CARES Act Helps Coronavirus-affected Employers, Employees Alike

The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act stimulus law to help American workers and businesses weather the outbreak has a number of provisions that employers and their workers need to know about and can take advantage of during this crisis.

The CARES Act includes provision for:

  • Extended unemployment benefits.
  • Requiring health plans to cover COVID-19-related costs.
  • Small Business Administration (SBA) disaster loans.
  • Loans for large corporations.

Parts of the CARES Act will likely benefit your organization and employees in some way. Here’s what you need to know:

Extended unemployment

The CARES Act extends unemployment insurance benefits to workers, as long as they lost their jobs due to the outbreak.

Unemployment benefits under the CARES Act also apply to furloughed employees.

Depending on your state, workers will be able to collect both state unemployment and federal unemployment through the CARES Act, which was designed to augment any unemployment benefits workers may receive in your state.

The Pandemic Emergency Compensation program funded by the CARES Act will provide an additional $600 per week on top of state unemployment benefits, through July 31. 

The law extends state-level unemployment by an additional 13 weeks. For example, whereas most of California’s unemployment benefits last 26 weeks, the bill extends state benefits to 39 weeks. The extended benefits will last through Dec. 31.

Health plan changes

Under the CARES Act, employer-sponsored group health plans must provide for covered workers – without cost-sharing or out-of-pocket expenses – the cost of COVID-19 testing, treatment and vaccinations when and if they become available.

SBA loans

In response to the Coronavirus (COVID-19) pandemic, small business owners are eligible to apply for an Economic Injury Disaster Loan advance of up to $10,000.

This advance will provide economic relief to businesses that are currently experiencing a temporary loss of revenue. Funds will be made available following a successful application. This loan advance will not have to be repaid.

This program is for any small business with fewer than 500 employees (including sole proprietorships, independent contractors and self-employed persons) as well as private non-profit organization affected by COVID-19.

And the law’s The Paycheck Protection Program offers 1% interest loans to businesses with fewer than 500 workers.

Borrowers who don’t lay off workers in the next eight weeks will have their loans forgiven, along with the interest.

These loans are designed to provide a direct incentive for small businesses to keep their workers on the payroll. If small businesses maintain payroll through this economic crisis, some of the borrowed money via the PPP can be forgiven – the funds will be available through June 30. Act fast.

Mid-sized employers

Under the CARES Act, the Secretary of the Treasury is authorized to implement financial assistance programs which specifically target mid-size employers with between 500 and 10,000 employees.

Loans would not have an annualized interest rate higher than 2% and principal and interest will not be due and payable for at least six months after the loan is made. But unlike loans under the PPP, these are not forgivable.

Large employers

The CARES Act provides $500 billion to the Treasury Department’s Exchange Stabilization Fund for loans and other funding for large companies and corporations affected by the outbreak.

  • $454 billion is set aside for loans, loan guarantees.
  • Companies that receive funds are prohibited from using them for stock buybacks.
  • Loans include terms limiting employee compensation and severance pay.

Like loans for mid-sized employers, they are not forgivable.

New Law Requires COVID-19 Paid Sick Leave, FMLA Benefits

Legislation signed into law by President Trump will extend sick leave benefits for workers who are sickened by the coronavirus, as well as provide for additional weeks of time off under the Family Medical Leave Act so they can be guaranteed of being able to return to their jobs afterwards.

Public and private employers alike need to pay extra attention to the added paid sick leave and FMLA provisions of this new law. Both sections apply to employers with fewer than 500 employees.

Paid sick leave

Employees are entitled to two weeks (80 hours) of paid sick time for coronavirus-related issues. Eligible workers will receive their regular pay, up to $511 per day and $5,110 total. Those caring for someone subject to quarantine due to COVID-19, and parents of kids who can’t go to school or daycare, will receive two-thirds of their regular pay, up to $200 daily with a $2,000 cap.

