Drug plans represent 59% of the cost of extended health plans, according to Christine Than, assistant vice president and pharmacy lead at Aon in Montréal, Québec. For plans offering extended health coverage, the cost trend for 2025 is projected to increase between 6% and 9%, which will require plans to consider strategies to keep costs down.
In a recent International Foundation webcast, “Optimizing Drug Plan Management: An Update on Cost-Containment Strategies,” Than focused on what drug plan coverage includes as well as specialty drugs and prescriber habits.
What is drug plan coverage?
Drug plan coverage typically includes several types of drugs, including:
- Drugs requiring a prescription
- Life-sustaining over-the-counter (OTC) drugs (e.g., insulin)
- Select compound drugs (e.g., special creams and mixes).
Drug plan coverage excludes:
- Cosmetic drugs
- Experimental drugs (i.e., not approved by Health Canada)
- Natural and homeopathic remedies
- Alopecia drugs
- Hospital drugs (These should be covered by the hospital budget and not by a private drug plan).
Than also discussed other types of drugs, noting both their variability in coverage across plans as well as their prevalence (where available, according to TELUS Health Retrospective 2022 and additional sources):
- Preventive vaccines (covered by about 20% of plans)
- Weight-management drugs (about 45% of plan participants have some kind of coverage)
- Fertility drugs
- Oral erectile dysfunction drugs (about 5% of plan participants have coverage).
Controlling specialty drug costs
About 35% of plan costs are for specialty drugs with 1.9% of claimants using them, according to Than. To try to reduce the cost spend for these drugs, plans can implement several strategies, including:
- Drug Monitoring Programs
A drug monitoring program controls the introduction of new drugs or new indications (i.e., a new medical condition for which the drug is approved for use, after it has already been approved for other uses) for existing drugs that may significantly impact drug plans. The new drug is only added to plan coverage after pharmacoeconomic analyses (cost versus effectiveness analysis) and/or utilizing a product listing agreement to negotiate better prices with the manufacturer.
- Prior Authorization
For certain medications, referred to as prior authorization drugs, prescribers are required to complete a form confirming that the claimant meets predefined eligibility criteria. The insurer will then approve or deny coverage. Prior authorization programs include up to 1,000 drugs and vary by insurer. Than provided TELUS Health with data indicating that at least 85% of plan participants are subject to prior authorization programs.
- Biosimilar Transition Policy
Biologic drugs are very complex molecules; when they lose their exclusivity patents, they become reference drugs, not brand-name drugs. Biosimilars copy reference drugs and have the same uses as well as similar side effects and effectiveness. Because they are not identical, pharmacists and patients cannot decide on their own which one to take; a doctor must decide when the patient can switch to the biosimilar.
When patients on certain drugs are asked to switch over to the biosimilar equivalent, it can be 40-50% cheaper. Insurers have different approaches for transitioning to biosimilar drugs.
- Biosimilar First. The insurer will do whatever the province does and may force patients to switch to the biosimilar.
- Hybrid. Out of 20 drugs with biosimilars, a percentage will force patients to switch to biosimilars. Most carriers have this type of policy.
- Prescribers’ Choice. Product listing agreements that are linked to some originator biologics (the “brand” version of the biologic drug) offer incomplete discounts due to non-reimbursed mark-ups. Right now, only two to three insurers use this approach.
- Policy varies by insurer. Some insurers may allow plan sponsors to opt out.
- Plan maximums
Plan maximums involve capping a plan either annually or through a lifetime maximum. Twenty-two percent of plan participants have an annual drug maximum. Plans may choose to have a maximum for:
- The entire extended health care plan,
- Drug benefits only, or
- “Noncore” drug therapies or select drug classes (e.g., fertility, weight management).
When implementing a plan maximum approach, Than said the most important step is to communicate with participants so they know their cap and can plan for costs.
Prescriber habits
Prescriber habits allow plans to have better control against a prescriber’s costs of medication. Three types of prescriber habits are as follows.
- Step therapy
The step therapy approach (also known as automatic prior authorization) is used when new drug claims come through.
Drug claims will be at the point of sale only if the claimant has previously used a first-line drug (usually a less expensive drug). This control ensures that the claimant has tried the first-line therapies before using the more expensive medication, and the prescriber has followed widely accepted clinical guidelines (e.g., other medications should be tried for diabetes before GLP-1s.)
- Reference-based pricing
Than described reference-based pricing as a generic substitution with a wider net. There is a set maximum (the reference price) for a specific drug class. The reference price is based on a benchmark or the most cost-effective drug in a therapeutic class.
- Managed formularies
In managed formularies, restricted drug lists limit drug coverage to the most cost-effective drugs.
Examples include the following.
- Provincial formulary mimics. (e.g., Régie de l’assurance maladie du Québec, Ontario Drug Benefit Program, which only covers a certain number of drugs (typically 5,000-9000 drugs))
- In-house carrier/PBM drug formularies. In-house formularies cover a certain number of drugs (typically 9,000-12,000 drugs).
- Independent/external drug formularies. The plan may have its own custom, three-tiered formulary. This is similar to a concierge type of service.
Though the savings generated can be significant, less than 10% of plans currently use a managed formulary, according to SunLife. Than suspects this is because benefits may be taken away from plan members depending on the drug list a plan sponsor chooses. However, she thinks the number of plans using managed formularies may grow as specialty and rare drug use increases in order to ensure the plan pays appropriately.
Next steps for employers
Than encourages employers to implement the following steps:
- Optimize the drug plan design
- Apply provincial integration
- Ensure plan design meets the overall total rewards philosophy
- Make sure coverage is consistent across provinces
- Communicate with plan participants
- Follow industry trends and developments.
To learn more about approaches that can be used to manage prescription drug costs, including combating pharmacy prices, chronic disease management and integration with public plans, view the entire webcast recording, “Optimizing Drug Plan Management: An Update on Cost-Containment Strategies.”
Developed by International Foundation Information Center staff. This does not constitute legal advice. Please consult your plan professionals for legal advice.
