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Something for nothing: many employers and health plans are waiving or reducing copays for drugs and testing devices.

Key Points

* Eliminating or reducing copays on employees' prescription drugs are the latest attempts by employers to curb health-care costs.

* Up to 10% of hospitalizations are linked to patient noncompliance--patients not filling prescriptions or not finishing the entire course of medication.

* While employers may take upfront financial hits when waiving copays, opportunities abound for substantial long-term savings.

Some employers and health plans are putting a kink in the adage:"Nothing in life is free."

In an era of blunt cost shifting and discount arbitrage, many employers already have given employees as much health-care expense burden as possible and are wondering what else can be done.

For employers such as Pitney Bowes, the world's leading mailstream solutions provider, one answer is lowering or waiving employees' copays on prescription drugs.

The company has been offering its 24,000 employees a cost-sharing model for pharmaceuticals since 2002. Not only have more chronically ill employees remained on their prescribed regimens, but productivity has increased while absenteeism and disability claims have decreased. Company costs for the treatment of diabetic workers has dropped 8%, and the cost has declined 16% for asthmatic employees.

Leading the Way

The shift to increased member cost sharing--through larger copays, higher deductibles, for example--has helped some employers rein in rising medical costs. "But there's concern that those designs potentially have created a financial barrier to appropriate care," said Jennifer Boehm, a principal with Hewitt Associates, a global human resources outsourcing and consulting firm.

One obstacle is patients unable to afford prescription drugs. Research shows that fully one-third of patients who receive a prescription do not get it filled. Another third do not finish the prescribed course of medication. Insurers label this phenomenon "patient noncomplianceS' and it results in more than $270 million in hospitalization and other medical costs each year, according to, a medical technology solutions firm.

The city of Asheville, N.C., was looking for ways to reduce financial barriers to medical care for its 4,000 employees, retirees and dependents. "We found copay waivers have several advantages and are an amazing adherence mechanism for people not complying with medication regimens," said John Miall, a consultant to the American Pharmacists Association Foundation and cofounder of the Asheville Project.

Asheville developed an integrated model for care which originated as a 30-hour pharmacy curriculum. "Every time a pharmacist saw a patient, they made a full report to the treating physician," Miall said. "They were looking for triggers, such as abnormal blood sugar levels, high blood pressure, changes in vision and lower limb lesions." In exchange, the city absorbed the cost of participants' labs, pharmacist consultation fees and patient education for the project's 12-month trial.

"But we were also looking for a carrot on the stick to entice employees to regularly meet with pharmacists," he said. The city agreed to waive the copays for employees' diabetes-related prescriptions and supplies for one year.

Not only did the average perpatient/per-year costs for medications and supplies drop from $6,127 to $3,554 in the first year, but the project also improved clinical outcomes. Most impressively, hemoglobin A1C levels for workers with diabetes fell from 7.6 at baseline to 6.20 within 14 months. (An ideal hemoglobin A1C level, which measures a person's average blood sugar control over three months, is 7 or below, according to the American Diabetes Association.)

Wheels in Motion

Marriott International Inc., Eastman Chemical Co. and several other employers followed suit. Two years ago, the state of Maine began a similar program for its employees with diabetes. In 2004, more than 2,000 employees were treated for the chronic disease, to the tune of roughly $20 million in medical and pharmacy costs, said Frank Johnson, executive director of the state's employee health and benefits division.

"One of employees' biggest complaints was that they couldn't take time during or "after work to visit the hospital or participate in a disease management course," said Johnson. The state developed incentives for employees to meet with a nurse educator and participate in telephone education sessions for one year.

In exchange, the state partnered with Anthem Blue Cross and Blue Shield in Maine to waive copays for participants' diabetes prescription drugs and supplies. "That piqued their interest, and nearly 75% of enrollees participated in at least six of 12 sessions, with two-thirds completing the program," said Johnson. Clinical outcomes improved, and nearly all employees received follow-up care during the trial.

"Better quality costs less in the end," said Johnson."If members with chronic diseases get appropriate recommended care, we're going to have a long-term return on investment and improve the health of our members."

Culture of Health

Pitney Bowes took a slightly different approach by lowering copays to help create a "culture of health" for its work force.

