More employers plan to discontinue prescription drug benefits for Medicare-eligible health plan members, according to a new survey by Buck Consultants.

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Fewer employers to offer Rx benefits to Medicare-eligible workers

May 31st, 2013

NEW YORK – More employers plan to discontinue prescription drug benefits for Medicare-eligible health plan members, according to a new survey by Buck Consultants.

The Xerox subsidiary said this week that of the over 250 employers polled, 48% offer drug benefits to Medicare-eligible plan beneficiaries. However, of those respondents, just 55% plan to continue that benefit, down from 75% in the previous survey.

Ninety-nine percent of the employers provide active employees with prescription drug coverage, up from 96% in 2011.

"Employers have options for controlling prescription drug costs for Medicare-eligible participants," Buck Consultants principal Paul Burns said in a statement. "For example, since Retiree Drug Subsidy payments are no longer tax-exempt and do not keep pace with rising drug costs, some employers are considering moving to an Employer-Group Waiver Plan to take advantage of additional subsidies available as a result of the Affordable Care Act [ACA]."

Buck Consultants' 2012 Prescription Drug Benefit Survey is its fourth survey on this topic. The study identifies strategies that employers use to manage their prescription drug benefits and costs. The 250-plus organizations that participated in the survey represent a broad range of industries and more than 3.9 million covered lives.

Seventy-one percent of the 2012 survey respondents spend 16% or more of their total health care benefits cost on pharmacy benefits. Also, 81% reported that they see affordable pharmacy benefits as key to reining in health care costs over the long run, which Buck said indicates that employers think improved prescription drug utilization can substitute for more expensive medical services.

"Pharmacy benefit costs continue to increase and, on average, currently represent more than 15% of employers’ total health care costs," Burns explained. "If not managed effectively, prescription drugs can represent a constant financial drain on company resources and undermine the return on investment of a plan sponsor's entire health care benefits program."

Buck noted that the 2012 survey shows a rise in the percentage of employers that contract pharmacy benefit managers to process and pay prescription drug claims, indicating that many employers are turning to PBMs in search of better drug prices.

Sixty-one percent of employers polled now use PBMs, up from 57% in 2011 and 47% in 2009. "Pricing competitiveness" was cited by 68% as a linchpin of PBM service.

"With many medications having double-digit price increases and with the continued consolidation among PBMs, this is a buyer's market for PBM pricing," Burns stated. "Employers should be aggressive in their negotiations. Any PBM contract that is 18 to 24 months old should be reviewed for pricing competitiveness as well as up-to-date contractual language."

Specialty drugs, for chronic diseases such as multiple sclerosis and cancer, are typically used by only 1% or less of covered employees but account for 20% or more of pharmacy plan costs, the Buck survey found. These specialty medications can cost $75,000 or more per year, per course of treatment.

Despite the cost of these medicines, over 30% of employers polled didn't know how much of the overall drug spend stems from specialty medications. Sixty-seven percent of respondents use utilization management programs, and 55% use step therapy protocols to manage specialty drug costs, up from 45% and 34%, respectively, in the 2011 survey, indicating that more plan sponsors see the need to manage these therapies whenever possible, according to Buck.

The survey also asked employers how they are responding to some of the pharmacy-specific requirements of the ACA. Of the two major categories of health benefit plans under ACA — grandfathered (plans in existence on March 23, 2010, meeting certain requirements) and nongrandfathered (subject to a larger set of requirements) — only 26% of respondents reported being grandfathered. Of those grandfathered plans, 42% plan to keep that status beyond 2014.

The majority of employers surveyed provide coverage of immunizations under the medical benefit only, with about 20% offering coverage under both the medical and pharmacy benefit.

Survey responders were almost evenly divided among the three options for compliance with the ACA mandate of offering contraceptive products at no cost to plan participants: Cover only contraceptives that are generics and brands without generic equivalent at $0 co-payment, and cover others at the brand drug co-pay level (27%); cover only generic contraceptives at $0 co-pay, and cover others at the brand drug co-pay level unless medically necessary (25%); and cover all prescription contraceptives at $0 co-pay (25%).