health plans – ScriptSourcing

Health Plans Covering Fewer Drugs, Imposing More Restrictions

As prescription drug costs continue growing and pricey new pharmaceuticals add to health plans’ cost burdens, some carriers are starting to reduce the number of medications they’ll cover and are imposing new barriers to accessing the most expensive ones.

According to a new study by GoodRx, a website that helps people find discounts and rebates on prescription medications, Medicare Part D insurance companies in 2024 cover 54% of all drugs approved by the Food and Drug Administration, compared to 75% in 2010.

During that same time, the percentage of drugs that Medicare drug coverage plans put restrictions on rose to 50% from 25% of all FDA-approved drugs.

GoodRx notes that the statistics are likely worse for group health plans because they are not subject to the same regulations as Medicare plans are.

This trend makes it vitally important that your employees review formularies of covered medications during open enrollment to ensure they choose a health plan that covers drugs they may need for a chronic condition, or which they need to take regularly for other issues.

It’s also important that they understand how much of a certain drug their health plan will cover and what their estimated out-of-pocket costs will be, so that they can budget accordingly.

Formularies explained

The list of drugs that an insurance plan will cover or pay for is called a formulary. Pharmacy benefit managers, which health insurers contract with to manage drug costs, set these formularies, which determine how much a patient will pay out of pocket for their medication.

PBMs regularly add and remove drugs on their formularies based on their effectiveness, price, demand and available alternatives.

These formularies also dictate copays and coinsurance — the patient’s out-of-pocket costs for each drug.

Getting squeezed

The title of the GoodRx report — “The Big Pinch” — reflects the trend of the past 14 years that’s resulted in patients being pinched between high drug costs and their health plans’ limiting coverage through prior authorizations.

First, copays and coinsurance have been increasing since 2010, usually after PBMs move certain drugs from one tier to another, according to the report. As well, more American workers are now in high-deductible health plans, which require more out-of-pocket layouts in exchange for lower premiums.

Also, a growing number of people have a separate deductible applied to prescription medications. This is referred to as a pharmacy deductible. These deductibles can be anywhere from $134 to $465 per month.

On top of it all, pharmaceuticals are getting more expensive.

Meanwhile, prior authorization rules imposed by PBMs and health plans require doctors to not only prescribe, but also justify why they are prescribing a medication, which may cause delays and make it more difficult for patients to receive drugs. In some cases, prior authorization may dissuade people from filling their prescriptions.

Eight in 10 doctors surveyed by the American Medical Association said that prior authorization leads to patients abandoning treatment.

Also, if patients encounter too many problems trying to fill a prescription, they may opt for paying out of pocket, which means absorbing the exorbitant cash price of the drug.

Help your staff pick the right plan

For workers who are healthy and young, these increasing restrictions may not have a great effect on their pocketbooks and quality of life. But for individuals with chronic conditions and other health problems that require certain medications, it’s vitally important that they are diligent and do their homework during open enrollment to ensure continued access to the medications they need.

If they want to stay in their existing plan, they need to review the formulary every open enrollment to make sure their drug is still covered. And if they are looking to change plans, they’ll need to do the same homework.

If an employee is struggling to pay for their medications, they may need to scale up to a more generous health plan, but it will likely cost them more in higher premiums in exchange for a lower deductible and/or lower copays and coinsurance. That’s the trade-off.

The worst thing is for someone to choose a plan that doesn’t cover medications they’ve come to rely on, or if their plan drops their medication.

DOL Rescinds Trump-Era Association Health Plan Rule

The Department of Labor on April 29 issued a final rule rescinding Trump-era regulations that expanded the number and types of employers that could band together to create association health plans to cover their employees.

The 2018 regulations, which have been in legal limbo since 2019, also allowed these association health plans avoid many consumer-protection elements of the Affordable Care Act, which critics said would open the door to participating employers offering insufficient coverage.

The DOL said it needed to rescind the law due to concerns about the potential for fraud and mismanagement in association plans. It said that the new rules limit these plans to “true employee benefit plans” that are the result of a “genuine employment relationship” and not an effort to skirt consumer protections built into the ACA.

Once the final rule takes effect in late May, employers that want to create an association plan will have to comply with much stricter rules that narrowly define these plans and limit the instances under which they can be formed.

Background

Prior to 2018, groups or associations that could meet the three criteria below would be considered a single group health plan, which in turn would determine whether they must comply with small-group market or large-group market rules under the ACA:

Business purpose standard — Whether the group or association has a business or organizational purpose and function that is unrelated to providing health insurance benefits.
Commonality standard — Whether the employers share a commonality of interest and genuine organizational relationship unrelated to the provision of benefits. For example, a trade group for auto shops could qualify since all of the members have a common interest.
Control standard — Whether the employers participating in the benefit program exercise control over the program, both in form and in substance.

