Context With drug spending rising rapidly for working-aged adults, many employers
and health insurance providers have changed benefits packages to encourage
use of fewer or less expensive drugs. It is unknown how these initiatives
affect drug costs.
Objective To examine how innovations in benefits packages, such as those that
include multitier formularies and mandatory generic substitution, affect total
cost to insurance providers for generic and brand drugs and out-of-pocket
payments to beneficiaries.
Design and Participants Retrospective study from 1997 to 1999 linking claims data of 420 786
primary beneficiaries aged 18 through 64 years who worked at large firms (n
= 25) with health insurance benefits that included outpatient drugs.
Main Outcome Measures Overall drug costs; generic, single-source brand, and multisource brand
costs; and drug expenditures by health insurance providers and out-of-pocket
costs for beneficiaries.
Results For a 1-tier plan with a $5 co-payment for all drugs, the average annual
spending was $725 per member. Doubling co-payments to $10 for all drugs reduced
the annual average drug cost from $725 to $563 per member (22.3%, P<.001). 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 (32.9%, P<.001). 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% (P<.001). Requiring mandatory generic substitution in a 2-tier plan
reduced drug spending by 8% (P<.001). Doubling
co-payments in a 2-tier plan increased the fraction beneficiaries' paid out-of-pocket
from 17.6% to 25.6%.
Conclusions 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