Looking Forward

Medical Benefit: A Forward Look

Alternative in Employer-Based Health Insurance
For the first time since 2004, the number of employer groups contracting with HMOs declined in 2008, to 815,458 from 838,930 in 2007. Moreover, enrollment in PPOs, an increasingly popular choice among employers, also fell between 2007 and 2008. Some of this decrease is undoubtedly due to the state of the economy, as companies close or cut benefits to workers in order to boost the bottom line. But even in prosperous times the relationship between employers and group health plans is often an uneasy one. With health reform on the horizon, employer groups are increasingly scrutinizing their options when it comes to offering health benefits for their employees.

Alternative Approaches
For several years, employers have been subjected to premium rate increases that have outpaced inflation. However, new payer and delivery models have emerged that may help curb costs without placing an additional burden on workers.


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Smaller Employers Have Narrower Options


Employers and Health-Care Reform
As of this writing, national health care reform is still very much a work in progress. The three reform proposals currently being debated in Congress keep the employer-based health benefit system largely intact, but impose mandates on employers to offer coverage and enforces fines to employers who do not comply. Below is a brief summary of key provisions affecting employer-based health benefits in the major health reform proposals:


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Pharmacy Benefit: A Forward Look

According to a report released by the Centers for Medicare and Medicaid Services (CMS) in early 2009, national spending on prescription drugs grew by more than 30% between 2003 and 2007, to $227.5 billion from $174.2 billion. Over the next 10 years, prescription drug expenditures are projected to grow at an average annual rate of 6.5% to 7.0%, and will reach $453.7 billion in 2018

A number of factors drive growth in the rate of drug spending, including pricing, utilization and product availability. Between 2010 and 2018, these drivers will be especially volatile, yet ultimately lead expenditures to double in just 10 years.

Near-Term Trends
In the period from 2008 to 2011, CMS projects that prescription drug spending growth will be relatively flat, averaging about 4% per year. Much of this will be due to downward pressure on utilization rates exerted by the recession and rising unemployment. When workers lose their health insurance, they tend to switch to lower-cost generic products, or forego filling prescriptions altogether. However, this trend will be offset somewhat by rising utilization within the Medicaid population, which is expected to increase rapidly as unemployment remains high.

As for the drug marketplace itself, the period from 2009 to 2012 will see a number of best-selling brand name drugs lose patent protection and face competition from lower cost generic alternatives.

As more of these generic products enter the market, drug spending tends to decrease, even if utilization increases. As an example, when a generic version of a popular osteoporosis drug was introduced in 2008, total retail spending for that therapeutic class fell by more than 23%, while retail drug utilization fell by just 5%.

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Long-Term Trends
The pace of drug spending will begin to accelerate by more than 6% per year after 2011, and is projected to reach an 8.6% annual growth rate by 2018. During this period, a number of new drugs will enter the marketplace, and fewer are scheduled to lose patent protection. Many of the products expected to gain FDA approval during this period include specialty therapies, which are typically very costly for both consumers and payers alike. These new high-cost products will exert upward pressure on overall drug spending rates.

Utilization rates will also face upward pressure as the population ages. In the period between 2010 and 2025, the U.S. Census Bureau projects that the share of Americans older than 65 will grow by more than 60%, and will be the only age group to represent a larger share of the overall population. Drug utilization among this age group tends to be much higher than overall rates, and Medicare Part D ensures they have access to prescription drug insurance.

Health Reform
Although the final parameters of health reform have yet to be determined, many of the proposed measures are also likely to drive an increase in prescription use. Primarily, providing health and drug coverage millions of Americans who are currently uninsured will almost certainly lead to higher utilization rates, much as the implementation of Part D in 2006 led to greater utilization among the Medicare population. As for Part D, reform efforts aimed at closing the coverage gap, if enacted, will induce higher utilization among the Medicare population, although much of it will likely be for generic products. At the same time, efforts to change the way prices for Medicare Part D drugs are negotiated with pharmaceutical manufacturers may drive prices, and expenditures, down.

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