary nature of the drugs.
"Fosamax and Trisequens are used to prevent and treat osteoporosis in postmenopausal women."
To ensure that members' health status did not cloud the results, the detailed data were once again restricted to those members who switched from the MSA to the chronic benefit before the end of December 2000. Thus, Figures III and IV compare spending by the patients over the two-year period - from an MSA in 1999 and under managed care in 2000.
"The evidence is compelling: MSA patients are able to control the cost of prescription drugs with no adverse effects on their health."
Here, the results are quite different from those with Ritalin. The amounts spent using MSAs are almost indistinguishable from those under the chronic benefit, providing convincing evidence that members are not forgoing necessary care. Even when members have no direct incentive to control their costs, they do not claim more of these particular drugs than under the MSA benefit. When the extra costs of managing the chronic benefit are considered, the value of the self-containing nature of MSA expenditure becomes obvious.
This is conclusive evidence that members are willing to spend their own MSA money on preventive and necessary care, knowing that to do so is in the best interests of their long-term health.
