Sounds unlikely – employers reduce the copayments for some prescriptions to zero, and then end up saving money. How does that work, and why can’t I get free prescriptions, too?
Credit for this idea should go to Pitney Bowes, which has been swimming upstream by reducing pharmacy copayments by employees for years, and finally eliminated them completely. As reported by the New York Times
This idea has started to catch on, and other employers like Marriott and Mohawk are taking the same step.
Here’s why. The first part of the answer is simple math and consumer behavior, tied to the fact that the employers are only reducing copayments to zero for certain drugs, predominantly generics and a few brand name drugs used to treat chronic illnesses, like asthma, diabetes, and heart disease. We’ll come back to those in a moment, but first the story on generics.
An average generic prescription costs about $25 and an average brand name costs over $100. With a typical three-tier pharmacy benefit, say $10 generic, $20 brand, and $30 non-formulary, here’s the payment:
Now, lower the generic copay to zero, but raise the brand copay to $25
One more step. You’re an employee, and you get a letter from the pharmacy benefit manager saying you’re on a brand name drug that costs you $25 a month. There’s a generic alternative, which works as well, that you can get for free. Talk to your doctor and see whether switching to the generic will work for you.
Employees switch. Maybe as low as 10% over the course of the first year, but every time an employee switches, the employer saves $50 ($75 brand cost versus $25 generic cost). Depending on the generic utilization rate before changing the benefit design, that savings may be enough to pay for the change by itself.
But there’s even better news. The compliance rate for employees taking medication for chronic illnesses like high blood pressure, diabetes, heart disease and the like goes down dramatically if the out-of-pocket prescription costs go up. What Pitney Bowes and others showed was that the modest increase in pharmacy costs caused by employees actually taking their medications was more than offset by the savings on complications from those chronic health conditions. That shouldn’t be surprising because prevention costs a lot less than cure. The cost of high blood pressure medication, especially generic, is thousands of times less expensive than the cost of heart failure or a heart attack.
So you prevent complications and disease progression, save money, help your employees save money and have better health – why can’t you get free prescriptions, too?
#1 by Bob Churchwell on February 27th, 2007
The idea is great for large companys. How can this concept work for small employers with less than 100 employees?
#2 by Jim on May 9th, 2007
I’ve worked for Pitney Bowes for over 30 years and was informed of the free/reduced cost perscriptions by a Pitney Bowes retiree which prompted me to look into this. Why has no one on the west coast that I know of that works for Pitney Bowes heard of this? Especially since they are one of the big companies driving this.
#3 by Dr.+Christopher+Coulter on May 9th, 2007
Jim, see today’s Wall Street Journal, page D1. The press, including the general business press, has been good about covering this issue, so many of us who work in employee benefits have been aware of Pitney Bowes’ pharmacy programs. I can’t comment on the company’s internal communications of its benefit programs, since I haven’t worked with Pitney Bowes as a client. I would comment, though, that keeping employees and retirees informed of benefit program changes is a difficult challenge for every employer.
#4 by Dr. Christopher Coulter on May 9th, 2007
Bob – It is definitely easier for jumbo employers who can design their own formularies to implement sophisticated pharmacy benefit designs, including those intended to increase compliance with medications to treat chronic illness. Smaller employers, especially those who are fully insured, have more limited options. My approach with clients has been to reduce the Tier 1 copay, and increase Tier 2, along the lines described. There are medications to treat every major chronic illness in the Tier 1 pharmacy benefit, for most every formulary I know. Every such medication may not be included in Tier 1, which would be ideal, but almost everyone with a chronic illness could potentially be covered by that strategy. The comment in today’s Wall Street Journal article (”New Tack on Copays: Cutting Them”) notes that Aetna is considering a formulary change to adopt this approach, and if other carriers follow suit, that could make it even easier to adopt this strategy.