Benefit structure and formulary design characteristics are important for individuals with high out-of-pocket costs in federally facilitated Health Insurance Exchanges.
Objectives: To assess the generosity of drug coverage in federally facilitated Health Insurance Exchanges (HIEs).
Study Design: We linked publicly available benefit design data from 36 federally facilitated HIEs with drug formulary data for 10 therapeutic categories from Managed Markets Insight & Technology. We used health plans as our unit of analysis.
Methods: We created a generosity index reflecting the ratio of patients’ out-of-pocket payments to the total drug price (higher values indicate less generous coverage). Because patients’ total out-of-pocket spending changes throughout the year due to deductibles and out-of-pocket maximums, we also examined generosity by varying levels of annual drug spending.
Results: Platinum plans covered nearly 90% of drugs that we studied, while bronze, silver, and gold plans covered approximately 80%; results by therapeutic category were similar. Nine in 10 plans used 4- to 6-tier drug formularies, and approximately 24% of branded drugs were associated with some type of utilization management. Bronze plans were less generous than other metal levels, requiring consumers to pay about 94% of the total pharmaceutical costs prior to the deductible being met, while platinum plans required consumers to pay about 43% of such costs. As consumers’ out-of-pocket spending increased throughout the year, differences in generosity across plans narrowed.
Conclusions: Benefit structure and formulary design contribute to significant variation in prescription drug coverage generosity within HIEs. These characteristics of health plans are important for individuals with high out-of-pocket costs.
Am J Pharm Benefits. 2016;8(6):-0
The Affordable Care Act (ACA) facilitates the expansion of insurance coverage for the under- and uninsured through Health Insurance Exchanges (HIEs), which, as of March 2016, provide coverage to 12.7 million Americans.1 Such coverage includes prescription drugs, outpatient and inpatient services, lab work, and mental health and substance abuse services.
Many studies have examined the role of plan design on prescription drug use. In 1 systematic review of the evidence, Goldman and colleagues found that patients had worse adherence and higher discontinuation rates in plans with higher cost sharing or other formulary restrictions such as prior authorization.2
An earlier study from Goldman and colleagues found that plans with more formulary tiers and plans that use coinsurance were less generous than plans limited to co-payments and/or fewer drug tiers.3 Medicare Part D has offered another opportunity to examine the structure and impact of prescription drug coverage,4 with 1 analysis of Medicare Part D formularies reporting wide variation in cost-sharing amounts and availability of drugs.5
We and others have previously characterized the benefit structure of federal and partnership exchanges, which account for two-thirds of exchange enrollees.6,7 On average, exchange plans have lower premiums than employer-sponsored insurance plans, but higher deductibles and cost sharing for prescription drugs. We also identified extensive variation across drug cost-sharing structures, even for plans in the same generosity class, or “metal.”
Despite the insights from these studies, they omit important information from drug formularies, which affect plan generosity through the assignment of drugs to cost-sharing tiers, utilization management tools, and coverage exclusions.
We linked benefit design data with information on prescription drug formularies to examine the generosity of drug coverage in 36 HIEs. We analyzed plan generosity based on coverage of specific products within a therapeutic class and examined how the share of costs paid by the consumer varied by metal and by patients’ previous out-of-pocket drug spending.
We used benefit design data on Qualified Health Plans for 2014 available from data.healthcare.gov, which covers 34 federally facilitated exchanges and Idaho and New Mexico. The exchanges use metals to categorize plans into varying degrees of overall generosity based on the actuarial value (the ratio of expected payments by the insurer to expected costs for the enrollee): bronze (actuarial value 60%), silver (70%), gold (80%), and platinum (90%). As a result of providing more generous benefits, platinum premiums are typically highest; those for bronze are lowest.
