September 21, 2004 (The Editor’s Desk is updated each business day.)

Cost-saving incentives in prescription-drug coverage

Although prescription-drug coverage remains an integral part of employee health care plans, employers have implemented a variety of methods to stem the rising costs of providing such coverage.

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A few plans offer prescription-drug cards, which require a monthly fee and allow the card holder discounts on prescription drugs. Prescription cards were offered to 9 percent of employees with prescription drug coverage.

Somewhat more common are plans employing a cost structure known as a "tiered system." Such a system features a formulary, which is a list of drugs that are covered at the highest level; medications not on the formulary usually require a higher copayment by the enrollee. Such a feature was offered to 27 percent of employees with prescription drug coverage.

Many plans cover mail-order drugs more generously than those purchased in a local pharmacy. The plan provider contracts with a pharmacy to purchase large quantities of commonly prescribed drugs at discount prices. In turn, patients are given the incentive of higher coverage for purchasing through their mail-order service. In 2003, mail-order drugs were offered to 70 percent of employees with prescription-drug coverage. 

Generic drugs tend to be priced lower than their brand-name counterparts. When enrollees choose a generic over a brand-name drug to fill a prescription, the plan sponsor accrues substantial savings; therefore, many plans offer more generous coverage for generic substitutes. The percentage of employees in plans that offer this type of cost saving incentive has increased markedly over the past decade, to 83 percent in 2003.

These data on prescription drugs benefits are from the BLS National Compensation Survey - Benefits program. To learn more about prescription-drug and employee health care plans, see "Trends in employer-provided prescription-drug coverage," by Elizabeth Dietz in the Monthly Labor Review, August 2004.