Employer Health Benefits 2005: Section 9: Prescription Drug Benefits

Employer Health Benefits 2005 Annual Survey

Section 9: Prescription Drug Benefits: Prescription Drug Benefits

Error in element (see logs)

Section 9: Prescription Drug Benefits

In response to rapid growth in prescription drug costs over the past few years, employers and health plans have implemented changes and strategies in an effort to constrain drug spending. The most prominent strategy adopted by employers is the use of tiered cost sharing arrangements, which give workers a financial incentive to choose less expensive drugs. Almost three in four covered workers are in plans with a three-tier or four-tier cost sharing arrangement. Some covered workers with drug benefits (10%) must also meet a separate prescription drug deductible.

As in prior years, nearly all (98%) covered workers in employer-sponsored plans have a prescription drug benefit.
- A majority of covered workers (89%) in 2005 have some sort of tiered cost sharing formula for prescription drugs (Exhibit 9.4). Cost sharing tiers generally are associated with the placement by a health plan of a drug on a formulary or preferred drug list. The formulary or drug list generally classifieds drugs as a generic, a preferred brand named, or a nonpreferred brand named drug. Recently, a few plans have created a fourth tier of cost sharing, which is used in some cases for lifestyle drugs or expensive biologics. Seventy-four percent of covered workers are enrolled in plans with three or four tiers of cost sharing for prescription drugs (Exhibit 9.1).
- The majority of covered workers with tiered benefits face copayments rather than coinsurance for generic, preferred, and non-preferred drugs. Average drug copayments increased slightly over the last year. The average drug copayments for preferred ($22), nonpreferred ($35), and fourth-tier ($74) drugs increased slightly over their level in 2004, while the average copayment for generic drugs is statistically unchanged from last year at $10 (Exhibit 9.2).¹¹
- For workers with coinsurance rather than copayments for prescription drugs, cost sharing levels average 20% for generic drugs, 25% for preferred drugs, 33% for nonpreferred drugs, and 43% for fourth-tier drugs (Exhibit 9.3).¹²
Other strategies used by firms and health plans to curb the rising cost of prescription drug coverage include a separate prescription drug deductible. Among covered workers with a drug benefit, 10% face a separate prescription drug deductible in 2005. The average annual deductible faced by covered workers for prescription drugs is $122 (Exhibit 9.5).

¹¹	The average copayments for generic, preferred, and nonpreferred drugs are calculated by combining the weighted average copayments for those types of drugs among firms with a single copayment amount or a multi-tier cost sharing structure. Because in some cases drugs covered as fourth-tier drugs may be covered by health plans through other portions of their coverage (e.g., as part of major medical coverage), the average copayment for fourth-tier drugs is calculated using information from only those plans that have a fourth-tier copayment amount.

¹²	The average coinsurance rates for generic, preferred, and nonpreferred drugs are calculated by combining the weighted average coinsurance for those types of drugs among firms with a single coinsurance amount or a multi-tier cost sharing structure. Because in some cases drugs covered as fourth-tier drugs may be covered by health plans through other portions of their coverage (e.g., as part of major medical coverage), the average coinsurance for fourth-tier drugs is calculated using information from only those plans that have a fourth-tier coinsurance amount.

	For more information regarding survey methodology, click here to view the Survey Design and Methods section.

Exhibit 9.1	Exhibit 9.3
Exhibit 9.2	Exhibit 9.4
Exhibit 9.5

The Kaiser Family Foundation and Health Research and Educational Trust
Program Area: Health Care Marketplace Project | Publication Date: 09/14/2005