Trump rules never took off

The Trump-era rules turned the earlier regulations on their head, particularly the first two standards:

Business purpose: Under the 2018 rule, a group of employers could have formed bona fide associations that had as their primary purpose the provision of health coverage.

Commonality: The 2018 rule would have let associations meet the commonality standard solely through the geographic proximity of its members, such as being located within the same state or city, without having any other common interests.

The 2018 rule also eliminated requirements that these plans comply with essential patient-protection elements of the ACA.

In 2019, the U.S. District Court for the District of Columbia held that a large portion of the rule was based on an unreasonable interpretation of the Employee Retirement Income Security Act and inconsistent with “congressional intent.” It later stayed action on the case and ordered the DOL to reassess its rulemaking.

After that, White House administrations changed and the department last year proposed the rule that was finalized April 29.

2024 HSA Contribution Limits, HDHP Minimums, Maximums Set

The IRS has raised the maximum amount employees can funnel into their health savings accounts by 7.8% for 2024, the largest increase ever, brought to you by inflation.

The IRS updates this amount annually, along with minimum deductibles as well as the out-of-pocket maximums for high-deductible health plans. Under its rules, HSAs, which help employees save for medical expenses, are only available to those enrolled in qualified HDHPs.

Understanding these amounts now can help you get an early start on human resources planning for next year.

Here are the changes coming in 2024:

HSA annual contribution limit

Self-only plan: $4,150, up 7.8% from $3,850 in 2023
Family plan: $8,300, up 7% from $7,750 in 2023
Catch-up contribution (for those aged 55 and older): $1,000 (unchanged)

HDHP minimum annual deductible

Individual plan: $1,600, up from $1,500 in 2023
Family plan: $3,200, up from $3,000 in 2023

HDHP annual out-of-pocket maximum

Individual plan: $8,050, up from $7,500 in 2023
Family plan: $16,100, up from $15,000 in 2023

Excepted benefit health reimbursement arrangement

Maximum annual employer contribution: $2,100, up from $1,950

The many benefits of HSAs

An HSA is a special bank account for your employees’ eligible health care costs. They can put money into their HSA through pre-tax payroll deductions, deposits or transfers. As the amount grows over time, they can continue to save it or spend it on eligible medical and medical-related expenses.

Employers can also contribute to the accounts, but the annual contribution maximum applies to all contributions in total (from the employee and the employer).

The money in the HSA belongs to the employee and is theirs to keep, even if they switch jobs. If they go to a new employer that offers qualified HDHPs, they can continue to fund the account in their new job.

Funds roll over from year to year and can earn interest. Many plans also have investment options for the funds to help savers further grow the account.

There are a number of benefits for employees who have an HSA:

The money an employee contributes to an HSA is not subject to income taxes, which reduces their overall taxable income.
They are not taxed on withdrawals.
If employees contribute to their HSA with after-tax money, they can deduct their contributions during tax time on Form 1040.
Employees can tap the funds for any approved out-of-pocket medical expenses.
They can also grow the account tax-free by investing the funds in the account, sort of like a nest egg for medical expenses in retirement. (That said, 62% of account holders spend the money on year-to-year or near-term expenses, according to a report by the Employee Benefit Research Institute.)

HSA-eligible expenses:

Payments for services or medicine that go towards health plan deductibles, copayments or coinsurance.
Dental or vision care (including orthodontics, eye exams, corrective lenses),
Medical devices.
Certain over-the-counter medicines, like pain relievers, allergy medication, cold and flu medicine, and menstrual products.
Vitamins and health supplements, if recommended by a medical or health professional for the treatment or prevention of a specific disease or condition.

Health Plans Dropping Out-of-Pocket Cost Waivers for COVID-19 Treatment

As the light at the end of the pandemic tunnel gets brighter, more health insurers are ceasing to offer cost-sharing waivers for COVID-19 treatment.

After legislation was enacted in 2020 that required health insurance companies to cover COVID-19 tests and vaccines, many insurers voluntarily waived all deductibles, copayments and other costs for insured patients who fell ill with COVID-19 and needed hospital care, doctor visits, medications or other treatment.

Not all health insurers extended these waivers to their enrollees, but many did.

Insurers are still required to provide free COVID-19 testing and vaccinations to their enrollees. That’s because federal guidance requires them to waive such costs.

