NCPA - National Center for Policy Analysis

Cost-Sharing Reduces Prescription Drug Spending

October 10, 2002

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.


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