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How the growing cost of drugs might affect your employer’s health plan

August 17, 2015 at 6:30 PM EST
More than half of large U.S. employers will more tightly manage their employees' use of prescription drugs next year, according to a new survey. The increased expenses from costly drugs threaten to push some employer health care plans over a threshold that will make them subject to a high tax. Hari Sreenivasan learns more from Brian Marcotte, CEO of the National Business Group on Health.
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JUDY WOODRUFF: But, first, a look at the concerns some U.S. companies are starting to voice over the growing costs of certain prescription medicines, and what those costs might mean for the health care plans they offer their employees.

Hari Sreenivasan has that report.

HARI SREENIVASAN: A new survey finds that more than half of large U.S. employers will more tightly manage their employees’ use of prescription drugs next year. Some of these drugs, especially those used to treat cancer, HIV, and hepatitis C, can cost $10,000 per month and are rising at double-digit annual rates.

The increased expenses threaten to push some employer health care plans over a threshold set by the Affordable Care Act, making them subject to a 40 percent tax, the so-called Cadillac plan tax.

Brian Marcotte is president and CEO of the National Business Group on Health, which did the survey, and is here to explain the findings.

So, for those of us who haven’t been paying attention to the Affordable Care Act too closely, a refresher on the Cadillac tax — or Cadillac plan tax.

BRIAN MARCOTTE, CEO, National Business Group on Health: Sure.

The Cadillac tax is a provision of the Affordable Care Act. And it is an excise tax, 40 percent excise tax on high-cost health plans beginning in 2018. And by high-cost health plans, it’s intended to focus on the generous plans, the rich plans, the plans that have low deductibles, low co-pays, the intent being if you discourage participation in high-cost plans, you can slow the growth of health care costs, and they could use the taxes to help finance coverage in public exchanges.

HARI SREENIVASAN: But it’s not just the plan for the well-to-do anymore, right, because you can get to a high-cost plan depending on lots of things, like the people you insure in your company.

BRIAN MARCOTTE: That’s right.

I think that the Cadillac tax is really a tax on all plans at the end of the day. And there are many factors that drive the cost of a health plan. And when we talk about the cost of a health plan, you are really talking about for the most part the premium, the premium that you pay as an employee, the premium that the company pays, the combination.

We’re talking about the premium. And where you live, the age of your work force can have as much or even more of a factor in determining the cost of the plan than the generosity of the plan.

HARI SREENIVASAN: So what did your survey find? What is happening? What is almost like an unintended consequence of the Affordable Care Act?

BRIAN MARCOTTE: Well, nearly half of employers believe that by 2018, when the tax goes into effect, if they do nothing else to control the cost of their plans, at least one of their plans will trigger the Cadillac tax.

The more interesting thing is that, in the next decade, all the companies believe that nearly all of their plans will trigger the Cadillac tax, for the reasons we just described. There is one other problem or challenge with the Cadillac tax the way it’s structured, and it’s the way it’s indexed.

And in indexing the cost, there is an individual maximum and a family maximum. Individual is $10,200. Family is $27,500. And those are indexed over time to grow because costs increase. But it is indexed to the consumer price index, where health care costs increases at a much faster rate or higher rate, at least twice the consumer price index.

So even the moderate plans over time will eventually hit the Cadillac tax. And that’s the challenge.

HARI SREENIVASAN: So, health care costs, as you mentioned, climb regardless of the consumer price index. But some of these drugs, the price of the medication is growing at 25 percent, 50 percent year-over-year. That’s something that no plan has budgeted for.

BRIAN MARCOTTE: Yes, I think the challenge we’re seeing is that specialty pharmacy medications.

And by specialty pharmacy medications, I mean they’re complex drugs. They are for things like multiple sclerosis or cancer or HIV or hepatitis C, which got a lot of attention last year. They are complex, typically, in terms of how they are administered. They can be very expensive. They may be — they need special handling because they may need be to refrigerated, whatever the case.

And then employees need to be monitored because of side effects of dosage changes and the like. So there is a lot of complexity around these drugs. But they can be very high-cost. And employers in the survey said that specialty pharmacy has jumped to the number two driver of their overall medical trend.

Now, the interesting thing is specialty pharmacy only affects about 3 or 4 percent of their population.

HARI SREENIVASAN: But it’s the most expensive 3 or 4 percent.

BRIAN MARCOTTE: Yes. And so it’s going to cross traditional pharmacy in terms of overall costs by 2018.

HARI SREENIVASAN: And so what are companies doing about this?

BRIAN MARCOTTE: Well, they are really starting to focus on how you manage the specialty pharmacy costs.

So they are contracting either with an independent specialty pharmacy manager or a specialty pharmacy group within a prescription benefit management company that they already have. But it’s a focused effort to really manage both who is getting the medications, making sure it’s appropriate, making sure the dosage is appropriate, and also making sure site of care is appropriate, because there could be a wide variation in price depending on where you go to have that drug administered.

HARI SREENIVASAN: I also hear a lot more about the health saving account-types plans coming into workplaces. What are employees likely to see more of as companies start to prepare for this Cadillac tax?

BRIAN MARCOTTE: Well, there has already been a significant migration over the last five years or so of companies moving to these consumer-directed plans, thee high-deductible plans.

And by high deductible, I mean $1,300 individual deductible, $2,600 family deductible, tied to a savings account. And many of our companies put in more than half of that deductible of value into the savings account. They seed those accounts to help defray some of the costs. So we have seen that migration. And I would say about 80 percent of companies offer them as a choice already.

But the interesting thing is, we have seen a big jump in the number of companies that have gone to a option-only consumer directed plan as the only option they will offer employees.

HARI SREENIVASAN: Brian Marcotte, thanks so much for joining us.

BRIAN MARCOTTE: My pleasure.

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