The emergency sick leave benefit can be used immediately, regardless of how long the worker has been employed with you. It can be used when they cannot work or telecommute for any one of the following reasons:

  • The employee is subject to a government quarantine or isolation order related to COVID-19;
  • The employee has been advised by a health care provider to self-quarantine due to COVID-19;
  • The employee has symptoms of COVID-19 and is seeking a medical diagnosis;
  • The employee is caring for an individual subject to quarantine due to COVID-19;
  • The employee needs to care for a child whose school or place of care is closed or whose childcare provider is unavailable due to coronavirus.

The law does not require certification of order by the government or a health care provider. But employers can require reasonable notice procedures, such as not announcing in the middle of a shift that they take COVID-19 sick leave. But they cannot require the employee to find a replacement worker to cover the shifts they will miss. Employers must post the law’s requirements “in conspicuous places.”

Employers are not allowed to discipline a worker who takes this sick or FMLA leave for coronavirus purposes and, if an employer refuses to provide the leave, they can be ordered to pay both back pay and statutory damages that are equal to the back pay the employee is owed.

This law provides payroll tax credits to offset all costs of providing these paid leaves.

FMLA

The FMLA portion of the law provides for 10 additional weeks of FMLA leave, but only for those who must stay at home to care for a child whose school is closed or their childcare provider is unavailable due to COVID-19-related issues.

These 10 weeks will be paid at two-thirds the employee’s regular rate of pay, up to $200 per day with a cap of $10,000. They will also receive 12 weeks of leave with job protection, though employers of health care or emergency care providers can exclude such employees.

The employee would likely use up their two weeks of paid sick leave before applying for FMLA benefits, which unlike traditional FMLA (which is unpaid), are paid leaves after the first 10 days under the new law. 

Employees who have been working for more than 30 days are eligible, and the employer can require them to provide reasonable notice that they are taking leave.

A final word

This law only applies to employers with fewer than 500 workers, so it leaves uncovered those people who work for larger companies.

Also, employers need to make financial plans, as the credit cannot be claimed until after the employer pays their payroll taxes.

A bigger issue is that the law requires that workers be paid the sick leave even if they are not sick, but have been ordered to self-isolate. In states that have ordered workers to self-isolate, such as California, employers could be faced with an avalanche of paid sick leave claims all at once.

This law sunsets on Dec. 31, 2020.

New Accumulator Programs Can Surprise Employees at Pharmacy Counter

An ongoing tense relationship between insurers and drug companies is spilling over and hitting enrollees in group health plans, by saddling them with additional out-of-pocket expenses.

Some insurers have started adopting copay accumulator programs — sometimes called accumulator adjustment programs — that change the way a patient’s out-of-pocket medication costs are added up (accumulated) when there is some type of drug company financial assistance for the health plan enrollee. 

These accumulator programs do not count the drug company assistance (in the form of coupons or copay cards) that defray the employee’s out-of-pocket expenses.

Unfortunately, many group plan enrollees often do not know that their group health plan has changed its policy to be an accumulator program. This is because they did not read the plan summary when they renewed their policy during open enrollment, or they read about it and didn’t understand how it works.

For most employees, the change will not make much of a difference, if any at all, if they are low users of their health benefits and rarely need prescription medications.

But, for heavy users and those with chronic health problems, the change could mean hundreds, if not thousands of dollars more out of pocket for their medicines. For patients who need expensive medications, drug makers will often provide copay assistance in the form of coupons or copay cards, which the enrollee shows the pharmacy when buying the drugs.

Essentially, accumulator programs block patients from using any third party monies toward their deductibles and out-of-pocket maximums.

How it works

To understand how an accumulator program works and how it may affect your employees, take the example of a patient who needs $15,000 worth of medications a year with a pharmaceutical out-of-pocket maximum of $7,000 on their health plan:

  • Traditional plan with no copay assistance: Employee pays $7,000 and the insurer pays $8,000.
  • Typical plan that allows copay assistance: Employee pays $4,000, copay assistance pays $3,000 and insurer pays $8,000.
  • Plan with copay accumulator: Employee pays $7,000, copay assistance pays $3,000 and insurer pays $5,000.