Also, guidance issued in February after President Joe Biden assumed office, reinforced the Trump administration rule about waiving cost-sharing for testing. Biden’s guidance took an extra step, saying that it applies even in situations in which an asymptomatic person wants a test before traveling or seeing a relative.

Almost 90% of individual and group health plans enrollees were in plans that waived cost-sharing for COVID-19 treatment, according to the Peterson-KFF Health System Tracker.

What insurers are now doing

However, starting in late 2020, more and more insurers have quietly been dropping those waivers. For example:

UnitedHealthcare started curtailing its waivers in November.
Anthem stopped its cost-sharing waivers on Jan. 31.
Cigna stopped offering cost-sharing waivers for COVID-19 treatment on Feb. 15.
Aetna ceased offering deductible-free inpatient COVID-19 treatment waivers on Feb. 28.

Not all insurers are doing this though. Blue Cross and Blue Shield of Minnesota extended eligibility for telehealth benefits and COVID-19 treatment waivers through the end of 2021. Humana, meanwhile, has left the cost-sharing waiver in place for Medicare Advantage members, but dropped it on Jan. 1 for those in job-based group plans.

A study by the Peterson Center on Healthcare and the Kaiser Family Foundation released in November 2020, found that 88% of Americans who have health coverage — including employer-sponsored health plans and individual plans purchased on exchanges — had policies that waived cost-sharing for COVID-19 treatment.

Despite the fact that vaccines are rolling out quickly across the country and in light of a significant percentage of people who are hesitant to get vaccinated for COVID-19, the coronavirus is expected to be a presence in society for some time to come. And that means people will contract it and get sick.

There are also concerns about mutant strains that have developed in South Africa and Brazil, and possibly in India during the massive outbreak in April.

The takeaway

You may want to check with your group health plans to see if they have waived any cost-sharing for COVID treatment, and have since dropped or are planning to drop it.

You should meet with your employees or send them a memo explaining any impending changes for them if they have a health plan that is ending or has ended waivers.

IRS Allows Mid-Year Changes to Health Plans, FSAs

The IRS has loosened restrictions on employees who want to make changes to their group health plans and flexible spending accounts (FSAs) in the middle of the policy year.

IRS rules are typically stringent and rigid, barring changes from being made to health plans except during open enrollment. Under the new rules, the employer would still have to approve letting staff make changes to their plans if they have more than one option to choose from.

The IRS issued the new guidance after employer groups lobbied the agency and Congress to loosen the rules because the COVID-19 pandemic has led to profound changes in employees’ health care needs as well as access to childcare.

The new rules are temporary and apply only to 2020. All of the following mid-year changes must be approved by the employer;

Health plan changes: Employers can let employees make mid-year changes that would be in effect for the remainder of the year. The new guidance allows employees to:

Drop out of their health insurance if they have another option,
Sign up for insurance if they have not done so,
Add family members to their plan, or
Switch to a different health insurance plan.

Allowing these changes could be beneficial to employees who have had their salaries cut, or were furloughed, but were able to retain their health coverage. Someone in this position, for example, may decide to switch to a lower-cost health plan if they are unable to afford the premiums on their current plan.

Flexible spending accounts: Employees must decide before the plan year starts how much to set aside every paycheck into their FSA, the funds of which can be used to pay for health care-related expenses. Under the new guidance, they are allowed to make changes to their contribution levels mid-year.

Employees that expect more medical expenses and are able to afford it, can elect to increase their FSA funding. But those who may have been setting aside funds for an elective surgery that they may want to postpone, can chose to decrease the amount they put into their FSA every month.

Carryover amount: Regulations governing FSAs require employees to use all of the funds in their FSA in a given year or lose it. There are two exceptions: Employers can give employees a two-and-a-half-month grace period after the end of the plan year to spend remaining funds that are in the account at the end of the year, or they can let workers carry over up to $500 from one year to the next.

Starting this year, the carryover limit will be set at 20% of the maximum health care FSA contribution limit, which is indexed to inflation. That means that for 2020, employers can let employees carry over up to $550 into 2021.

The takeaway

While allowing your employees to make changes can help them better budget their health care spending, making the change will result in extra administrative expenses for you. Changing plans mid-year, signing up employees for new plans and adding dependents can involve a significant amount of paperwork and documentation.

That said, allowing employees to make these changes mid-year could help them better budget their health care spending and give them some extra peace of mind.

COVID-19 Changes to Health Plans Must Be Documented, Circulated

A number of plan sponsors have made changes to their group health plans in response to the COVID-19 pandemic, such as covering testing and sometimes treatment without any cost-sharing by the plan enrollee.

But any changes that are made must be followed up by amending the plan and communicating the changes to the enrollees.

