NCPA - National Center for Policy Analysis

Employers Tinkering with Drug Co-Pays to Reduce Costs

May 12, 2004

Rising health-care costs are forcing some employers to increase employee co-pays, with the hopes that employees will use their dollars more wisely. However, Pitney Bowes Inc. actually reduced co-pays for asthma and diabetes drugs to 10 percent. As a result:

  • The median cost of a diabetes patient fell by 12 percent -- for an asthma patient, 15 percent.
  • Emergency room visits by employees dropped 35 percent among diabetes patients, and 20 percent among asthma patients between 2001 and 2003.
  • The company estimates its new co-pay system will save the company $1 million in 2004.

Most employers are more likely to increase co-pays, fearing that providing more coverage will increase their costs. Indeed, a Rand Corporation study shows that doubling patient co-pays from $5 to $10 reduces the average annual drug cost per worker by 22 percent.

However, the challenge is determining at what point employees will stop purchasing drugs when faced with higher co-pays. A study done by Harvard Medical School and Medco Health Solutions published in the New England Journal of Medicine indicated that making drastic changes to co-pays, such as switching from a one-tier to a three-tier system showed that:

  • Sixteen percent of patients taking third-tier ACE inhibitors stopped treatment, while 21 percent of patients taking the most expensive cholesterol drugs stopped their treatments as well.
  • More modest increases ( say, moving from a two-tier to a three-tier co-pay system) resulted in very few patients stopping treatments altogether.

Health experts believe that tailoring co-pay plans to different disease areas is the wave of the future, either through various co-pay tiers or even replacing co-pays with generic drugs.

Source: Vanessa Fuhrmans, "A Radical Prescription," Wall Street Journal, May 10, 2004, Haiden A. Huskamp, Ph.D., et. al, "The Effect of Incentive-Based Formularies of Prescription-Drug Utilization and Spending," New England Journal of Medicine, December 4, 2003, 349, no. 23. Geoffrey F. Joyce, PhD; et, al. "Employer Drug Benefit Plans and Spending on Prescription Drugs" JAMA. October 19, 2002, 288, no. 14.


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