Health insurers place drugs on formularies after a combination of clinical review, considerations of the cost of the drug, and negotiations with drug companies.8 For HIE plans, federal Essential Health Benefit regulations also mandate a minimum level of coverage in each drug class, which are nested within drug categories. We used a snapshot of formulary data for November 2014 from Managed Markets Insight and Technology (MMIT).9
These data provide additional detail regarding the benefit structure, tier assignment for each drug and formulation dose, and the presence and type of utilization management for each drug, such as the use of prior authorization or step-therapy. For analytic purposes, we weighted drugs so that the contributions of drugs with multiple formulations and doses were equal to those of drugs with only 1 combination of formulation and dose.
Our data include formulary placement for 440 drugs in more than 1500 different formularies, which represent 2577 plans in 36 states. Our data include drugs in 10 US Pharmacopeia categories that are either high-volume or high-cost. We excluded drugs usually covered under the medical benefit of 1 or more plans since these drugs are not subject to the cost sharing of the outpatient pharmacy benefit. The Essential Health Benefit coverage requirements for the drug classes included in our selected drug categories vary widely, hence plans have considerable flexibility in designing their formularies.10
Assignment of Cost Sharing to Tiers
We assigned drugs to benefit tiers in the exchange data based on the MMIT-defined tier assignment and benefit descriptions in the plan data. We verified tier assignments by comparing the number of unique cost-sharing tiers in the plan data with the number of benefit tiers indicated in the MMIT data, correctly identifying more than 98% of plans.
Finally, we assigned each drug in each plan the co-payment or coinsurance rules based on the plan data. To convert coinsurance rates into out-of-pocket costs, we collected price data on common drug formulations for 252 drugs from drugs.com.11
We were less likely to find drug prices for antineoplastic agents and non—rheumatoid-(RA) immunological agents, which are more likely to be administered in a physician’s office, and more likely to find drug prices for RA drugs, central nervous system agents, and anti-depressants. Our full list of 440 drugs can be found in the eAppendix Table (eAppendices available at www.ajpb.com), which also includes assumed prices and packaging for the 252 drugs for which we have price data.
We used the formulary data for 2 different analyses. First, using the full list of 440 products for which we had formulary information, we descriptively compared the generosity of different plans by calculating mean deductibles and out-of-pocket maximums for each metal. We also classified plans according to their formulary design since the number of tiers in a formulary may affect the likelihood of covering a given drug.
To descriptively compare the generosity of different plans, we counted the number of unique covered products by the plans and share of the drugs covered in the lowest and highest tiers in each of 10 therapeutic classes. In these analyses, we used all of the 440 drugs for which we had formulary data. We also counted the share of branded drugs that had some form of utilization management and by type, which may substitute for placement in a higher tier.
Second, using the 252 products for which we had price data, we considered variation in the out-of-pocket cost at the start of the plan year in each metal using a generosity index. Generosity indices are generally calculated as the total payment from the consumer divided by the price of the drug, to give an indication of a consumer’s out-of-pocket costs, therefore higher numbers correspond to less generous coverage.3
Consumers can pay varying amounts for the same drug because the out-of-pocket payment depends on the drug’s formulary tier, and whether the plan uses coinsurance or co-payments for the given drug. Generosity indices allow one to capture both effects in a single measure.
Calculating out-of-pocket cost is straightforward for both covered and uncovered drugs in plans without deductibles—it is the lesser of the co-payment (or coinsurance rate multiplied by the list price) or the out-of-pocket maximum for covered drugs and the list price for uncovered drugs. However, adjustments in out-of-pocket costs had to be made in the presence of deductibles.
When cost sharing only takes effect after the deductible, we accounted for the full deductible amount in the out-of-pocket calculation. We also tracked if the list price of a drug exceeded the deductible, in which case we defined the out-of-pocket price as the deductible plus the amount the consumer would owe above the deductible, based on a hypothetical list price that had been reduced by the amount of the deductible. The eAppendix describes this process in more detail.
