Drug Plan Management – What Employers are Saying

This article was published by www.businesshealth.ca in their November 2013 Vol. 9-5 edition
Have you ever wondered how your drug benefit plan compares to others? Are you an outlier or within the norms? What issues affect your decisions? Surprisingly, no one has asked – until recently, that is. In March 2012, PMG Intelligence, a market research and data intelligence company, conducted telephone interviews with 720 companies across Canada to gain insight to such questions.This research project was undertaken by four pharmaceutical companies (Amgen, Bristol-Myers Squibb, Merck and Novartis) to find out how Canadian employers view drug plan management. The results were so interesting that they’ve decided to share the findings in this feature.Here are some details about the project:

  • Who they asked: The companies interviewed had varied profiles. A majority were privately owned (53%). One third had been in business for 50 years or more but 5% had operated for less than 10 years. Most (35%) had between 50 and 249 employees, although the next largest group by size (20%) had 1,000 or more employees. One percent had fewer than five employees. Two-thirds were non-unionized. They represented a wide and varied cross-section of the economy – one quarter were in the manufacturing sector but the next largest sector, professional/scientific/tech services included only 10% of the companies. Most had offered group benefits insurance to their employees for more than 10 years, with approximately 10% of the sample offering benefits for more than 50 years. One third (34%) said they had “always” offered group benefits to employees.

Here are some findings related to what plan sponsors cover, how they become aware of issues, and what factors influence their benefit decisions:

  • What they cover: The most common drug plan was “prescription” (49%), which covers all drugs that legally require a prescription. The next most common plan was “prescription with exclusions” (23%). Fifteen percent of sponsors reported that their drug plans also include over-the-counter drugs. A small percentage of sponsors offer more restrictive coverage (7% provincial formulary, 3% custom formulary and 2% managed formulary).
  • How they become aware of issues: Fully 45% of the sample said the most common way they become aware of drug plan issues was employee feedback. The next most common way was through regular reviews and reports (28%). Surprisingly, some said they were not made aware of issues (4%), or had not heard of any issues (5%). When asked how knowledgeable they perceived themselves to be about their company’s prescription drug plan, respondents reported a range of knowledge levels, from 31% who said they were “very knowledgeable” and 49% who said they were “somewhat knowledgeable,” to 16% who said they were “not very knowledgeable” and 4% who said they were “not knowledgeable at all.”
  • What factors influence their decisions: Research findings indicate that while cost is often the most important factor in benefits decisions, employee views and the impact of choices on employees and company values play an important role in shaping benefit plans. For example:
    • When asked why they offered a benefit plan, reasons included company values (38%), to ensure employee health and wellness (35%), employee satisfaction (23%) and employee retention (24%).
    • When asked what drives plan design and changes, on a scale from 1 (“not at all important”) to 10 (“very important”), respondents ranked employee satisfaction (8.3) and keeping out-of-pocket costs to plan members/employees (8.2) just slightly behind costs to the organization/employer (8.9).
    • When asked if they ever made exceptions for employees (i.e. had they ever absorbed the cost of a required drug claim not covered under their drug plan), 22% said they had, while 78% said they had not, with larger companies more likely to have absorbed costs. Top three reasons why companies said they had absorbed costs were because they valued the employee and the employee’s seniority (28%), to ensure an employee received treatment (17%) and employee well-being comes first (15%). Company values and a matter of life and death were each cited by 10% of employers. Of the companies that had never made an exception for an employee, 12% stated they would make an exception for a drug claim, 36% said no exceptions would be made, and 52% were either unsure or felt that it would depend on the situation.
  • What changes they have made or plan to make: While many are suggesting that that plan sponsors are making dramatic drug plan design changes, as Figure 1 indicates, almost half of respondents said they had not made changes to their plans:
    • As of March 2012, 19% of plan sponsors had not implemented any changes to their drug plan design. Of those who had made changes: 28% had implemented generic substitution; 23% had implemented therapy class restrictions; 18% had introduced a requirement for pri­or authorization on certain drugs. Other changes included increasing their co-insurance (14%); implementing mandatory generic substitu­tion (13%); placing annual maximums on drugs (12%), putting an­nual maximum on health benefits (11%), and/ or implementing case management (11%).
    • Looking forward to the next three years, plan sponsors reported that if making first-time or additional changes, they were most likely to adopt generic substitution (10%), therapy class restrictions (6%), prior authorization on certain drugs (7%), mandatory generic substitution (11%), flexible benefit plans (16%), and/or increased co-insurance (8%).

Overall, this survey provides a unique perspective on the benefit plans offered by Canadian companies. Results show that prescription drug coverage is not just an expense for a company to manage. Unlike other business expenses, coverage has value as a means to attract, retain and engage a workforce. Evidence shows that when it comes to drug plans, although cost is important, the impact on employees also matters.  Findings also indicate that, even with a wide variety of drug plan options to consider, most plan sponsors are not considering significant drug plan changes in the near and long term.

The sample is representative of the Canadian group benefits market, with a maximum margin of error of ±3.6% (at a 95% confidence interval).

Figure 1: Survey Results – Drivers to Plan Design and Changes

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites JimYih.com and Clearpoint Benefit Solutions.

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