Higher Drug Cost-Sharing Saves Money for Retiree Health Plans,
But Enrollees Pay More; Drug Utilization Isn't Necessarily Reduced

Policymakers Should Consider How Copayments Change Use
When Designing Medicare Drug Benefit, Health Affairs Article Says

BETHESDA, Md.—Employer health plans that charge retirees higher copayments for retail pharmaceuticals saved themselves 18.7 percent per member on average in 2001, but their enrollees on average had 59.4 percent higher out-of-pocket costs ($389 versus $244), according to a new study published as a Health Affairs Web exclusive.

The study demonstrates the effects that plan design might have on costs and drug use under any Medicare prescription benefit, write authors Cindy Parks Thomas, Stanley S. Wallack and colleagues from Brandeis University's Schneider Institute for Health Policy. The authors write that the study shows that higher copayments lead to the use of less-expensive drugs and fewer retail purchases, although they argue that Medicare should consider using copayment strategies in combination with other cost-containment mechanisms such as encouraging generics, mail-order delivery of prescriptions, prior authorization, and provider education.

The authors studied prescription drug claims made by more than 29,000 retirees age 65 and older enrolled in 96 employer plans managed by one pharmacy benefit management firm. They compared prescription drug use and costs in a number of plan designs, including those with multiple "tiers" of benefits and cost-sharing requirements.

They compared plans with cost sharing categorized as "more-aggressive" and "less-aggressive," defined by whether they required an above- or below-average copayment for brand-name drugs, or whether they required coinsurance of more or less than 30 percent for brand-name drugs. The "more-aggressive" cost-sharing plans had average per-enrollee costs to the plan of $1,155 and average enrollee out-of-pocket costs of $389 in 2001. The "less-aggressive" plans had average per-enrollee plan costs of $1,421 and average enrollee out-of-pocket costs of $244 in 2001.

Enrollees in the more-aggressive plans had on average overall costs of $1,544 in 2001, compared to less-aggressive plans, which had fewer 30-day equivalent prescriptions and overall costs of $1,665 per enrollee. The study attributes half of the difference in costs to the higher cost-sharing in the more-aggressive plans, but says the greater use of generics, less expensive brands, and more mail-order delivery lowers the costs of drugs in those plans.

Across all the plan designs studied, average annual spending per enrollee was $1,571 in 2001, with average member out-of-pocket cost-sharing of 18 percent. The plans that had the highest member cost-sharing were the single-tiered plans with at least 50% member coinsurance for retail purchases, combined with mail order incentives, and the three-tier plans that charged between 10 percent and 40 percent member coinsurance, depending on the type of drug. Those plans had total member out-of-pocket cost sharing of 28 percent and 22 percent, respectively.

The study also found that enrollees are more likely to use generics when they fill their prescriptions at retail pharmacies under plans that have the greatest spread in copayments between brand-name and generic drugs. This is particularly true in plans that make use of coinsurance, which as a percentage of the total cost is variable based on the total price of the drug and not a flat copayment. For example, the authors found that in three-tier plans with a maximum 30 percent coinsurance for retail purchases and an actual copayment difference of $15 between generic and brand-name drugs, 44.5 percent of prescriptions were generic. In a three-tier plan with a $5 to $10 difference between tiers, only 36.1 percent were generic.

In addition, the study found that use of generic medications and use of mail order can save money both for enrollees, through lower copayments, and plans, through lower overall costs. The average mail-order price for all prescriptions was 16.4 percent less than retail. However, use of generics saved the most, with the average price of a generic prescription over 70 percent less than the average brand, at the pharmacy or through mail order.


The research was funded by the U.S. Department of Health and Human Services Office of the Assistant Secretary for Planning and Evaluation.

Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research.

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©2002 Project HOPE–The People-to-People Health Foundation, Inc.