Generally, healthcare is an organization’s second or third largest line-item expense. We have all seen a variety of annual plans renew, only to increase year-over-year.(1) It is generally perceived to be one of those costs that cannot be mitigated on a company level, short of cutting coverage, rising premiums, or switching plans. Risk management is one way of dropping this cost to a lower ranking and easing burdens company-wide.
One route to performing risk management is by examining incentives. For example, plans should only be working with Pharmacy Benefits Managers (PBMs) whose business models are transparent and whose interests align with your plans.
By no means atypical, a very graphic case is seen by investigating medication costs for a patient with prostate cancer. When prescribed the medication Zytiga (Abiraterone acetate) (2), produced by Johnson & Johnson (J&J) at their manufacturing facility in Puerto Rico, the patient is presented with a counterintuitive choice. Should he pay ten dollars a month for the generic or utilize a manufacturer’s coupon covering the employee’s copay and receiving the branded version for “free”? However, J&J manufactures the generic version is at the very same plant too. Of course, the inducement here is for the employee to take the free version.
Acomparison of Zytiga and the generic equivalent
Unbeknownst to him, the employer incurs a $10,800.00 per month cost with the brand name, compared against the expense of $250.00 per month for the generic! That is a difference to the employer of $10,550.00 per month or $126,600.00 per year. Guess whose rates will increase next year? Talk about a misaligned incentive! Additionally, the PBM that has their income tied to the amount spent on medications – as opposed to one that is motivated by how much they save the company and employee – is crucial in this case. Another alternative is simply eliminating the PBR entirely and using a national nurse team, suggesting best provider options beyond just medication alternatives. The financial motive to have patients or employers spend more on medications is thus removed since there isn’t that incentive with the nurse team.
This illustration is just one way that insured individuals, employers, and employees can utilize risk management strategies. CIPKY does this every day for its clients, to move beyond the current “renew, raise, repeat” cycle that most organizations find themselves in each year and reducing those costs down to a lower ranking on their ledger.
Notes
“Annual premiums for employer-sponsored family health coverage reached $21,342.00 in 2020, up 4% from 2019, with workers on average paying $5,588.00 toward the cost of their coverage. The average deductible among covered workers in a plan with a general annual deductible was $1,644.00 for single coverage. Fifty-five percent of small firms and 99% of large firms offer health benefits to at least some of their workers, with an overall offer rate of 56%,” according to the KFF (Kaiser Family Foundation, a nonprofit organization focusing on national health issues.(1)
References
https://www.kff.org/health-costs/report/2020-employer-health-benefits-survey/ The PDF is available here for download: https://files.kff.org/attachment/Report-Employer-Health-Benefits-2020-Annual-Survey.pdf