Insurers that have instituted the practice say they did so because they want to steer health plan enrollees toward generic medicines and away from pricier brand-name drugs.

They say that these copay cards and coupons are an incentive for pharmaceutical companies to inflate list prices for drugs, then offer copay assistance that spares the patient, but shifts more of the costs to the insurer.

Lawmakers in a number of states have taken note and are trying to address the practice legislatively. They have introduced legislation that would ban insurers from using accumulator policies when there’s no generic version of the drug available.

However, the Centers for Medicare and Medicaid Services in February 2020 proposed a rule allowing insurers to impose copay accumulator policies.  

What you can do

Many health plan enrollees do not know that their health plan has a copay accumulator program until they get to the pharmacy counter after they think they’ve reached their out-of-pocket limit and still have to pay for their medications. 

If they haven’t had this experience in the past with their plan, it’s maybe because they didn’t realize that it had switched to an accumulator program.

Come your company’s next open enrollment, you should stress to your staff that if any of them are large users of prescription medications, they need to carefully read their current plan’s summary of benefits as well as other plan documents.

If you have concerns that any of your staff might run into issues, you can call us to go over your current plans to identify those with or without accumulator programs.

This is especially important during open enrollment, as those enrollees that require expensive prescriptions should be given options, including at least one plan that does not use an accumulator program.

Substance-Abuse Benefits under Affordable Care Act

One less-touted aspect of the Affordable Care Act is that it provides employers more tools for assisting employees with substance-abuse problems to seek help.

According to a study by the Substance Abuse and Mental Health Services Administration, 10% of America’s workers are dependent on one substance or another. The study also found that 3.1% have used illegal drugs either before or during a shift. 

Also, 79% of heavy alcohol users have jobs, and 7% of them say they’ve had drinks while on duty. 

Drug use and abuse have been on the rise — both illegal drugs and prescription painkiller abuse, the latter of which led a more than a 500% increase in people seeking treatment for addiction to doctor-prescribed opioids between 2007 and 2017.

As an employer, the costs are great if you have someone on staff who has a substance-abuse problem. It behooves you to ensure that the group health plan you offer your workers is comprehensive amid this growing problem. 

Far-reaching costs

Addicted workers have been found to have:

  • Lower or lack of workplace productivity;
  • Higher health care costs;
  • Increased absenteeism and presenteeism;
  • Diminished quality control;
  • More disability claims;
  • Increased workplace injuries;
  • Lower morale;
  • Higher job turnover; and
  • Employee theft.

Some employers have tried to help employees tackle their addictions or abuse problems by implementing workplace prevention, wellness and disease-management strategies. These programs improve health, which lowers health care costs and insurance premiums and produces a healthier, more productive workforce.

Under the ACA, anybody covered by a health plan has access to substance-abuse treatment. That’s because the law makes such treatment one of 10 benefits insurance plans must offer.

The ACA requires health plans to pay for prevention and early intervention. 

Health care plans also have to comply with a “parity” law, which requires them to treat mental health issues the same way they do physical diseases.

What else can you do?

  • You can start by adding addiction to your prevention, intervention, treatment and disease-management strategies.
  • Use confidential screenings and assessments. There are a number of screening, brief-intervention and referral-to-treatment modules available to help people confront their drinking or drug use and get the help they need. 
  • Review your policy for coverage. If you have coverage for substance-abuse treatment, employees with addictions will be more apt to seek out help knowing the cost is at least partially covered.

And, importantly, make sure your substance-abuse benefit is robust, and that it covers a full continuum of care. 

A strong benefit would include:

  • Inpatient care;
  • Residential treatment programs; 
  • Outpatient care; and
  • Continuing care for those in need of treatment.

Concerns Rise Over Letting Employers Fund HRAs for Individual Health Plans

Employers, health insurers, regulators and hospitals are all raising concerns about the Trump administration’s rules issued last year that allow employers to fund health reimbursement arrangements (HRAs) that their workers can use to purchase health plans on the open market.

