by Tom Norton
Not too many years ago, while employed by one of America’s leading Rx manufacturers, I remember stepping up to a retail drug store counter to pick up a prescription. As the pharmacist handed me my script, he said, “Wow. I don’t know what kind of health insurance you have, but I have never seen anything like this!” What surprised him was my corporate health insurance copay for prescriptions — which was $0 dollars.
At the time, I certainly enjoyed this healthcare perk, but I honestly didn’t think about it much. It was just part of my broader corporate healthcare benefit that I knew was pretty good. What I didn’t understand, however, was that my unfettered access to virtually any prescription drug was, in fact, part of a “gold plated, Cadillac care” health insurance program, a concept that is now very much a target of the new Obamacare health care reform law.
But why are privately provided $0 dollar Rx copays and other corporate health care “perks” now in the crosshairs of Obamacare?
In the fall of 2009, during the debate on Obamacare, Congress, arbitrarily determined that if you, as a corporate employee, have an healthcare insurance plan that costs your employer more than $10,200 a year; or $27,500 a year for a family – you, my friend, have a “gold plated, Cadillac care” health insurance plan! As a result, starting in 2018, should your “gold plated” level of insurance be maintained, you, or rather your employer, will be subjected to a 40% excise tax on the value of your insurance premium versus the established Obamacare thresholds.
The apparent Congressional thinking behind the “Gold Plated, Cadillac Care” tax is twofold:
- First, these “rich” plans are viewed by Obamacare proponents as encouraging higher healthcare utilization. Putting a cap on healthcare insurance premiums, it was thought, would halt the unnecessary use of healthcare services, such as unlimited Rx care access, and thus save money.
- Second, the framers of Obamacare also saw it as big revenue generator. It was estimated by CBO that this cap on insurance will result in paid tax revenues by those who continue to receive “gold plated, Cadillac care” of $149 billion over ten years, or 15% of the one trillion in savings the program is supposed to generate.
Interestingly, the Congressional Budget Office recently estimated that about 20% of American employees have “gold plated, Cadillac care” corporate insurance plans. That clearly suggests a lot of Americans are facing substantial changes in their healthcare insurance plans.
So, for the remainder of this review, I’d like to focus on the Rx benefit aspect of these “gold plated, Cadillac care” health insurance plans. How will this care look five years from now when the new tax kicks in?
Bye, Bye “Gold Plated” Rx Care
First, I can say with almost 100% certainty that by 2018 the day of the “$0 dollar copay” in Rx care will be gone forever in the US. I think it is fair to state that if only to manage corporate reputational and public relations concerns this type of Rx perk will be dumped by companies across the nation.
“Real World” Copays
Second, Rx care will certainly still be covered under corporate healthcare policies, but the obvious question is, at what level? During my later years of employment at another company things changed a lot in my Rx coverage. My copays were 20% for drugs, and there were certain higher priced products that either I had to pay a higher copay to obtain, or else could not obtain unless I paid for completely out-of-pocket. That’s already a strong trend today, and I would look for much more of these “real world” copays in the future.
International Models for Rx Price Control
Third, probably the easiest way to determine how former American “gold plated, Cadillac care” Rx programs will trend is to review how other national healthcare systems are currently managing their Rx benefits. What strategies are they currently employing to contain drug costs?
In Canada, contrary to what many in the US believe, access to quality Rx care is erratic. This is due to random policies the various provincial healthcare plans use to provide pharmacy services to Canadians. What is the solution to this Rx uncertainty for an estimated 55% of Canadians? They buy private, supplemental Rx care insurance. Otherwise Canadians are subjected to a patchwork of restrictive provincial formularies, extremely high copays (even for generics), as well as bureaucratic, prior authorization requirements.
In Germany, where 100% coverage of general healthcare is covered, drugs are subjected to a “negative check off.” Most OTCs, so called “life style drugs,” and surprisingly, oral contraceptives are not covered. All other prescription drugs are available through the tax paid, state “sickness funds.” However, those Rxs that are provided come under the German “reference pricing” system that establishes a baseline price for each product class, usually one generic. Once the reference price is set, the government will not pay more for any other products in a class. Patients, however, can obtain other Rx products in a class — but they must pay the difference out-of-pocket versus the reference price of the product class.
In the U.K., the National Institute for Health and Care Excellence, or NICE, is mandated to “produce social care guidance and quality standards to promote better integration of health and social care.” In layman’s terms, NICE determines what gets paid for in the British National Health System, and what doesn’t. In the area of prescription drugs, NICE’s tendencies have been to be very slow in approving new Rx therapies. Also, NICE has the habit of announcing retrospective “comparative effectiveness research” on currently available Rxs. The result is that occasionally, NICE will retroactively remove access to a currently available U.K. Rx products.
It was during one of these “look back” moments last year, that NICE roiled the international pharmaceutical world by withdrawing approval for Avastin and recommending that it not be used in the treatment of breast cancer. This retrospective decision was driven primarily by the large amount of money that the NHS was spending on Avastin breast cancer treatment. And NICE has done this in the past, too. For instance, in 2009, it refused to pay for several pain relief products.
In thinking about some of the ways that foreign healthcare programs control their spends and access to Rxs, how might this inform the prescription drug care that corporate “gold platers” will receive under Obamacare’s new baseline health insurance plans?
First, I’d say overall less is definitely going to be more. That is, just figure for every drug category, fewer drugs will be available at a “preferred pricing” rate. By reducing the dispensing and access to so called high cost Rxs, the administrators of Obamacare assert that more people will have the opportunity to obtain prescription drug care, albeit to a limited number of low cost, older products. But that, of course, is the theme of the entire Obamacare concept. Less is really more.
Secondly, the specifics — I suspect a lot of “gold platers” will meet their first all-generic formulary in the near future. This will be especially true if Obamacare’s Essential Health Benefit (EHB) Rx care definition of one drug per category holds up. Should this occur, I would say even the most robust health care insurance plan will drastically rethink its multi-drug per class offerings. This does not mean you won’t be able to get other drugs in a class. Likely it just means, as in today’s German “sickness funds,” former corporate “gold platers” will have to pay out-of-pocket to get them.
And what about this U.K. NICE idea of just saying no to new, innovative drugs; or to the concept of literally withdrawing therapies from coverage once there in the open market? I’d say plan on it. We can all argue about whether Obamacare’s Independent Payment Advisory Board, (IPAB) (Widely viewed as the “cousin” of NICE) will actually be put into action. However, there is no argument that healthcare insurers, ACOs, and many corporations are already actively reducing “gold plated” Rx formularies today. So, current corporate “gold platers” should anticipate that newly approved drugs will be harder to get, will be more expensive than other drugs in a class, and likely, tagged with a pre-approvals. In addition, don’t be surprised if NICE-like “comparative effectiveness” studies, driven primarily by cost considerations, occur and retrospectively remove existing drugs from your established formulary.
But maybe our Canadian neighbors are the best indicator of where I see former corporate “gold platers” ending up, soon. To return to the level of Rx care they previously enjoyed, likely they will have to purchase private, supplemental Rx health insurance to obtain the drugs that they had access to under their old corporate offerings.
Generally then, I’d say the provision of Rx care that current corporate “gold platers” are enjoying is about to experience some major changes. Viewed broadly, I’d say those amazing, “gold plated, Cadillac care” Rx programs, currently provided to an estimated 20% of American employees, are definitely about to become a thing of the past for American corporate health insurance programs.
Tom Norton is principal at NHD Smart Communications. He can be reached at firstname.lastname@example.org