Despite the insights gained from the second analysis, examining the generosity of a plan using the initial price at the start of the year does not accurately reflect the experience of patients, since a consumer’s price can vary as they spend through their drug deductible and reach their out-of-pocket maximum. Once these thresholds are crossed, each drug purchase on average becomes cheaper as the plan is now paying a portion or the full cost of each prescription.
Therefore, we extended our analysis of the generosity index based on initial prices to calculating the mean generosity index for all plans by metal at different levels of previous consumer spending, ranging from $0 to $6500 (just over the maximum allowable out-of-pocket maximum for exchange plans of $6350). Estimates of formulary generosity above the allowed out-of-pocket maximum reflect zero cost sharing for the share of drugs that are on the formulary, while drugs that are not on the formulary remain full price.
Number and Characteristics of Exchange Plans
Table 1 provides examples of product placement and coverage across metals. There is significant variation in out-of-pocket spending for some products; for example, the annual out-of-pocket cost of tiotropium bromide (Spiriva) can range from $580 in a platinum plan to $3297 in a bronze plan after accounting for plan features such as deductibles, co-payments, and out-of-pocket maximums.
Table 2 depicts the number and characteristics of the 2577 plans in our data by metal. Plans varied in their use of a combined deductible that includes medical and drug costs or separate medical and drug deductibles (any of which may be zero). Table 2 also indicates that plans in higher metals, such as platinum and gold plans, provide more generous insurance coverage, measured by drug, medical, and combined deductibles, and the drug out-of-pocket maximum.
For example, only 20% of platinum plans use a combined deductible compared with 89% of bronze plans, while the remaining plans use separate medical and drug deductibles. Average combined deductibles and drug out-of-pocket maximums range from $262 and $1711 for platinum to $5131 and $6281 for bronze plans, respectively. There is little variation in the number of tiers across metals: most plans (57%) use 4 prescription drug tiers and approximately 35% of plans use 5 or 6 formulary tiers.
Generosity of Drug Coverage
Number of Drugs Covered
Figure 1 and Table 2 characterize the generosity of the plans with respect to the 440 drugs for which we had formulary data (Figure 1 lists 452 drug-by-therapeutic-category combinations because some drugs are assigned to multiple categories). There could be 2 sources of variability here: 1) insurance carriers may use different formularies for different metals, or 2) carriers may use the same formulary across metals, but do not offer plans in all tiers. To participate in the exchanges, carriers had to offer at least 1 silver and 1 gold plan.
Overall, the plans covered 78% of the drugs in our sample. Bronze plans covered 77% of the drugs, while platinum plans covered 88%. Figure 1 shows that there is also variation in the coverage within a metal: platinum plans cover more drugs than the other tiers, but the levels vary by therapeutic area. For example, most plans are less likely to cover “other immunologics” compared with other categories (“other immunologics” principally consists of vaccines).
Table 2 (third panel, second and third rows) demonstrates the variability in the fraction of drugs assigned to both the lowest and highest tiers in a plan’s formulary. While platinum plans cover more drugs overall, those plans are less likely to place a drug in the lowest tier (24% vs 27% in the silver plans) and place more drugs on the highest tier (17% vs 15%). However, even if platinum plans place more drugs on nominally higher tiers than do plans in lower metals, these drugs may be cheaper for consumers because platinum plans have lower cost sharing overall—hence the importance of generosity indices.
Table 2 (fourth panel) illustrates that there is significant variation in utilization management across the metals for branded drugs. For example, on average, about 44% of branded drugs have some sort of utilization management, but that figure is only 38% in platinum plans. Twenty-one percent of the covered, branded drugs have a prior authorization requirement, and this requirement is more common in bronze plans than in other plans. Ten percent of drugs require step therapy.
Initial Generosity Index
Our findings show that enrollees in all insurance plans are responsible for the majority of drug costs, at least initially (Table 2). Bronze plan beneficiaries have the highest generosity index—0.94—which means consumers pay 94% of drug costs, whereas silver and platinum plan beneficiaries pay 73% and 43% of drug costs, respectively.
