Prescription Drug Costs: Who Actually Covers Them?

We all know what it's like to stand in line at the pharmacy waiting to pick up a prescription. Many of us also know what it's like to face sticker shock. You expect to pay less than $15 for a new prescription only to find out you're going to pay a lot more. This begs the question of who actually covers prescription drug costs?

With prescription drug prices seemingly on the rise, there's genuine concern that Americans may not be able to afford their prescriptions in the future. Such fears lead to all sorts of discussions about who should actually pay for prescription drugs. Should it be the employer's responsibility? Should employers and employees share the cost? Should government just handle it all?

 

Employer-Sponsored Health Plans

A good place to start is by looking at employer-sponsored health plans. Thanks to passage and implementation of the Affordable Care Act, a larger number of U.S. employers meeting eligibility requirements have no other choice but to offer their workers a qualified healthcare plan. According to the Kaiser Family Foundation, about half of the non-elderly population in the U.S. was covered by an employer-sponsored plan in October 2018.

The remaining half address health insurance in one of the following ways:

  • They buy individual coverage on a healthcare exchange
  • They buy individual coverage from a private insurer
  • They go without health insurance.

Those who purchase insurance through an exchange or private insurer must address their prescription costs through those insurance plans. Some private insurance plans cover prescription drug costs, others do not. It's a matter of shopping around.

 

Covering Prescription Drug Costs

The Kaiser Family Foundation also says that nearly all (more than 99%) employees with employer-sponsored health plans also enjoy some measure of drug coverage. Yet not all prescription drug plans are created equally. Some cover more than others.

Some 92% of covered employees have a prescription drug plan that involves tiered cost-sharing. Under this model, drugs are classified as generic, preferred, and non-preferred, etc. Generic drugs are almost always the cheapest. Employers tend to cover a portion of the cost for each tier. Employees make up the difference.

In addition, 88% of covered employees participate in a tiered prescription drug program with at least four tiers. Those extra tiers account for specialty drugs which, on average, are the most expensive among all prescription medications.

 

Increasing Employee Costs

Unfortunately, even though employer-sponsored health plans still cover the lion's share of prescription drug costs, employer shares are rising. The other side of that coin is that the total dollar amount being spent on prescription drugs by employees is gradually declining.

Kaiser Family Foundation data shows that out-of-pocket spending on prescription drugs fell from $170 annually in 2009 to $136 in 2016. Those numbers apply to employees with employer-sponsored health plans. When adjusted for inflation, the total out-of-pocket spend for said employees fell 28% between 2004 and 2016.

Data shows that about 3% of those with employer-sponsored health plans still spend in excess of $1,000 annually on prescription medications. This is most likely due to the use of specialty medications and maintenance prescriptions, as opposed to single prescriptions for limited use.

Analyzing the data shows a mixed bag when it comes to prescription drug costs. Employers with qualifying health plans under the ACA still shoulder the largest burden for the cost of prescription drugs. But they are gradually shifting more of that burden to employees, especially as the costs of brand name and specialty drugs continues to rise. How it will play out for the future is anyone's guess.

 

Sources:

  1. Kaiser Family Foundation – https://www.kff.org/report-section/2018-employer-health-benefits-survey-...
  2. Health System Tracker – https://www.healthsystemtracker.org/chart-collection/recent-trends-chara...