The End of One-Size-Fits-All Co-Pays

In an era when health care is increasingly being tailored to the individual, benefit managers are developing ways to tie medical co-pays to the clinical circumstances of patients.

    Researchers at the University of Michigan are studying whether employers that structure co-pays based on the medical needs of employees, rather than on the cost of a drug, increase the appropriate use of prescriptions that may, in the long run, keep people healthy.

    A. Mark Fendrick, co-director of the School of Public Health’s Center for Value-Based Insurance Design, believes that so-called value-based insurance design could address two scourges of the health care system: overuse and underuse of prescription drugs. The goal, Fendrick says, is to get more value out of a company’s health care dollars by making sure people get the drugs they need. Meanwhile those for whom a drug is of minimal medical benefit would pay higher co-pays to get it.

    “The reason we provide health benefits is not to have zero net costs,” Fendrick says. “If you want to save money, don’t cover people.”

    Fendrick, who is also a professor of internal medicine in the School of Public Health, advocates instead what he calls “fiscally responsible, clinically sensitive” benefits design.

    Most employers use a one-size-fits-all benefit design that focuses exclusively on reducing costs, such as prescription drug costs, by increasing employee co-pays.

    But, as Fendrick says, “As co-pays go up, utilization goes down.”

    Fendrick calls this the low-lying fruit of benefit design because increased co-pays are usually one-time savings that do little to slow the long-term upward march of drug costs.

    While raising co-pays can reduce the inappropriate use of drugs, it can also cause people to stop taking prescriptions that are needed to prevent a more expensive illness. Benefits should be “clinically sensitive” to the medical needs of patients.

    For example, in a value-based health insurance design, co-pays for beta blockers would vary depending on what the drug was used to treat. The cost of the drug would be reduced for people with high blood pressure who have suffered heart attacks. Co-pays would be higher for people using it as an anti-anxiety medicine, a condition for which the drug is approved. Preventing heart attacks from recurring, in essence saving someone’s life, is of greater value, both in medical and economic terms, than using a beta blocker to treat anxiety. Its use, therefore, should be encouraged by lowering co-pays.

    “These are not across-the-board co-pays,” Fendrick says. “These are co-pays based on value.”

    Some employers have for several years used a value-based co-pay design for medicines that treat certain chronic conditions. In 1997, the City of Asheville, North Carolina, began offering employees with chronic illness free medicine if they adhere to a pharmacist-run disease management program. In 2002, Pitney Bowes, in Stamford, Connecticut, reduced the co-pays for drugs that treat asthma, diabetes and hypertension.

    After collecting three years’ worth of data on how the co-pay designs lower costs and increase utilization, Pitney Bowes decided this year to give free diabetes drugs and statins—the chemical agents that lower cholesterol levels in people with cardiovascular disease—to employees who have been to the emergency room for a heart problem.

    Drugs that cost employees about $2 for a 30-day refill now include anti-seizure medications, all drugs to treat osteoporosis and secondary breast cancer, and prenatal vitamins, says Jack Mahoney, corporate medical director at Pitney Bowes.

    “I know we are doing well and people are talking, ‘Do you know you can get your statins for free?’ So people understand it,” Mahoney says.

    In January, Fendrick, Allison B. Rosen, an assistant professor at the University of Michigan’s division of general medicine, and Michael E. Chernew, a professor of health care policy at Harvard University, outlined their case for value-based insurance design in an online article in the journal Health Affairs.

    The authors added however that some employers might be hesitant to adopt value-based insurance design for a number of reasons. Drug costs may spike as a result of increased utilization; an initial investment would be needed to implement the new benefit design; and there was also concern that employees who were not eligible for reductions in co-pays would feel slighted.

    “We were concerned about employees with others diseases saying, ‘What about me?’ ” Rosen says. “But we haven’t heard that at all.”

    Both Pitney Bowes and the city of Asheville say they have demonstrated cost savings and improved health outcomes of their employees. Fendrick and his co-authors plan to publish later this year an analysis of the impact of value-based insurance design on utilization rates and health care costs.

    Another employer, Marriott, has worked with ActiveHealth Management, a health data company that is a subsidiary of Aetna, to design its own value-based benefit design. ActiveHealth analyzed patient claims data in order to selectively reduce co-pays on certain drugs for certain patients who had chronic conditions, says ActiveHealth CEO Lonny Reisman.

    Jill Berger, vice president for Marriott’s health and welfare plan, says out-of-pocket costs for eligible employees went down 27 percent on targeted brand-name drugs and 65 percent on eligible generic drugs.

    “Adherence increased, which is exactly what we wanted to see,” Berger says.

    Marriott expects its drug costs to go up, but the company is hoping that hospitalization costs will plummet.

    Berger says one of the challenges in implementing the new benefit design was getting the health plans to overcome the “administrative challenges” around selectively reducing co-pays.

    Nonetheless, Marriott, believing that by doing the right thing it will save money in the long run, is moving ahead with a plan to reduce co-pays for visits to doctors who treat an employee’s chronic illnesses.