Impact of Prior Out-of-Pocket Spending
Figure 2 documents changes in the generosity index as individuals spend more on prescription drugs due to the nonlinear benefit structure, particularly the prevalence of high deductibles and limits on out-of-pocket spending. Thus, there is a downward trend in the index as previous spending increases.
At low levels of spending, there are large differences in costs between metals, which narrow with increasing out-of-pocket spending on prescription drugs. After spending more than $6350 out-of-pocket, the average consumer is paying less than 30% of the cost of prescription drugs, all of which is for off-formulary drugs. Platinum plans continue to be more generous due to their broader formularies, even above the maximum allowed limit on out-of-pocket costs ($6350).
We used plan benefit structure and formulary data to examine the generosity of prescription drug coverage offered on federal HIEs. Overall, platinum plans covered approximately 90% of products examined, whereas plans within the remaining metals covered approximately 80% of drugs within our sample; these differences reflect a combination of some carriers not offering plans in all metals as well as some carriers having different formularies for each metal.
This high level of overall coverage masked important variation in costs due to differences in benefit design and formulary structure. The initial generosity index shows that bronze plan beneficiaries pay 94% of cost of drugs, versus 43% for platinum plan beneficiaries. These findings are important because little is known about the generosity of the HIE plans, yet more than 12 million individuals have enrolled in the exchanges as of March 2016.
We used a generosity index to characterize each plan, which takes into account a number of factors that act together to determine patients’ out-of-pocket cost burden. For any given drug, these factors include formulary assignment, benefit design, and whether the person is close to their out-of-pocket maximum.
As with prior work that focused on benefit design alone, we found that coverage is more generous in the higher metals, whether measured by the fraction of drugs that are on the formulary, the drug deductible, the drug out-of-pocket maximum, or the share of costs the consumer pays out-of-pocket.7
Patients will spend at different rates throughout the year, depending on their healthcare needs, position along the benefit structure, and price sensitivity. With greater out-of-pocket spending, the difference in generosity across plans in different metals narrows, but only to a point, as we see in Figure 2, reflecting the broader formularies of platinum plans and their lower out-of-pocket maximums, relative to bronze, silver, and gold plans. However, the more generous coverage comes at a price, with platinum plan premiums being more expensive than lower metal plans.
The impact of some features of the HIE plans is unclear given their novelty. For example, although many studies have examined the effect of tiered formulary designs on prescription drug utilization and expenditures using shifts from 2- to 3-tier formularies, the exchange plans have as many as 6 formulary tiers, increasing the cognitive burden on consumers and prescribers to choose wisely among various products.
In addition, many exchange plans use either drug or combined drug and medical deductibles, which are uncommon in the employer-sponsored setting.12 The effect of these deductibles will also differ from those in most employer-sponsored plans if the deductible must be met before the plan provides any reduction in the out-of-pocket cost of drugs.
Utilization management procedures and high cost sharing may discourage patients from filling needed prescriptions, which may adversely affect health. Future work evaluating HIE plans should carefully consider how the design of the drug benefit affects patient adherence with treatment.
The complex design of HIE benefits may adversely affect the welfare of patients since it may be more difficult for individuals to identify plans that best meet their needs. In many settings, choosing the “best” insurance plan is a difficult task. Evidence suggests that consumers do not understand health insurance terminology very well,13 and they may not select pharmacy benefit plans that are optimal for their prescription drug needs.14,15
Over time, consumers may get better at choosing insurance plans, as happened in the Medicare Part D market,16 although these learning effects may be offset by consumer inertia, inattention, and switching costs.17 Early reports on the exchanges show that about 29 percent of individuals switched plans, but no data yet exist on what these individuals are switching between.1
In addition, the out-of-pocket maximum, by limiting out-of-pocket risk for covered services, suggests that for sufficiently ill individuals, differences in cost sharing among different plans may be less important than differences in formularies between plans. The role of financial risk protection and breadth of services may allow for plans that are adversely selected on some margins, but are advantageously selected on other margins (eg, individuals who expect to use certain high-cost drugs may be cheaper to insure for other services).
