Employees are Paying an Ever-Increasing Portion of Health Insurance Costs

A Wall Street Journal article entitled Drug Co-Pays Hit $100 (available for a fee) notes the following:

Get ready for the $100 co-pay. That is how much state workers in Georgia will soon pay for certain brand-name drugs, in what may be the highest drug co-payment anywhere in the country.

It is the starkest demonstration yet of employers' aggressive efforts to rein in the rising cost of prescription-drug benefits by driving employees to lower-cost medicines. Employer drug costs rose 83.4% over the past five years, an average of 16.7% each year, according to Mercer Human Resource Consulting, New York. And some estimates predict these costs will continue to rise at an 11% to 12% annual pace over the next several years.

As a result, consumers are seeing a variety of changes in their prescription-drug benefits. The most popular is tinkering with co-pays -- a set portion of the pharmacy bill that patients pay out of their own pockets -- to give patients a financial stake in what drugs they and their doctors choose. Just a few years ago, co-pays were rarely higher than $30, and most were much lower. Now, raising co-pays is a commonly used stick to discourage high-cost drug use. There also is a new carrot: making generic drugs free to patients by eliminating the co-pays altogether. Some plans divide drugs into two and three tiers, with less-expensive drugs requiring lower co-pays.

Also gaining steam is the use of "co-insurance," whereby the patient pays a percentage of the pharmacy bill rather than a flat amount. A few are experimenting with something called reference pricing, where patients typically pay extra if a prescription price exceeds a set "reference" level for the drug's category. And increasingly, plans are refusing to pay for a costly medicine unless patients first try less expensive alternatives or the doctors gets prior authorization from the health plan...

Employers and health plans say they have little choice but to find ways to reduce their ever-rising outlays for prescription drugs...

Co-pays have been rising steadily in recent years. According to Hewitt Associates, consultants to employers, nearly 40% of employers had co-pays of more than $30 this year, up from fewer than 10% 2001.

"Many employers have increased co-pays to the point where it actually equates to employees paying about 35% of the cost of drugs," says Debbie Martin, a consultant to major employers at Mercer. "That's about as high as they can go" and still have a competitive benefit that will attract employees...

Another increasingly popular approach to making patients more aware of drug costs has been to require "co-insurance," where a patient would pay 10% or 20%, even 50% of a drug's cost rather than a flat co-pay.

"We really want to impart to our employees that drugs cost a lot of money and you have to be aware of what you're taking and ask a lot of questions," said Nancy Tostanoski, senior vice president of global compensation and benefits at Starwood Hotels & Resorts Worldwide Inc. of White Plains, N.Y., which did away with flat co-pays for its employees in 2004. For most generic drugs, the co-insurance now is 25% and for brands 35%...

The article also contained this table:

CARROTS AND STICKS

How health plans are encouraging the use of cheaper drugs:

• Raising co-payments.

• Using co-insurance, where patients pay a percentage of cost, rather than a flat amount.

• Requiring doctors to get permission before prescribing an expensive drug.

• Refusing to pay for a costly drug until a less-expensive medicine is tried first.

• Cutting co-pays for generics.

• Offering discount coupons for over-the-counter medicines.