Donald Trump tried to do it, and Joe Biden is trying now, too. Polls show the vast majority of Americans like the idea a lot. Yet Congress has repeatedly failed to do anything to help lower drug prices in the U.S., leaving employers, their employees and everyone else to pay the ever-rising costs of medications, especially the priciest, specialty prescriptions.
Pharmacy benefits typically represent 20% or more of an employer’s total health care benefit plan costs. U.S. spending on prescription drugs has increased 54 percent since 2005. It’s expected that the cost of biotech/specialty drugs (already at 50% or more of pharmacy plan costs) will only increase as the FDA approves more specialty drugs and makes them available to more people to treat a greater number of disorders and diseases.
No one expects any kind of reversal of this trend.
For business owners weary of waiting for our elected officials to get their act together, there may be a better way to contain costs:
A specialty drug “carve-out,” in which the employer unbundles their prescription drug coverage from their medical plan and shifts administration of the drug benefit to a third party known as a Pharmacy Benefits Manager, or PBM.
Under these arrangements, rather than leaving control in the hands of a single insurance provider, employers can carve out benefits that focus on a specific disease such as diabetes or cancer, as well as pharmacy benefits.
PBMs typically have discounts in place with a network of pharmacies, will adjudicate claims in real-time, and will provide customer service support.
As in most things in life, there are pros and cons. Let’s start with three leading arguments in favor of carve-outs.
- With the right PBM in their corner, employers finally get to see claims data and contract terms that can help them ensure they’re getting the best volume discounts, rebates and administrative fees.
- Employers taking the carve-out route can customize their pharmacy benefits to include – or exclude – programs and services most important to their enrollees.
- PBMs keep close track of new drugs entering the market, data on chronic diseases, utilization and costs. All of that helps improve patient outcomes.
Carve-in proponents counter by saying there’s a better opportunity to streamline and coordinate medical and pharmacy services with their model. They also like to promote the idea that a carve-in reduces employers’ administrative burden by engaging with fewer vendors.
To be clear, carve-outs may not be for everyone. But larger employers, those that tend to be self-insured, have found a lot to like about carve-outs, especially on those points related to cost transparency and drug price discounts.
If you’re considering going this route, know that a national study by Buck Consultants found that prescription programs administered on a stand-alone basis by PBMs delivered better financial results than did those administered by carriers alone, or even carriers in tandem with a PBM.
There are few important questions you’ll want to ask if you’re thinking about carve-outs, including:
- How much are your pharmacy benefits costing your company today?
- Does your prescription drug plan support the needs of your employee population?
- Is your plan cost-effective without sacrificing quality of care and access to necessary medications?
- Is your health plan passing through the rebates it gets to you?
There’s more to consider, of course, including carrier premium credits, stop-loss premiums and expected claims. Waiting for lawmakers to act hasn’t done much for any of us. We’re ready to help if you’d like to explore all sides of the carve-out option together. Just reach out to us.
The Mahoney Group is one of the largest independent commercial insurance and employee benefits brokerages in the U.S. For more information, contact us online or call 877-440-3304.
This article is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel or an insurance professional for appropriate advice.