How insurance companies determine what drugs they’ll cover – and how much your copay will be.
If you take medication to manage arthritis or any other medical condition, you may be puzzled by how insurance providers decide what portion of the tab you must pay for your pills and other medicines. And if you’re one of a growing number of arthritis patients, you may have recently been shocked by the size of the bill you received for a much-needed drug treatment.
Almost all Americans who have health insurance pay only a portion of the cost when they need to take prescription medications: 98 percent of workers who are covered by employer-sponsored health plans have prescription-drug benefits , and retirees can get similar coverage through Medicare Part D. However, some unlucky arthritis patients are now faced with huge costs for critical medications –even though they have insurance.
Most health insurance providers contract with third-party companies called pharmacy benefit managers (PBMs) to administer and process prescription drug claims. PBMs set the price that a plan member must pay out of pocket for a prescription drug, a fee sometimes called “cost sharing.” The most common form of cost sharing is known as a copayment, which is a fixed price that usually represents a relatively modest portion of the drug’s actual cost. However, the size of a copayment can vary significantly.
Most PBMs set copayments using a system of three levels, or “tiers.” Although the terminology may vary from one plan to another, the typical three-tier copayment system looks like this :
- Tier one is made up of generic drugs, which cost much less than their brand-name equivalents; that’s why they have the lowest copayments.
- Tier two includes “preferred drugs.” These are brand-name medications that are included in a PBM’s formulary, which is a list of drugs covered by the plan. Preferred drugs cost you more than generic drugs and may also be called “approved” or “formulary” medications.
- Tier three includes “non-preferred” drugs, which are brand-name medications not included in a PBM’s formulary. You can still take a non-preferred drug, but it will cost more than a similar preferred drug. Other names include “non-approved” or “non-formulary” drugs.
In 2011, the average drug copayments in the three-tier system were $10, $29, and $49 per month, respectively. Why do consumers pay more for non-preferred drugs? PBMs select drugs for their formularies by several criteria, explains Enrique Seoane-Vazquez, PhD, director of the International Center for Pharmaceutical Economics and Policy at Massachusetts College of Pharmacy and Health Sciences.
For one, PBMs have expert committees that identify medications that they feel should be the first choice for given medical conditions due to their demonstrated safety and effectiveness, says Seoane-Vazquez. But economics play a critical role, too. Within a given category of drugs there may be several brand-name medications that are similar. A PBM can negotiate lower prices and rebates with the maker of one brand by agreeing to add the drug to its formulary. Those savings are passed onto consumers when their doctors prescribe preferred drugs. “Formularies are a critical tool for controlling costs,” says Seoane-Vazquez.
Like a Second Mortgage
Some people find that the price of non-preferred drugs takes an unwelcome bite out of their family budget. But those costs pale in comparison to the prices a growing number of arthritis patients find themselves paying for medications they need to ward off pain and maintain normal daily activities.
In recent years, a number of PBMs have added a fourth tier of so-called “specialty drugs” to their cost-sharing plans. Initially, says Seaone-Vazquez, this new fourth tier primarily included expensive “lifestyle” drugs, such as Viagra. However, some PBMs now categorize certain vital medications as specialty drugs, including the new class of biologic response modifiers (biologics) such as etanercept (Enbrel), infliximab (Remicade) and others, which have transformed the treatment of rheumatoid arthritis (RA) and some related conditions.
Here’s the problem: Instead of charging a fixed copayment to use specialty drugs, many PBMs require consumers to pay a percentage of the overall cost of the medication. With some commercial private plans, that can mean a patient has to cover 20 percent to to 50 percent of a drug’s cost. Patients who have Medicare D can find themselves handing more than 25 percent to 33 percent of the expense.
With biologics costing up to $48,000 or more per year , some patients with RA face out-of-pocket expenses in the hundreds, or even thousands, of dollars per month. Unfortunately, choosing a cheaper generic version of these drugs isn’t an option, since there are none.
“It’s like having a second mortgage,” says Amy Melnick, vice president for advocacy with the Arthritis Foundation. Melnick has heard of patients who had to raid their children’s college funds and make other heart-breaking decisions in order to keep receiving their medicine. Some cash-strapped patients go without. In fact, a 2009 study in the Journal of Managed Care Pharmacy found that people who had to spend more than $500 a month on medications were seven times more likely to abandon the drugs. “We think it’s a flaw in benefit design when you segregate drugs in this high-price tier and discriminate against people with certain chronic conditions,” says Melnick.
Rising Drug Costs
Yet, representatives for the insurance industry say they’re stuck between pharmaceutical companies – who can charge what they wish for medications – and medical consumers. “The real underlying issue is the cost of these drugs, which continues to escalate,” says Susan Pisano, a spokeswoman for America’s Health Insurance Plans, which represents providers who cover more than 200 million Americans. Melnick and others have suggested that modest increases in health insurance premiums across the board might allow PBMs to reduce the cost burden on patients who use biologics. But, says Pisano, “any increase in premiums today represents a difficulty. We’re hearing from consumers and employers that they can’t afford any more.”
The Arthritis Foundation has joined a number of other organizations to support the Patients’ Access to Treatments Act, which would essentially prohibit private commercial insurers from using specialty-drug tiers. (New York has already banned specialty tiers and other states are considering similar legislation.) For now, people who can’t afford their prescription drugs may be eligible for financial help from patient-assistance programs offered by some pharmaceutical companies. Likewise, organizations such as the Patient Advocate Foundation (www.patientadvocate.org) and others can offer financial aid to people struggling with high medication costs.