The Centers for Medicaid and Medicare Services, IRS and the Department of Labor issued the final rules in late 2019. They reverse one of the major pinch-points of the Affordable Care Act, which bars employers from paying employees to buy their own health insurance either on publicly run health insurance exchanges or on the open market.

The fine for breaching this part of the law is a hefty $36,500 annually.

The rules continue to receive pushback from small business groups, insurers, regulators and others, who say that employers who want to go this route are facing a bureaucratic nightmare.

And one of the biggest concerns is that employers will use the opportunity to move older and sicker workers from their group health plans to exchanges, in order to reduce the cost burden on their plans.

Complexity a major issue

The National Federation of Independent Business has said that small businesses that want to offer workers an HRA integrated with an individual-market health plan are facing a lot of complexity.

“NFIB recommends that your departments plan to release… a publication that explains in plain English, step-by-step, how small businesses can establish, administer, and comply with the rules,” the group wrote.

HRAs are tax-sheltered accounts funded employers that typically are offered to reimburse employees for out-of-pocket medical expenses. This rule expands how those HRAs can be used. HRAs have been tax-advantaged only if they are coupled with an ACA-compliant group health plan. They cannot be used now to pay premiums for individual-market health insurance.

Under the rule, employers could provide an HRA that is integrated with individual health insurance coverage. The rule does include provisions to prevent employers from steering workers or dependents with costly health conditions away from the employer group plan and toward individual coverage.

Employers also could offer a different type of HRA, funded up to $1,800 a year, that could be used by employees to pay premiums for short-term plans that don’t comply with ACA consumer protections.

Employers could not offer the same employees the choice of either a traditional group plan or an HRA-funded individual-market plan. But they could offer a group plan to certain classes of employees, such as full-time workers under age 25, and an HRA plan to other classes, such as part-time employees.

Fears many may be shunted from group plans

Other concerns that are being raised include those by the American Academy of Actuaries that self-insured employers, in particular, may use the rule to shunt less healthy employees out of their group health plans, which in turn could result in worsening the ACA individual-market risk pool.

The Federation of American Hospitals expressed concern that the proposal would shift people out of the employer group market into the less stable individual market, which offers thinner benefits and less support for consumers.

The conservative National Federation of Independent Business supports the new rule but is concerned that it will be a complex process to set this type of arrangement up, especially for small businesses.

The liberal Center on Budget and Policy Priorities said the proposal to let a special type of HRA be used to buy short-term plans could be challenged legally, because the ACA and the Health Insurance Portability and Accountability Act (HIPAA) prohibit group plans from discriminating based on health status, as short-term plans are allowed to do.

Employer Guide for Dealing with the Coronavirus

As the outbreak of the 2019 novel coronavirus gains momentum and potentially begins to spread in North America, employers will have to start considering what steps they can take to protect their workers while fulfilling their legal obligations.

Employers are in a difficult position because it is likely that the workplace would be a significant source of transmission among people. And if you have employees in occupations that may be of higher risk of contracting the virus, you could be required to take certain measures to comply with OSHA’s General Duty Clause.

On top of that, if you have workers who come down with the virus, you will need to consider how you’re going to deal with sick leave issues. Additionally, workers who are sick or have a family member who is stricken may ask to take time off under the Family Medical Leave Act.

Coronavirus explained

According to the Centers for Disease Control, the virus is transmitted between humans from coughing, sneezing and touching, and it enters through the eyes, nose and mouth.

Symptoms include a runny nose, a cough, a sore throat, and high temperature. After two to 14 days, patients will develop a dry cough and mild breathing difficulty. Victims also can experience body aching, gastrointestinal distress and diarrhea.

Severe symptoms include a temperature of at least 100.4ºF, pneumonia, and kidney failure.

