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Pharmacy plan ‘carve-outs’ help employers control prescription costs

Friday, November 15, 2019

Many employers typically use prescription drugs covered through their insurers. But new options for self-insurance let businesses hire pharmacy benefit managers independently from their insurance carriers to reduce their health benefit costs.

Self-insured plans, where the business assumes more risks in paying employee health care expenses, give employers control over the care they cover and insight into the costs they pay. Pharmacy benefit managers (PBMs) are projected to save employers and consumers as much as 30%, or $654 billion, on drug benefit costs over the next decade, according to the Pharmaceutical Care Management Association.

Control of pharmacy costs is particularly important because more than three-fourths of employers spend 16% or more of their healthcare budgets on pharmacy benefits, according to a prescription drug benefit survey by Buck Consultants at Xerox. Pharmacy benefit managers help employers control their costs by determining the prescriptions that will be covered and negotiating prices with drug manufacturers and distributors.

“Pharmacy is the fastest-growing portion of health care costs, but the rest of the country has purchased pharmaceuticals differently than us because in Minnesota almost all employers purchase pharmacy benefits attached to their medical vendors,” said Erik Hinz, the sales executive in Minneapolis for The Horton Group, an insurance, employee benefits, and risk advisory firm.

“With the new options coming to town, employers can get a more transparent model where the dollars that are coming out of their plan for pharmacy are not hidden as they are today.”

Traditionally, Minnesota businesses have bought fully-insured health plans through Medica, Blue Cross and Blue Shield of Minnesota or HealthPartners. In a fully-insured plan, the employer pays their insurer fixed premiums to pay for all healthcare costs incurred by the company’s employees and their dependents.

With a fully-insured plan, a business must use the prescriptions that their insurance carrier covers, and it must pay the same costs as all employers covered by that plan. The employer cannot see what prescriptions they have paid for either since the insurer controls all claims data.

However, health insurance carriers Aetna and UnitedHealthcare have entered the state, giving employers more choices for health insurance, including opportunities to self-insure by paying healthcare costs directly instead of having the insurer pay.

With self-insurance, Minnesota employers can “carve out” their pharmacy plans by hiring a pharmacy benefit manager separately from their insurance provider, Hinz said. They also can choose the PBM that provides the best costs, coverage, and control based on their company’s specific needs.

The Horton Group has helped individual employers reduce pharmacy costs by millions of dollars annually by choosing the right pharmacy benefit manager. The firm has created a request-for-proposal with more than 200 questions that it will send to more than 30 pharmacy benefit managers on behalf of clients of The Horton Group, said Ken Olson, president of The Horton Group’s employee benefits services division.

“It’s a very dynamic process,” Olson said. “EmpIoyers haven’t seen this deep dive before.”

PBMs can help employers “build their ideal pharmacy benefit plan” in terms of costs like deductibles and copayments as well as in coverage like clinical programs, according to a Truveris blog post on how PBMs work with employers.

“On the back end, employers rely heavily on PBMs to bring them trends and information regarding the performance of their plan and how to make improvements. It’s critical for employers to maintain an ongoing dialogue with their PBMs to ensure that their members are always receiving the best possible care at the lowest possible cost,” Truveris wrote. 

PBMs also help employees with their care, like through educating them on what medications are covered through their health plans and ensuring patient compliance in taking medications as prescribed, according to an article on how PBMs work by The Balance Small Business.

Material posted on this website is for informational purposes only and does not constitute a legal opinion or medical advice. Contact your legal representative or medical professional for information specific to your legal or medical needs.

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