Authors: Chuck Reynolds and Laura Rudder, The Benfield Group; Kimberly Westrich, National Pharmaceutical Council
Publication: September 2014
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On behalf of the National Pharmaceutical Council, The Benfield Group conducted a multi-phase research project investigating pharmacy benefit designs attached to consumer-directed health plans (CDHPs). The research was intended to identify the current landscape and best practice approaches for CDHPs and pharmacy benefits, as well as understand the health and economic impact of best practice models and evidence about higher value approaches to CDHP pharmacy benefit design.
CDHPs are high-deductible plans offered in combination with an account that enrollees can access to offset the deductible expense. Premiums are generally lower than in traditional plans because enrollees must meet the higher deductibles before traditional medical and pharmacy coverage begins. There are two main types of CDHPs:
- Health savings accounts (HSAs) are the predominant type of CDHP. Some employers and benefits advisors consider HSAs to be more advantageous to employees, who can deposit part of their pre-tax income and have ownership of the account, which they can use for medical, long term care and/or retirement expenses.
- Health reimbursement accounts (HRAs), in which employees are reimbursed for medical services not covered under a health plan, are preferred by employers that like the HRAs’ flexibility and ability to recoup money when employees leave the company.
This research revealed that a standard CDHP model has emerged that employee benefits consultants (EBCs) routinely recommend and employers typically follow. Although employers’ strategies range in sophistication, most strategies include at least the following elements:
- Communicate in advance of roll-out to prepare employees and educate them about what to expect and how CDHPs are different than what they’re used to;
- Make a contribution to employees’ HSA or HRA accounts;
- Cover preventive care (at least their interpretation of what is required by law);
- Promote wellness and provide educational tools to help employees navigate health care choices; and
- Monitor outcomes and make adjustments.
Though employers generally follow this standard model, diversity exists in CDHPs. Plans vary according to deductible levels, account contributions, coverage of prescription drugs, the level of wellness, decision support and financial literacy programs offered, and the integration of program offerings with plan design (eg, incentives).
For employees who are low income or who have high health care needs, however, these types of plans can impose a bigger burden of out-of-pocket costs, potentially causing these employees to reduce their compliance with necessary treatments or avoid care altogether.
CDHP “Better Practices”
Some employers are establishing “better practices” in overall CDHP plan design and in their approach prescription benefits. Some of the innovations are designed to have broad impact, providing support and aligning incentives across the workforce to improve health and health care decision-making. Other innovations are targeted at mitigating the harmful impacts of blunt CDHP and prescription benefit plan design on high health care need/low-income employees.
Key differentiating “better practices” include:
- Use of integrated health and productivity data in plan design and performance measurement;
- Lower net deductibles (deductible minus company HSA or HRA account contributions);
- Varying contributions based on income (to protect low-income workers) or linking to incentives for wellness or consumer behaviors;
- Implementation of value-based approach to prescription drug coverage in HRA-based plans; and
- Implementation of broad list of preventive drugs, combined with a value-based approach in HSAs.
As part of this project, Benfield conducted a survey of 96 large employers (1,000 to 4,999 employees) and jumbo employers (5,000+ employees) in the fall of 2013. They also conducted 25 interviews with employers (13), employee benefits consultants (5), subject matter experts (4) and health plans (3) in the winter of 2013-2014.