Some consumers may choose plans based on the breadth of the formulary and tier assignment, which varies significantly across plans, while others may focus on more narrow financial characteristics. The possibility of multiple dimensions of selection raises important questions about the design and performance of the risk adjustment mechanisms that have been put in place to curb adverse selection. Policy makers should ensure the risk adjustment systems are working effectively as more consumers enter the exchanges.18
Our report has several limitations. First, we do not have data on the actual prices paid by patients and payers; if the actual prices used to calculate coinsurance differ substantially from our estimated prices, and utilization is correlated with drug prices, then average plan generosity may vary from our estimates.19 Our use of pricing data from drugs.com does, however, reflect actual retail transaction prices, while other commonly used measures, such as the Wholesale Acquisition Cost or Average Wholesale Price, reflect transactions between manufacturers and wholesalers.
Second, some drugs considered “not on formulary” may actually be on the medical benefit. This is a particular concern for the cancer drugs, which are often part of the medical rather than pharmacy benefit. Third, we limited our analyses to the federal HIEs, and our data did not allow us to compare the structure and generosity of the plans we examine with those of the commercially insured.
Fourth, our analyses do not include consideration of patients’ other medical utilization, which will affect when a person reaches their deductible, since most of the exchange plans have combined medical and drug deductibles. Fifth, our analyses regarding plan benefit structure were based upon a single source, and alternative sources of such information may yield different findings.
Finally, we made no attempt to model the effects of utilization management or cost sharing; these may affect the accessibility of medications to consumers, and would bias our estimates of plan generosity if some plans have more stringent utilization management requirements, and if the unobserved stringency of the utilization management requirement is correlated with metal.
The design of prescription drug formularies is an important component of insurance coverage, and accounting for design differences is important in determining the generosity of insurance plans. These characteristics of health plans are especially important for individuals burdened by high out-of-pocket costs. Further work is needed to evaluate how the coverage generosity that we describe is associated with healthcare utilization and health outcomes for individuals gaining coverage through the ACA’s federal HIEs.
Author Affiliations: Department of Economics, University of North Carolina at Greensboro (MSA); RAND Corporation (CB), Arlington, VA; Center for Drug Safety and Effectiveness, Johns Hopkins University (GCA), Baltimore, MD; Department of Epidemiology, Johns Hopkins Bloomberg School of Public Health (GCA), Baltimore, MD; Division of General Internal Medicine, Department of Medicine, Johns Hopkins Medicine (GCA), Baltimore, MD.
Source of Funding: The Pharmaceutical Researchers and Manufacturers Association provided funding for this study. The funding source contributed to the analysis and interpretation of the study but had no role otherwise in its design, conduct, or final approval of the manuscript prior to publication.
Author Disclosures: The authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.
Author Disclosures: Dr Alexander is Chair of the FDA’s Peripheral and Central Nervous System Advisory Committee, serves as a paid consultant to IMS Health, and serves on an IMS Health scientific advisory board. This arrangement has been reviewed and approved by Johns Hopkins University in accordance with its conflict of interest policies.
Authorship Information: Concept and design (MSA, CB, GSA); acquisition of data (GCA); analysis and interpretation of data (MSA, CB, GCA); drafting of the manuscript (MSA); critical revision of the manuscript for important intellectual content (CB, GCA); statistical analysis (MSA); and obtaining funding (GCA).
Address Correspondence to: Martin S. Andersen, PhD, University of North Carolina at Greensboro, Department of Economics, 516 Stirling Street, Room 488 Greensboro, NC 27403. E-mail: email@example.com.
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