Under the Employee Retirement Income Security Act, all health plans are required to deliver a Summary Plan Description (SPD) to enrollees to inform them of the full spectrum of coverage and their rights under the plan.

Whenever a plan sponsor makes a material modification to the terms of the plan or the information required to be in an SPD, they must amend the plan and let participants know about the change through a Summary of Material Modification (SMM).

Material changes

To qualify as “material,” a change must be important to plan enrollees. Examples include adding or eliminating a benefit, changing insurance companies, or changing rules for dependent eligibility.

Plan changes related to the COVID-19 pandemic that would have to be included in the SMM and SPD could include:

Offering continuing coverage to staff who would otherwise lose coverage due to a furlough, layoff or reduction of hours.
Changing eligibility terms to allow workers who may not have been eligible for coverage before to secure coverage (this could include part-time workers).
Covering a larger portion of an employee’s premium share.
Adding an employee assistance program to provide counseling for workers who may be undergoing unusual stress.
Adding telemedicine coverage.
Using funds in health savings accounts (HSAs) and flexible spending accounts (FSAs) to purchase over-the-counter medications.
Covering COVID-19 testing with no cost-sharing.
Covering COVID-19 treatment without cost-sharing.

Some of the above changes are required by new laws and health plans must respond accordingly by changing their SMMs and SPDs. For example, the Families First Coronavirus Response Act requires that group health insurance and individual health insurance plans cover coronavirus testing with zero cost-sharing.

And the Coronavirus Aid, Recover and Economic Stabilization Act reverses an Affordable Care Act rule that barred policyholders from using funds in HSAs and FSAs to pay for over-the-counter medications.

When the plan sponsor adopts these changes, it must also amend its plan summaries.

And SMMs must be delivered to plan participants within 60 days after a change has been adopted. You can deliver the SMM by mail, e-mail or posting it on your company’s intranet site. It’s recommended at this time that you opt for e-mail delivery.

One of the issues that may come up with any changes implemented in response to the COVID-19 outbreak is that some of the changes may be temporary.

If that’s the case, the plan needs to include the termination date of any benefits that are adopted on a temporary basis.

However, if you don’t know how long the temporary benefits will be in effect, their temporary nature must be communicated in the SMM. Employers need to issue another SMM when the temporary benefit or coverage term ends.

The takeaway

This is an unusual time and unusual times call for unusual measures. It’s unusual for changes to be made to a plan in the middle of a plan year but because of the way the pandemic crash-landed, many plan sponsors have had to make changes.

That said, you should work with us and your carrier on ensuring that the amended documents are sent out to staff.

As the employer, you should be aware of all the changes that have been made in response to COVID-19 so you can discuss them with any employees that have concerns or questions.

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.

New Rules Allow Employers to Reimburse for Health Premiums

Starting Jan. 1, 2020, employers can establish accounts for their employees to help them pay for individual health insurance policies they purchase, as well as for other health care expenses.

A new regulation expands on how health reimbursement accounts can be used. Currently, employers and their workers can contribute to these accounts, which can be used to reimburse workers for out-of-pocket medical expenses.

With these new Individual Coverage HRAs, employers can fund the account workers would use to pay for health insurance premiums for coverage that they secure on their own.

Up until this new regulation, such arrangements were prohibited by the Affordable Care Act under the threat of sizeable fines in excess of $36,000 per employee per year.

This rule is the result of legislation signed into law by President Obama in December 2016, which created the “qualified small employer health reimbursement arrangement (QSEHRA),” which would allow small employers to reimburse for individual insurance under strict guidelines.

The Trump administration was tasked with writing the regulations, which created the Individual Coverage HRA (ICHRA).

How it works

Under the new rule, if an employer is funding an ICHRA, the plan an employee chooses must be ACA-compliant, meaning it must include coverage for the 10 essential benefits with no lifetime or annual benefit maximums — and must adhere to the consumer protections built into the law.

Once the ICHRA is created, the employer will a set amount every month into the account on a pre-tax basis, which the employee can then use to buy or supplement their purchase of health insurance benefits in the individual market.

The law allows employers to set up as many as 11 different classes of employees for the purposes of distributing funds to ICHRAs. The employer can vary how much they give to each different group. For example, one class may get $600 a month per single employee with no dependents, while members of another class may receive $400 a month.

The allowable classes are:

Full-time employees — For the purposes of satisfying the employer mandate, that means a worker who averages 30 or more hours per week.

Part-time employees — Like the above, the employer can choose how to define what part-time is.

Seasonal employees — Workers hired for short-term positions, usually during particularly busy periods.

Temps who work for a staffing firm — These employees provide temporary services for the business, but are formally employed through a staffing firm.

