Jennifer S. Kiesewetter
In light of recent political events, health care, and the cost of health care, is on the forefront of everyone’s mind. With 2017 quickly approaching, and a new President taking office in January, predictions as to health care costs are running rampant. However, one of the leading drivers of health care costs is the rising costs of prescription drugs. This trend has been a topic of conversation long before the most recent Presidential election. As we move into 2017, the cost of prescription drugs will continue to increase at a sharp clip in certain categories.
From 2004-2014, according to the Peterson-Kaiser Health System Tracker, the annual growth rate for per-person retail prescription drugs for those individuals participating in large employer group health plans, was relatively low, falling between zero percent (0%) and five percent (5%) growth for each year. However, in 2014, this same annual growth rate climbed to fourteen percent (14%). Specialty drugs, such as those for chronic, rare conditions – like multiple sclerosis, hepatitis C, and cancers, are the driving force behind this sharp increase. According to David Dross of Mercer’s Managed Pharmacy practice group, since 2011, this segment of prescription drug spending has nearly doubled, to more than $150 billion in 2015. In 2014, specialty drugs increase by almost thirty-one percent (31%). In 2015, specialty drugs increased again at just over twelve percent (12%).
According to Segal’s 2017 Health Plan Costs Trend Survey, for 2017, these specialty drugs are projected to grow to 18.7% of all drug costs, which is on top of the 18.9% prediction for 2016. Interestingly, only one percent (1%) of all medications prescribed are specialty prescription drugs; however, Segal notes that these drugs account for thirty-five percent (35%) of the trend for prescription drug growth. Specialty drugs have accounted for seventy-three percent (73%) of all prescription drug spending growth.
Specialty drugs are not the only prescriptions that are vulnerable to price increase. The overall cost of prescription drugs for active employees and retirees under the age of sixty-five (65) is projected to increase to 11.6% in 2017. This is in addition to the 11.3% increase these drugs experienced in 2016. According to the Centers for Disease Control and Prevention, as evidenced from 2009-2012, almost forty-nine percent (49%) of people have used at least one (1) prescription in the past thirty (30) days. Almost twenty-two percent (22%) of people have used three (3) or more prescriptions in the last thirty (30) days, and almost eleven percent (11%) of people have used five (5) or more prescriptions during the same time period. In fact, during doctor office visits alone, health care providers have ordered $2.3 billion in prescription drugs, with approximately seventy-three percent (73%) of visits calling for a prescription. As such, the rising costs of prescription drugs have a direct impact on a large percentage of the population, especially since wages are projected to rise by only 2.5% in the coming year.
A new Kaiser Family Foundation study found that overall, annual out-of-pocket prescription spending has decreased from $167 in 2009 to $144 in 2014. Most of this decline was due to prescribing generic drugs. Additionally, the Affordable Care Act’s requirement for contraceptive coverage without cost-sharing contributed to this decrease in out-of-pocket spending. For example, the percentage of women with out-of-pocket expenses for birth control fell from twenty-two percent (22%) in 2012 to almost four percent (4%) in 2014.
Notwithstanding the above, the percentage of people spending more than $1,000 a year out-of-pocket on prescription drugs increased from one percent (1%) to almost three percent (3%) in 2014. Although this is a small number of employees, this spending accounted for approximately thirty-three percent (33%) of all out-of-pocket spending in large employer-provided health plans in 2014.
The high costs of prescription drugs not only affect health plan participants, but also affect employers offering health care coverage. For example, average retail drug spending spiked in 2014, which was a thirteen percent (13%) increase after slow growth for the previous nine (9) years. Employer-provided health plans absorbed much of this increase as health plans spent an average of $909 per year per person on prescription drugs, up from $584 in 2004.
Because of these growing trends, employers offering group health coverage are implementing strategies in plan design to help curb costs. For example, certain strategies include requiring prior authorization before certain prescriptions are filled; requiring that lower-cost drugs be tried by the participant first before more expensive drugs are prescribed; and increasing cost-sharing mechanisms, such as co-payments.
As prescription drug costs continue to increase, employers will need to find the balance between offering satisfactory prescription coverage for employees with cost-saving measures. As new drugs continue to be invented, especially in the specialty drugs arena, combined with an aging population, the focus on the provision and the cost of prescription drugs must be monitored. Prescription coverage will be just as instrumental in plan design for employers as deductibles and co-payments.