Prescription drug plans are adding more tiers and switching from co-pays to coinsurance

Avalere
November 13, 2014
Avalere Analysis: Medicare Beneficiaries Will Pay Higher Out-Of-Pocket
Costs As PDPs Increase Use Of Coinsurance In 2015
By Caroline F. Pearson, Vice President

First Time in History of Part D, All PDPs Will Incorporate a Specialty Tier

A new analysis from Avalere Health finds that Medicare Part D
prescription drug plans (PDPs) are poised to increase significantly the
use of coinsurance in 2015. Avalere found that two-thirds of standalone
Part D PDPs will apply coinsurance—i.e., consumers paying a percentage
of the total cost of the drugs—to at least their top two formulary
tiers, an increase of 83 percent from 2014.

"Adding coinsurance to a second plan tier means that more beneficiaries
will be looking at the full cost of branded drugs at the pharmacy
counter," said Dan Mendelson, CEO at Avalere Health. "This strategy has
proven central to plan operations as they try to keep premiums low to
maintain stability in Part D."

For First Time in History of Part D, All PDPs Will Incorporate a
Specialty Tier in 2015

Since the introduction of Part D in 2006, the use of specialty tiers has
been more common in Medicare Part D than in other markets, such as
employer-sponsored insurance. From 2012 to 2015, the number of Part D
PDPs using specialty tiers has increased, jumping nearly 15 percent in
four years. As a result, all PDPs will use a specialty tier in 2015, the
first time this has occurred in the history of Part D.

"The clear trend toward specialty tiers in exchanges and Part D is
likely to have an impact on employer-sponsored benefit designs over
time," said Caroline Pearson, Vice President at Avalere Health. "Benefit
managers and C-Suite executives are definitely taking notice of how
active management of the pharmacy benefit may be able to reduce premiums."

Two-Thirds of PDPs Will Use at Least Two Coinsurance Tiers

Perhaps more significant for beneficiaries and manufacturers is the
major shift toward the use of at least two coinsurance tiers in 2015.
Avalere's analysis found that 66 percent of PDPs in 2015, representing
60 percent of covered Medicare Part D beneficiaries, will apply
coinsurance to their top two tiers. In 2014, only 32 percent of PDPs
(representing 35 percent Part D beneficiaries) did the same. In total,
enrollment in plans with at least two coinsurance tiers increased from
6.4 million to 11.1 million from 2014-2015.

In most cases, these plans include one specialty tier and apply
coinsurance to the non-preferred brand tier. Unlike the specialty tier,
there are no restrictions on what drugs can be placed on non-specialty
coinsurance tiers, nor are there cost-sharing limitations. As a result,
many of these tiers have cost-sharing rates ranging from 35 to 50 percent.

The shift toward more than one coinsurance tier has been accompanied by
a shift toward formularies with five tiers. In 2015, 89 percent of plans
will have five or more tiers, a 53 percent increase since 2012. Indeed,
the dominance of five-tier plans can be accounted for in part by a surge
in the number of such plans with two coinsurance tiers in 2015—while
only three plans used this formulary structure in 2014, 335 plans will
do so in 2015. Among these plans, coinsurance on tier four (typically
used for non-preferred brand drugs) averages 44 percent.

"The inclusion of more coinsurance tiers on PDP formularies is designed
to increase plans' ability to obtain lower spending for high-cost – but
non-specialty – drugs," said Christine Harhaj, Senior Manager, Avalere
Health. "Unlike most specialty drugs, however, these treatments are
often prescribed to a broad patient population and applying coinsurance
rates may have the effect of significantly increasing cost sharing for a
large number of Part D beneficiaries."

http://avalerehealth.net/expertise/life-sciences/insights/avalere-analysis-medicare-beneficiaries-will-pay-higher-out-of-pocket-costs

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Comment by Don McCanne

There has been an explosion in the introduction of very high cost drugs.
At the same time the generic drug market is being manipulated to enable
exponential increases in the prices of generic drugs. So what
innovations are the insurers introducing in response?

They are expanding the number of drug pricing tiers, and they are
switching from modest co-payments (fixed dollar amount) to much higher
coinsurance payments (a percentage of the actual costs), both of which
shift much more of the costs to patients. Many patients will go without
medications that they should have simply because the out-of-pocket costs
will be truly unaffordable.

The insurance industry prides itself on offering innovative products to
the public. But insurance innovations are designed to benefit the the
insurers. In a public insurance program, problems such as the excessive
prices of drugs are addressed through innovations that are designed to
benefit… wait for this… the patient!

A well designed single payer system would not use unbearable cost
sharing to try to address the high prices of drugs. Rather it would use
its power as a monopsony (single purchaser in a market) to demand fair
pricing of drug products based on legitimate costs and fair margins.
Those prices would be paid by our shared single risk pool, funded
through equitable taxes.

Really. If you didn't read the excerpts above, read them now to see what
a disaster these changes will be. And these are only changes introduced
in one year for one program - Part D Medicare - though the intent is to
extend these changes to employer-sponsored plans as well.

Just consider the changes that the private insurance industry makes in
every program every year - some subtle, some not so - and add those up
and you'll understand why we have an exorbitantly priced but mediocre
health care financing system. It's time to turn it over to our own
public administrators.