Salaried employees — Staff who have a have a fixed annual salary and are not typically paid overtime.

Hourly employees — Staff who are paid on an hourly basis and can earn overtime.

Employees covered under a collective bargaining agreement — Employees who are members of a labor union that has a contract with the employer.

Employees in a waiting period — This class would include workers who were recently hired and are in their waiting period before they can receive health benefits (in many companies, this is 90 days).

Foreign employees who work abroad — These employees work outside of the U.S.

Employees in different locations, based on rating areas — These employees live outside the individual health insurance rating area of the business’s physical address.

A combination of two or more of the above — Businesses can also create additional classes by combining two or more of the above classes.

The rules for ICHRAs are as follows:

Any employee covered by the ICHRA must be enrolled in health insurance coverage purchased in the individual market, and must verify that they have such coverage (as mentioned above, that coverage must be ACA-compliant);
The employer may not offer the same class of workers both an ICHRA and a traditional group health plan;
The employer must offer the ICHRA on the same terms to all employees in a class;
Employees must be allowed to opt out of receiving an ICHRA;
Employers must provide detailed information to employees on how the ICHRA works;
Employers may not create a class of employees younger than 25, whom they might want to keep in their group plan because they’re healthier;
A class cannot have less than 10 employees in companies with fewer than 100 workers. For employers with 100 to 200 employees, the minimum class size is 10% of the workforce, while for employers with 200 or more staff, the minimum size is 20 employees;
While benefits must be distributed fairly to employees that fall within each class, each class can be broken down further by age and family size. That means employees with families can be offered a higher amount per month and rates can be scaled by age.

As Specialty Drug Costs Bite, Employers Have Options

A new study has found that while group health plan costs will continue growing at the same rate as in the last few years (about 4% a year), the increases would be far less were it not for the spiraling costs of high-cost specialty prescription drugs.

The 2020 “Segal Health Plan Cost Trend Survey,” which polled health insurers, third party administrators, pharmacy benefit managers (PBMs) and other payers, found that chemotherapy drugs and other specialty pharmaceuticals are having an outsized effect on overall health claims payments.

Unfortunately, this is forcing plan sponsors to figure out how to balance coverage of life-saving drugs with plan affordability. But there are steps you can take to rein in drug cost inflation.

Payers expect that pharmaceutical costs will increase by 7.1% in 2020 from this year and that the cost of specialty drugs will double that inflationary rate at 15.4%.

Rebates account for a significant part of the pharmaceutical equation. Survey respondents said that they expect the average impact of rebates would reduce overall drug price inflation by about 1.5%.

The rising cost of brand-name drug expenditures is due to drug price inflation primarily, although one-third of the increase is due to more prescriptions being filled.

Other findings in the report by Segal, a health and retirement consulting firm, are:

Price increases are the primary driver of medical and drug trends.
Double-digit specialty drug costs are mostly driven by price increases and the introduction of new and more expensive drugs.
Reimbursement rates for hospital networks are projected to increase at a higher rate than physician claims.
Plan cost trends continue to outpace both inflation and wage growth by a factor of more than two.

The study notes that projected costs in earlier surveys have always been lower than actual inflation of medical treatment and drug outlays. To deal with these increasing costs, Segal identified the top health plan cost-containment strategies that are in use in 2019:

Use of health care transparency tools.
Expanding pharmaceutical management for non-specialty drugs.
Expanding pharmaceutical management for specialty drugs.
Offering telehealth/virtual care.
Value-based contracting.

What you can do

Segal recommends the following tactics for managing drug benefit costs, as well as for contracts with PBMs:

Aim for innovative contracting with PBMs ― Hold PBMs contractually accountable for controlling costs. Contract terms can include unique specialty-drug pricing guarantees, performance-based rebates, direct contracting with regional specialty pharmacies and adoption of value-based formularies.

Expand clinical checks ― Amend plan terms to include clinical safeguards like step therapy, targeted prior authorization for high-cost services and quantity-duration limits based on Food and Drug Administration guidelines.

Plan benefit design ― Use benefit designs to increase the use of generics and lower-cost brand-name drugs, in order to help manage drug cost inflation. This can include the use of tiered designs which place clinically effective, lower-cost drugs into lower tiers at lower cost-sharing.
Also, more plan sponsors that charge drug coinsurance offer point-of-sale rebates that lower participants’ out-of-pocket expenses.

Auditing ― Conduct periodic audits of your PBM and carefully evaluate drug classification against contract terms and pricing guarantees. This is important because some PBMs continue to apply complicated pricing reclassifications that can increase your costs.