Who's on Drugs?

by: Doug Griffith

Everyone it seems.

Twenty years ago prescription drug benefits represented approximately 4% of total health plan costs; today they represent 15% to 20% of the total health care dollar. Jupiter Communications, Inc., a market research firm in New York, predicts that by 2004, U.S. consumers will spend $175 billion for pharmaceuticals. Prescription drugs are the fastest growing component of health care costs.

From 1990 to 1997 health care expense growth rates decreased substantially but prescription drug expenses increased significantly and are expected to continue to do so. Most insurance companies are trending their prescription drug costs at a 20% annual increase.

Many complex issues affect prescription drug costs. Here is a simplified summary:

• Increase in third party payors
• Inflation of drug ingredient costs
• Drug research and development
• New types of drugs - Biotech drugs(almost twice as expensive as other drugs) and Lifestyle drugs (improve memory, eliminate wrinkles, grow hair, etc.)
• Increased drug utilization
• Direct-to-consumer marketing ($1.3 billion in 1998 and increasing at 50% per year)

So what can be done? Many of the factors that effect prescription drug costs can not be controlled by the employer but there are still some things the employer can do. The employer should consider changes in deductibles, cost sharing, limitations, exclusions and other plan design and administrative features. Formularies, mail order and generics can also be utilized. Employers can also be instrumental in providing appropriate communication and education to employees to help them understand the balance of their responsibility, freedom and the costs associated with these benefits.

Insurance companies are generally trending to a three-tier card prescription structure:

1. Generic
2. Preferred Drug List (PDL) Brand
3. NPDL (non-PDL)

The difference in costs between PDL’s and NPDL’s is around 42%.

As prescription drugs become the preferred method of treatment it will become critical that employers manage the cost through benefit design and employee education.