"Predictive modeling showed it wasn't so much about having conditions such as diabetes, heart disease, hypertension and asthma that lead to future high costs," said Dr. Brent Pawlecki, corporate medical director. "Instead, it's patients not being on proper therapy or being noncompliant that adds so much expense. We put medications for those conditions on the lowest coinsurance tier to eliminate many of the barriers to receiving proper care."

Pawlecki said the company initially feared pharmacy expenses would be "through the roof," but the overall cost of care actually decreased, in line with fewer emergency room visits and lower fees for hospitalizations and prescription drugs. "Keeping people well in the first place-preventing complications and high costs associated with that--lowers prescription costs in the end," he said. Prescription costs for diabetes medications decreased 7% and for asthma medications, 19%, he said. The average cost of care for employees with diabetes declined 6%, and for employees with asthma, 15%.

"The cost of drugs has a large impact on compliance," said Jeff Holmstrom, medical director for Anthem Blue Cross and Blue Shield in Maine. 1

"After 18 months on a medication, nearly 50% of people with monthly copays of $20 or more no longer take their chronic care medications," he said. "Diabetics may need two to three oval meds, lancets and test strips monthly, which can result in $120 a month in out-of-pocket costs."

Holmstrom believes restructuring copays will cause some realignment in the traditional way insurance is delivered and paid. "Decreasing member copays for drugs will, in the short term, impact pharmacy revenues, but the long-term goal of reducing medical costs will be achieved if members are able to stay on their prescribed medications," he said.

While waiving or lowering copays "can feel like we're giving up hard-fought ground," Boehm said, it's really about maintaining patient accountability.

Often the programs are used as incentives. "Employers may require employees to participate in a disease management program in order to receive richer benefits. In return, employees receive drugs and supplies for free or at a lesser copay," Boehm said. "However, just because we reduce copays doesn't mean we'll ever reach 100% compliance."

Individuals' readiness to follow treatment protocols also are affected by factors such as literacy, cultural issues and language barriers, Boehm added."If employers can eliminate financial barriers to essential care, that's a great way to help employees," she said.

"In many ways, this represents a retreat from the notion that the best way to control health-care costs is to shift costs and risks to consumers," said Dr. Sharon Levine, associate executive director of The Permanente Medical Group of Kaiser Permanente's Northern California region.

Large serf-insured employers were the earliest adopters of waiving or eliminating copays, Levine added. "There are degrees of freedom in that market, in terms of tinkering with benefit design, that are much greater than in the fully insured market, which is greatly impacted and constrained by state regulation."

While Levine noted that restructuring copays won't eliminate chronic diseases, she's hopeful it will postpone or eliminate associated complications and thereby enhance quality of life for those living with chronic conditions.

Horizon Blue Cross Blue Shield of New Jersey is exploring the possibility of working with employers to restructure copays, along with implementing a program for its own work force.

"We're waiving copays today on a drug-specific basis under a pilot program and doing some modeling about introducing an expanded program that we think would be well-received," said Margaret Johnson, executive director of pharmacy for the Blues plan."It's important to alert patients and their physicians about medication adherence--for example, using tools available on our member portal and through e-prescribing technology. If you just address copays without talking about the importance of medication adherence and making sure people really in need of help with their treatment are enrolled in disease management programs, it won't be as effective."

In 2006, Blue Cross and Blue Shield of Minnesota took a different approach with its "free generics" program.

"Copays get in the way of therapy," said Al Heaton, the insurer's pharmacy director. "If someone with heart disease has a heart attack, there's higher risk for recurrence which may result in additional hospitalization and substantial morbidity, some mortality and additional costs. But members may opt not to take drugs because of side effects, denial issues or timing issues."

Less Is More

"What we can control is the economic side of the issue," Heaton said, noting that chronic therapies make up 25% to 35% of a plan's drug spend.

"If we waive copays, there's substantial investment on the pharmacy side," he said. "On the other hand, generics are about 50% of a plan's drug use and only 20% to 30% of the cost. It's the philosophy of 'cover more and pay less'. Free generics are a way to get members on recommended therapy and keep them on it."

Within the first month of the program, generic use among Blue Cross and Blue Shield of Minnesota's self-insured groups climbed to 63%, and it has remained at about 75% ever since.