Employer concerns

OSHA — OSHA’s General Duty Clause requires an employer to protect its employees against “recognized hazards” to safety or health which may cause serious injury or death.

According to an analysis by the law firm Seyfarth Shaw: If OSHA can establish that employees at a worksite are reasonably likely to be “exposed” to the virus  (likely workers such as health care providers, emergency responders, transportation workers), OSHA could require the employer to develop a plan with procedures to protects its employees.

Protected activity — If you have an employee who refuses to work if they believe they are at risk of contracting the coronavirus in the workplace due to the actual presence or probability that it is present there, what do you do?

Under OSHA’s whistleblower statutes, the employee’s refusal to work could be construed as “protected activity,” which prohibits employers from taking adverse action against them for their refusal to work.

Family and Medical Leave Act — Under the FMLA, an employee working for an employer with 50 or more workers is eligible for up to 12 weeks of unpaid leave if they have a serious health condition. The same applies if an employee has a family member who has been stricken by coronavirus and they need to care for them.

The virus would likely qualify as a serious health condition under the FMLA, which would warrant unpaid leave.

What to do

Here’s what health and safety experts are recommending you do now:

  • Consider restricting foreign business trips to affected areas for your employees.
  • Perform medical inquiries to the extent legally permitted.
  • Impose potential quarantines for employees who have traveled to affected areas. Ask them to get a fitness-for-duty note from their doctor before returning to work.
  • Educate your staff about how to reduce the chances of them contracting the virus, as well as what to do if they suspect they have caught it.

If you have an employee you suspect has caught the virus, experts recommend that you:

  • Advise them to stay home until symptoms have run their course.
  • Advise them to seek out medical care.
  • Make sure they avoid contact with others.
  • Contact the CDC and local health department immediately.
  • Contact a hazmat company to clean and disinfect the workplace.
  • Grant leaves of absence and work from home options for anyone who has come down with the coronavirus.

If there is a massive outbreak in society, consider whether or not to continue operating. If you plan to continue, put a plan in place. You may want to:

  • Set a plan ahead of time for how to continue operations.
  • Assess your staffing needs in case of a pandemic.
  • Consider alternative work sites or allowing staff to work from home.
  • Stay in touch with vendors and suppliers to see how they are coping.
  • Consider seeking out alternative vendors should yours suddenly be unable to work.

Reference Pricing Can Reduce Medical Outlays, Costs

In an effort to coax health plan participants to use price-shopping behavior when deciding on where to have a procedure, more insurers are starting to roll out a system known as “reference pricing.”

With reference pricing, the health insurer imposes a limit on the amount it will pay for a particular procedure – a limit that is reasonable and allows access to care for patients. The price is usually a median or average price in the local market.

When a health plan participant selects a provider that charges less than the cap, they will receive the standard coverage with little or no cost-sharing.

But, if they decide to use a provider that charges more than the cap, the participant will have to pay the entire difference out of pocket. These excess payments do not count towards the patient’s deductible or the annual out-of-pocket maximum.

Use of reference-based pricing rose from 11% to 13% among large employers in 2015, according to a study by Mercer Benefits.

Proponents of reference pricing say that it can reduce health care spending because it encourages people to shop for better deals and, eventually, encourages hospitals to lower their prices.

Organizations that have implemented reference pricing report lower outlays for procedures.

CalPERS, the pension fund for California state employees, in 2011 began reference pricing and asked its preferred provider organization, Anthem Blue Cross, to research the average costs for hip and knee replacements among hospitals and develop a program that ensures sufficient coverage by those hospitals that meet a certain cost threshold.

The program set a maximum of $30,000 for these procedures.

The number of Anthem-CalPERS enrollees who chose a designated high-value hospital for their knee or hip replacement surgery increased from 50% between 2008 and 2010 to 64% in the first nine months of 2012, compared with little to no change among Anthem policyholders not enrolled in CalPERS.

Also, the average price for such procedures fell from more than $42,000 before the initiative to $27,148 in the first nine months of 2012.

