March 18, 2021
Dusan Baic

Why Benefit Plans Need A Drug Limit

March 18, 2021
Dusan Baic

Putting a limit on any key health necessity is a tough call to make for any benefits plan administrator. The one in question here is a limit on drugs, an annual maximum on how much an employee can spend on prescriptions.  Often times it's avoided altogether because the negative connotations it carries - it's poorly perceived by employees, it can make the plan appear less attractive and plan administrators don't want to neglect anyone in need.

We hear this kind of feedback all the time and we get it.

However, I'd like to make the case as to why putting a drug limit is absolutely necessary and how plan administrators can still meet the health needs of their employees without crippling the cost of running a benefits plan.

Let's dive in.

Drug Spend Is On The Rise

A 2020 drug trends report by HBM+ revealed startling statistics about the cost of drugs they adjudicate in private company health plans.

The report notes that total drug costs increased by 26.7% between 2015 - 2019. This high growth occurred even with the 2018 introduction of OHIP+, a new provincial program designed to cover the cost of drugs for people 25 years old and younger.

Similar to all aspects of health, a relatively small and concentrated portion of people (also referred as claimants) drive a disproportionate large share of overall drug expenditures. In other words, the top 5% of claimants account for 52.7% of total drug cost. The average annual spend on drugs by this top 5% is $8,306, whereas the top 1% average a whopping $24,740!

So what's causing this upward trend?

One of the key drivers is the number of claimants using speciality drugs, drug prescriptions that cost more than $10,000 per year. By referring to the chart below, you can see change in number of claimants using speciality drugs is growing by double digits between 2015 - 2019.

Source: HBM+ 2020 Drug Trend Report

In summary the key trends are this:

  1. Drugs are becoming more and more expensive
  2. People are using speciality drugs at rapidly growing rate, and
  3. Only a very few proportion of people are responsible for majority of drug costs

Ok, so what does this mean?

This reinforces the importance of implementing an effective drug plan strategy to manage cost and protect benefit plan against double digit renewal spikes. The strategy will only need to be surgical and focused on the top 5% and not everyone in the organization. Otherwise if left unattended, this trend will continue to put unsustainable pressure on the benefits plan which may end up impacting everyone in the organization.

The Best Kept Secret In Drug Plans

Every province in Canada has a catastrophic drug insurance plan for extremely high cost drugs to help Canadians who cannot afford this speciality medication. British Columbia's Pharamacare and Quebec's RAMQ are required by law to integrate their catastrophic drug insurance programs with private drug insurance plans. This forced integration allows organizations to easily tap into government aid when needed. So if you are from these provinces, I would say the following does not apply to you as the cat is already out of the bag.

In other provinces like Ontario's Trillium Drug Program, this integration is not forced which puts the onus on businesses and individuals to manually seek it out and take advantage as needed. Unfortunately, not many do.

So how does one take advantage of these programs? How can you as an organization get the government to pay for your expensive drugs?

Well, this is where we bring the annual drug limit back into the conversation.

To Start, Your Plan Must Cut Drug Coverage

Counter-intuitive isn't it? You're asking me to cut coverage for high-cost drugs in order to get government aid? Yes, that's exactly correct. Here's an exert from Ontario's Trillium Drug Program website on eligibility:

https://www.ontario.ca/page/get-help-high-prescription-drug-costs#section-1

Applicants are only eligible if their private insurance plan doesn't pay for 100% of their drugs.

Okay so what if my organization covers 80%?

Well, then you risk your employee not satisfying the last condition of “spend about 4% or more of your after-tax household income on prescription drug costs”.

Bottom line, you have to cut coverage for high drug costs in order to unlock this government program.

So what are some ways to do this?

One option is to introduce a custom drug list (a formulary) that excludes certain drugs from being covered. However due to health discrimination, most insurers will not exclude a category of drugs.

Therefore the most popular approach is to introduce an annual drug limit that plan members cannot exceed.

"Show Me The Money"

To put this drug limit strategy to the test, we'll go through a mock case study and explore how it impacts all parties.

Background

An employee working for a technology company is currently taking Enbrel, a specialty drug that costs $30,000. The employee makes $100,000 a year in household income and is covered by a benefits plan where the employer drug plan covers 80% of prescription drug claims and they have to pay the remaining 20%.

Let's explore how the employee's experience differs across 3 different scenarios:

  1. Drug Plan with Co-Pay 80/20
  2. Drug Plan with Co-Pay 80/20 + Ontario's Trillium Drug Plan
  3. Drug Plan with Co-Pay 80/20 + Ontario's Trillium Drug Plan + $10,000 Annual Drug Limit

1.  Drug Plan with Co-Pay 80/20

In this scenario, the employee claims $2,500 in prescription drugs per month ($30,000/12). Their benefit plan covers 80%, and they pay the remainder 20%.

By year-end, the benefit plan pays $24,000 while they employee pays $6,000.

2.  Drug Plan with Co-Pay 80/20 + Trillium

In this scenario, the employee applies to Ontario's Trillium Drug Plan and is approved. The Trillium Drug Plan calculates a deductible of 4% of the employee's household income which equals to $4,000 per year (4% * $100,000) or $500 per quarter. In other words, the employee is responsible to cover $4,000 of the total drug prescription claims for the year.

Adding Trillium definitely helps as the program picks up $2,000 in total cost from the employee but still leaves the employer's benefit plan with the same $24,000 tab.

3.  Drug Plan with Co-Pay 80/20 + Trillium + $10K Drug Limit

In this last scenario, we layer on top an annual $10,000 drug limit in the company benefits plan. This means the plan stops funding the drug prescription claims past the $10,000 mark.

When this limit is reached in June, the Trillium Drug Plan takes majority share of the cost throughout the remainder of the year. By year end, the employee still pays $4,000 as compared to scenario 2 but the employer's benefit plan only absorbs $10,000, as set out by the drug limit.

Takeaway

When comparing the 3 different scenarios, it's clear that setting an annual drug limit in Scenario 3 proved to be a winner for all parties. The employee pays only $4,000 per year (as compared to $6,000) and the employer benefit plan took only $10,000 in claims (as compared to $24,000 with the unlimited drug plan). This strategy allows the employer to continue offering coverage to their employees without jeopardizing future cuts due to high premium renewals from absorbing expensive specialty drugs.

How To Implement

Here's a quick breakdown of how the logistics pans out for setting a drug limit and applying for the Trillium Drug Plan.

  1. Employer sets up time with their advisor to discuss the specifics and strategy
  2. Employer notifies employees of the plan change
  3. If not already using Trillium, the insurer's Drug Advocate assists the patient to apply. If you are an existing Beneplan member, we provide access to a Drug Advocate free of charge. Click here to be connected to one.
  4. The Drug Advocate negotiates if necessary (rare condition, orphan drugs, high income, etc.)
  5. Patient receives letter from Trillium with confirmation
  6. Employer implements annual drug limit
  7. Premiums are reduced by carrier

If you have any questions about this, please reach out to your advisor or contact us for more details.

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