Aetna plans to launch a three-year randomized trial to study the potential benefits of removing cost sharing for members who are at risk of a second heart attack. According to company spokeswoman Jill Griffiths, the company will waive copays for four of the five essential classes of drugs that heart-attack patients are prescribed, to see if taking these medications leads to lower health-care costs.

The Ultimate Answer?

Are free copay programs the solution to controlling escalating healthcare costs?

"Done right, the long-term effects will be incredible in lowering the cost of health care and improving the health of employees," said Sharon Alt, CEO of Alt Benefits Consultants. "Employers tend to forget increased absenteeism and presenteeism, negative attitudes and increased disability claims often go along with chronic illnesses."

But she questions how much employees am going to expect from employers.

"HMOs began an era of employees expecting employers to take care of them," Alt said. "Now with consumer-directed health care, employers are starting to pull back. They feel employees abused access to the health-care system, because while being isolated by copays they were also unengaged and uneducated about costs.

"As more of that responsibility is shifted onto employees, if they're not taking their medications, it becomes a much higher expense on the back end. An emergency room visit or heart attack may be prevented with a $25-copay drug," she said.

"The biggest part of overall healthcare costs is for chronic illnesses," Alt said. "But education and wellness have to go hand-in-hand. You have to get to diabetes and heart disease before they become diabetes and heart disease."

Also at issue is whether waived copays will lead employees to opt for more expensive brand-name drugs over generics, and how best to protect patient privacy. Employee data generally is handled by third parties, and at least one company scans drug purchases, refills and other medical claims to find candidates for free drug programs.

RELATED ARTICLE: Value-Based Insurance Design.

A growing number of employers are turning to value-based insurance designs to support and influence positive patient behaviors.

Traditional designs center on one-size-fits-all cost sharing that's set on price, not value, said Jennifer Boehm, a principal with Hewitt Associates. "But value is derived from evidence-based guidelines and can also incorporate specific patient data," she said."The principle behind the value-based model is that lowering member cost-sharing may increase use of high-value services and lead to better health outcomes."

Dr. A. Mark Fendrick, a professor of internal medicine and health management and policy at the University of Michigan Health System, was an originator of the design that offers a potential solution to the health-care financing crisis. He explained that benefit packages adjust out-of-pocket costs based on an assessment of the clinical benefit to a specific patient population. "The more clinically beneficial the therapy, the lower the patient's cost share would be," he said.

ActiveHealth Management, a branded, stand-alone business unit of Aetna, has a targeted approach to value-based insurance design. "When we suggest patient therapies to physicians, often they say patients aren't compliant or can't afford meds because of excessive copays," said Dr. Lonny Reisman, chief executive. "If we can identify at the individual patient level that a particular service or drug is imperative, why not discount them or give them for free? The purpose of plan designs and copays was never to limit access to necessary therapies. People often can't make the distinction between essential and nonessential care, so they cut back on everything. We're in a unique position to tell someone at the individual level what aspects of care are imperative, neutral or dangerous.

"When people are asked to pay less, they stick to it," he added. "The question is whether that increased compliance ends up costing payers more or gets offset by reductions in other costs, like hospitalizations and loss of productivity. The bad news is that they may initially be spending more on drugs, but the good news is it will save a lot more in terms of eliminated hospitalizations."

Fendrick believes the future of value-based insurance design isn't just lower copays on services, "but rather identifying clinical conditions and lowering services in those areas."

Learn More

Aetna Health and Life Insurance Co. A.M. Best Company # 08189 Distribution: Brokers, consultants, retail network (pharmacy products)

Anthem Health Plans of Maine Inc. A.M. Best Company # 64391 Distribution: Exclusive agents

Blue Cross and Blue Shield of Minnesota A.M. Best Company # 60077 Distribution: Internal agents, independent agents, direct

Horizon Healthcare Services Inc. A.M. Best Company # 64022 Distribution: Brokers, benefit consultants, direct

Kaiser Foundation Health Plan Inc. A.M. Best Company # 64585 Distribution: National consulting houses, regional brokers and brokerage firms, membership exchanges, direct

For ratings and other financial strength information about these companies, visit
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Title Annotation:Health/Employee Benefits: Reduced Copays
Author:Chordas, Lori
Publication:Best's Review
Date:Aug 1, 2007
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