The changes resulted in savings of about $5.5 million during the first two years of the reference pricing initiative, and the average cost to CalPERS for the procedures fell by 26%.

CalPERS says that after it implemented reference pricing, some of the hospitals that charged more than the payment limit significantly reduced their prices for the procedure.

These price reductions have increased; the number of California hospitals charging prices below the CalPERS $30,000 reference limit rose from 46 in 2011 to 72 in 2015.

Limits of reference pricing

To be clear, reference pricing cannot be applied to all procedures.

It should only be used for procedures or products that health plan enrollees can shop for, and when they have time to compare choices based on price and quality. This can include:

  • Scheduled procedures like the aforementioned knee replacements
  • Ambulatory surgical procedures
  • Lab tests
  • Imaging
  • Pharmaceuticals

What it should not be used for:

  • Emergency procedures
  • Unique components of care that the patient can’t select independently, like a lab test during a visit to a doctor
  • Complex medical conditions

Trends Shaping Health Insurance and Health Care in 2020

As a new decade begins, the health insurance industry is on the cusp of making a leap towards improved, higher-tech management of health plan participants.

A recent paper by Capgemini, an insurance technology and consulting firm, predicts the following trends that will be taking shape in the health insurance industry and how they may affect businesses that are paying for their employees’ coverage.

1. Realigned relationships — Insurers are trying to shift risk between themselves and pharmaceutical companies in an effort to reduce drug outlays. The report says insurers are also working more closely with health care providers for early intervention in medical issues that may be facing participants. Addressing health issues early can reduce long-run treatment costs.

2. Fluid regulations — As we’ve seen, just because the Affordable Care Act became the law of the land, the regulations governing health care and health insurance have continued streaming out of Washington. If the last two years are any guide, this will continue to be the case. Also, the constitutionality of the ACA is now being litigated once again after an appeals court upheld a lower court’s ruling that the individual mandate is unconstitutional.

3. Increasing transparency — More stringent regulations, along with President Trump’s recent executive order to improve price and quality transparency, are forcing the health care industry and insurers to become more transparent in their pricing.

One of the biggest focuses is on the drug industry and the role of pharmacy benefit managers, the largest of which have been criticized for being opaque in their pricing, discounts and how they handle drug company rebates.

Also, insurers are increasingly providing detailed information regarding services covered under their health plans, claims processing and payments. Additionally, some insurers are helping enrollees to make more informed decisions before they use a health care service by providing digital tools to help them reduce out-of-pocket expenses.

4. Predictive analytics — Health insurers are using predictive analytics for risk profiling and early intervention for enrollees with health issues. Predictive analytics provide insurers with insightful assessments of potentially high-risk customers, in order to mitigate losses.

With advancements in technologies such as big data and connected devices, insurers now have access to vast amounts of customer data, which can be used to remind people it’s time for their check-ups, medications and other necessary medical services.

Insurers are using predictive analytics to identify and monitor high-risk individuals to intervene early and prevent further complications. This in turn can help reduce claims.

Congress Eliminates the ‘Cadillac’ and Other ACA Taxes

Congress before the new year passed legislation repealing the so-called “Cadillac tax” on generous group health plans, as well as two other taxes, finally putting to bed an issue that has plagued the Affordable Care Act since its inception.

Although it had not yet been implemented, employers didn’t like the Cadillac and labor unions came out against it as well. It was so unpopular that Congress voted twice to delay implementation, which was originally set to start in 2018. The latest start date had been pushed until 2022.

The Cadillac tax, an enacted but not yet implemented part of the ACA, is a 40% levy on the most generous employer-provided health insurance plans — those that cost more than $11,200 per year for an individual policy or $30,150 for family coverage. It was designed to only tax the portion of the premium that was above the threshold.

Effect of repeal on group plans

The tax would have been levied on health plans, which are legal entities through which employers and unions provide benefits to employees. It would have been paid by employers, but its impact on employees would be indirect and would have depended on how firms and health plan managers responded to the tax in offering and designing benefits.

