The Impact of Prescription Drug Prices on Employer-Sponsored Health Plans

Prescription drug prices have been steadily rising, impacting both employers and employees alike. For employers who sponsor health plans, these increases can lead to higher premiums, out-of-pocket costs for employees, and added strain on the benefits budget. As the cost of medications grows, it’s essential for business owners and HR professionals to understand how these changes impact employer-sponsored health plans and what strategies can help manage costs.

In this post, we’ll explore the factors driving prescription drug price increases, the effects on employer-sponsored plans, and solutions for employers looking to reduce these costs.

Why Prescription Drug Prices Are Rising

Prescription drug prices are influenced by various factors, including:

• Research and Development (R&D) Costs: Pharmaceutical companies often invest heavily in R&D to bring new drugs to market. These costs are sometimes recouped through higher drug prices.
• Lack of Competition: When there are limited or no generic alternatives for a particular medication, pharmaceutical companies may increase prices due to limited competition.
• Specialty Medications: Specialty drugs, often used to treat complex or rare conditions, have particularly high costs. While they represent a smaller portion of prescriptions, they account for a significant portion of drug spending.
• Drug Price Markups: The prices of prescription drugs are influenced by multiple entities in the supply chain, such as pharmacy benefit managers (PBMs), wholesalers, and pharmacies. Each entity may add a markup, further increasing the cost by the time it reaches the consumer.

How Rising Drug Prices Affect Employer-Sponsored Health Plans

The impact of rising drug prices on employer-sponsored health plans can be substantial. Here’s how these costs trickle down to employers and employees:

1. Increased Premiums: When prescription costs rise, insurers may increase premiums to offset these higher expenses. For employers who sponsor health plans, this can lead to significant budget increases, which are often shared with employees through higher premiums.
2. Higher Deductibles and Copays: Employers may adjust plan structures by increasing deductibles, copays, or coinsurance amounts to manage rising drug costs. While this helps control costs for the employer, it can lead to higher out-of-pocket expenses for employees, potentially causing them to forgo necessary medications.
3. Employee Health and Productivity: When employees face higher costs for medications, they may be less likely to fill prescriptions or adhere to their treatment plans. This can lead to worsening health conditions, increased absenteeism, and reduced productivity—ultimately impacting the employer’s bottom line.
4. Administrative Challenges: Managing the complexities of prescription benefits can be challenging for HR departments. Rising drug costs may lead to increased time spent on plan adjustments, employee inquiries, and benefits education, straining administrative resources.

Strategies to Manage Prescription Drug Costs in Employer-Sponsored Plans

While the rising cost of prescription drugs presents challenges, there are strategies that employers can implement to manage these expenses and provide relief to employees.

1. Partner with a Pharmacy Benefit Manager (PBM)
   Working with a PBM can help employers negotiate lower drug prices and rebates, manage formularies, and streamline the administration of prescription benefits. PBMs can be valuable allies in helping control costs, but it’s important to work with a PBM that is transparent about pricing and rebates.
2. Implement a Tiered Formulary
   A tiered formulary structures medications into different pricing levels based on factors like brand, generic status, and specialty status. Employees pay more for higher-tier drugs, which encourages them to select lower-cost options when available. This approach can help control costs by steering employees toward more affordable medications.
3. Promote Generic Alternatives
   Encouraging employees to use generic medications whenever possible can lead to substantial savings. Many generic medications are equally effective as their brand-name counterparts but come at a fraction of the cost. Providing education on the safety and efficacy of generics can help employees make cost-effective choices.
4. Offer a Health Savings Account (HSA) or Flexible Spending Account (FSA)
   HSAs and FSAs provide employees with a tax-advantaged way to save for healthcare expenses, including prescription medications. By offering these accounts, employers can help reduce the financial burden of out-of-pocket prescription costs, making it easier for employees to afford necessary medications.
5. Implement a Specialty Drug Management Program
   Specialty drugs account for a significant portion of prescription costs. By implementing a specialty drug management program, employers can help manage these costs by requiring prior authorization, step therapy, or quantity limits on high-cost medications.
6. Educate Employees on Cost-Saving Measures
   Simple cost-saving measures, such as ordering 90-day supplies of maintenance medications or using mail-order pharmacies, can lead to savings for both employees and employers. Educating employees on these options and providing resources on where to find affordable prescriptions can make a meaningful difference.
7. Consider Value-Based Insurance Design (VBID)
   VBID is an approach that reduces or eliminates out-of-pocket costs for high-value medications—those that provide significant health benefits relative to cost. By reducing barriers to these medications, employers can encourage adherence, improve employee health, and reduce the likelihood of costly health complications.

Rising prescription drug prices are a significant challenge for employers and employees alike. Understanding the impact on employer-sponsored health plans is essential for managing costs while maintaining a competitive benefits package. By implementing strategies like working with a PBM, promoting generics, and educating employees on cost-saving options, employers can help mitigate the effects of rising drug costs and support a healthier, more productive workforce.

If you’re looking for expert guidance on managing prescription drug costs within your health plan, Cypress Benefit Solutions is here to help. Contact us today to discuss customized strategies that will keep your plan affordable and beneficial for your entire team.