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Economist Paul Zane Pilzer, whose latest book, The New Health Insurance Solution (Wiley, 2005), is on health savings accounts, says shopping intelligently for prescription drugs involves more than comparing the costs and benefits of particular pills. Consumers must also step back and reflect on why they are taking a given drug and what nondrug alternatives might be available, he says. Pilzer, whose previous book was The Wellness Revolution (Wiley, 2003), believes that a more holistic approach to health care could significantly reduce costs for both employers and employees. Implementing high deductibles for prescription drug plans is not necessarily a bad idea, says economist Paul Zane Pilzer, an authority on high-deductible health plans. The person who has to pay the full price rather than a relatively modest co-pay for a blockbuster heartburn medicine, for example, “may well become more motivated to make lifestyle changes instead—say, improve his diet and exercise more,” he says. While these days most employers are asking employees to take on a greater share of their health care expenses, so far prescription drug coverage has been largely sheltered from the cost-shifting currents. That’s because drug coverage is usually a distinct component of an employer-sponsored health care plan, with employees’ co-payments administered separately from the rest of their costs of coverage. But things may be about to change. Some health policy analysts say the separation should be eliminated, particularly in health plans with high deductibles. Their argument: High-deductible plans are designed to make employees more judicious consumers by involving them in their health purchasing decisions, and there is no reason consumerism should not be applied to all health expenditures, including prescription drugs. In effect, many say, there should be no “carve-out” for drugs in a health plan, especially a high-deductible plan.The groundswell for boosting employees’ costs for prescription drugs could be spurred on by a number of other factors as well, including rising drug costs and new government regulations that affect a small percentage of health plans. However, there are potential downsides to this approach. Most notably, shifting a substantially larger share of prescription costs to employees could discourage them from taking maintenance medications, which in turn could lead to more serious, and more expensive, health problems. HR professionals who manage and design health benefits programs should be considering whether the high-deductible approach and the push toward consumerism in health care will be useful in promoting healthful behavior over the long term. In particular, should prescription drug benefits be drawn into the high-deductible approach or left to stand on their own? Before putting employees’ drug coverage onto a high-deductible track, benefits specialists should consider not only the pros and cons but also other approaches that some insurers and employers are adopting to make employees more cost-conscious about drug purchases.
The
Changing Drug Picture
Under Treasury Department regulations that have been on the books for two years and that took effect in January, employers that offer tax-favored health savings accounts (HSAs)—which must be part of a high-deductible health plan—cannot let HSA participants keep their drug costs separate from the plan’s required deductible. It was permissible during a two-year transition period, but now HSA participants’ prescription drug costs must be blended with other health costs in meeting the HSA’s deductible—$1,050 of health care costs for an individual, $2,100 for a family. (Only “preventive” medications are exempt from the HSA deductible.) Thus, HSA participants must now pay full price for prescription drugs and apply their outlays toward their deductible. Until they meet the deductible, there can be no separate discounted coverage such as the familiar co-pays of, say, $15 or $30 for a prescription regardless of its cost. Because under 1 percent of employees with employer-sponsored health coverage have HSAs, the drug rule will have little direct effect on health coverage overall. But it may have a large indirect effect by prompting employers to implement sharply higher co-pays in prescription drug plans or establish high deductibles for drugs. Employers may already be open to these higher deductibles given that prescription drug prices have been rising at even higher rates than overall health insurance premiums. While employers’ total health coverage cost increases are only now slipping below the double-digit threshold so common for many years, drug cost increases are not tapering off as noticeably.
Estimating the Side Effects
But some fear that if drugs prescribed for managing conditions become too costly, plan participants will reduce or eliminate those drugs, thus compromising their ability to ward off costlier health problems. “I’m very worried employees will stop taking their maintenance medications, thus endangering their long-term health,” says David Neikrug, a principal with Capital H Group, a New York-based employee benefits consulting firm that advises HR departments nationwide. No one can say for sure how employees would react if they had to pay a lot more for prescription drugs, but inferences can be drawn from the most rigorous study on the impact of cost-sharing on health care utilization—the Health Insurance Experiment, done in the 1970s by the RAND Corp., a research and policy-analysis organization based in Santa Monica, Calif.
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