None of these issues now need to concern employers offering group plans.

The tax was eliminated as part of a $1.4 trillion year-end budget bill that President Trump signed in order to keep the government open. Here are all the ACA-related taxes that the legislation eliminated:

  • The Cadillac tax, which had been expected to raise $197 billion over 10 years.
  • Starting in 2021, the health insurance tax, which had been projected to raise $150 billion over the next decade, and
  • The 2.3% excise on the sale of medical devices, which had been expected to generate $25.5 billion in the next 10 years.

High-Deductible Plans Saddling Workers with Bigger Drug Outlays

A new study has found that high-deductible plans and increased use of coinsurance are exposing health plan enrollees to higher and higher pharmaceutical costs.

One of the big problems for many enrollees in high-deductible plans is that their outlays for drugs may not count towards their health plan deductibles and, if they are enrolled in separate pharmaceutical plans, they may have to pay the full list price until they meet their drug deductible, according to the “2019 Kaiser Family Foundation Employer Health Benefits Survey.”

The report warns of a growing crisis for American workers, more and more of whom are struggling with their health expenditures, be they premiums, deductibles, copays and/or coinsurance.

Workers in small firms face relatively high deductibles for single coverage and many also are saddled with significant premiums if they choose family coverage, according to the study.

The cost of group health insurance is growing at about 4% to 5% a year, reaching $7,188 for single coverage in 2019 and $20,576 for family coverage.

Workers in small firms on average contribute 16% of the premium for single coverage, compared with workers at large firms (19%), according to the report. But small-firm employees contribute 40% on average for family coverage, compared to 26% for staff at larger firms.

That said, 35% of covered workers in small firms are in a plan where they must contribute more than one-half of the premium for family coverage, compared to 6% of covered workers in large firms.

But premium contributions are only part of the story. Eighty-two percent of covered workers have a general annual deductible for single coverage that must be met before most services are paid for by the plan, and that average deductible amount is $1,655. But, the average annual deductible among covered workers with a deductible has increased 36% over the last five years, and by 100% over the last 10 years.

The hidden cost-driver

With all this as a backdrop, the cost of prescription drugs is one of the largest challenges facing group health plan enrollees, especially those who are enrolled in high-deductible health plans, whose out-of-pocket expenses for pharmaceuticals can be especially burdensome. It is the hidden cost-driver in the system.

The Kaiser survey found that about 90% of covered workers are enrolled in plans where the health plan deductible must be met before prescription drugs are covered. But, this number has been shrinking as group coverage pricing increases and employers shift more of the cost burden to employees.

There are a few ways that employees are taking on a significant load with their drug expenditures:

  • First, more workers are enrolled in plans that carve out prescription drugs, meaning that their expenditures on medication do not count towards satisfying their health plan deductibles. About 13% of employees are enrolled in a plan with a separate annual deductible that applies only to prescription drugs.
  • Many people with workers face out-of-pocket costs linked to prescription list prices regardless of the actual net, post-rebate costs. That’s because coinsurance percentages are computed based on the price negotiated between the pharmacy and the plan or pharmacy benefit manager. These negotiated prices are typically close to list prices.

    Even worse, patients pay the entire negotiated price when they are within a deductible and do not enjoy the benefits of rebates that the PBM may have negotiated with drug makers. Patients with these benefit designs do not benefit from rebates, though major brand-name drug makers sell their products at half of the list prices.
  • In the past, health plans had two- or three-tier benefit designs for drugs, mostly for generics and brand-name drugs, with lower copays and coinsurance for the lowest-tier medicines. But as prices have started increasing, many plans have four tiers and sometimes five (the specialty tier).

    The disappearance of two- and three-tier benefit designs have made out-of-pocket expenses especially high for specialty drugs. Plans place therapies for such chronic, complex illnesses as cancer, rheumatoid arthritis, multiple sclerosis and HIV on the fourth and specialty tiers of benefit plan, for which the enrollee has to pay a larger share.
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