Many employers had to change their group benefit plans. They change it from one that allows brand name drug coverage, called Mandatory Generic Plans.
(In order to keep this article a reasonable length I have simplified a few issues)
The Reasoning Behind Mandatory Generic Plans
Generic drugs are required to have the same benefit as brand name drugs. However generic can cost much less because they are a copy brand name drugs that have come off patent protection. Generic versions work well for most people, reducing the overall cost of your group benefits program.
The Misconception of Mandatory Drug Plans
Many employers believe that mandatory generic plans will only pay for generic prescriptions, protecting them from the financial impact of the high cost of brand name and single-source drugs. This is not true.
Recently I was in a meeting with an Advisor and a potential client. The business owner was very confident that a recent change to their plan to Mandatory Generic drug coverage meant that their plan would no longer pay for the higher cost brand name and single-source drugs, so there was no issue to discuss.
The plan administrator quietly opened their booklet and pointed out to the owner that when a generic alternative is not available, the plans will in fact continue to pay for the higher cost brand name and single-source drugs.
Mandatory Generic plans will pay for brand name and single source drugs only when a generic alternative does not exist.
So, what is the issue? There is a new category of drugs that do not have a generic alternative. That can cost between $20,000 – $500,000+ per person per year.
If your plan has 100% drug coverage, there is no out-of-pocket cost for employees. So, there is no incentive to have a conversation with the Doctor or Pharmacist about investigating lower-cost drug therapy. Also, they wouldn’t be looking into coverage that may be available under government or industry drug programs, that may be available as the prescription is basically “free” for the plan member.
While business owners want to offer a benefits plan, they do not feel obligated to cover every drug at any cost that may be introduced to the market.
I encourage those advisors to do the math and see what the effect would be on the following years premiums.
How Can Employers Limit Risk?
In order to limit risk, risk must be limited!
Here are some basic plan design changes employers can take to limit risk:
- Maximum 80% Brand Name drug coverage
- Remove unlimited drug coverage
- Introduce an annual drug maximum
- Consider a Pooled benefits program