Specialty Drug Benefit Design and Patient Out-of-Pocket Costs in the ACA Marketplaces

Erin Taylor, Dan Han, Andrew Mulcahy, and Christine Eibner

June 2015

A10793-ET-2

Expensive “specialty” drugs are becoming more prevalent

• Generally biologic products for chronic conditions, prescribed by specialists

• Usually very effective treatments

• Often very expensive, due to:– Few substitutes

– Costly to produce

• Annual treatment costs can exceed $40,000– 30-day supply of adalimumab = $2,905

(Part D average)

– Sovaldi course of treatment = $72,000

• Pose financial burden for both patients and payers (government and insurers)

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To address costs, insurers are altering the traditional cost sharing structure

Generic

Copay*=$12

Copay*=$45

Copay*=$75

Traditional 3-tier formulary with modest, fixed copays

Insurers negotiate discounts with manufacturers for preferred placement lower premiums

* Average copayments for Silver plans in Marketplace

Non-preferred brand

Preferred brand

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To address costs, insurers are altering the traditional cost sharing structure

Generic Preferred brand Non-preferred brand

Copay*=$12

Copay*=$45

Copay*=$75

Increasing use of higher cost sharing tiers

Complex cost sharing arrangemen

ts

Specialty

* Average copayments for Silver plans in Marketplace

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Specialty tiers raise questions about tiered formularies

• Specialty drug users have always faced high costs

• Affordable Care Act (ACA) increased access to insurance– Did it go far enough for

specialty drugs?

• Costs may deter utilization (moral hazard)– Out-of-pocket maximum limits

may temper effects of high cost sharing

• Costs may also deter enrollment (adverse selection)

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Focus of this Study

• Comparing coverage of specialty drugs in 37 Marketplaces

• Simulate patient out-of-pocket costs for specialty drugs– Focus on drugs used to treat rheumatoid arthritis, HIV, organ

transplants, and multiple sclerosis– Compare costs in ACA Marketplace plans to costs incurred by Medicare

Part D patients taking same drugs

• Data sources– Publicly available benefit design data, MEPS prescription drug utilization– Assumptions related to medical benefits utilization

• Part D is a reasonable comparator because:– Both offered by private insurers that are subject to regulation– Coverage under Part D is also subject to catastrophic spending limits

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Marketplace plan design is extremely complicated

Bronze60%

Silver70%

Gold80%

Platinum90%

Different metal tiers cover different levels of average medical spending

Insurers make tradeoffs to achieve these coverage levels

Higher premiums Lower deductibles

Lower cost sharing

Higher deductibles Lower cost sharing

Higher cost sharingfor some benefits

Lower cost sharingfor other benefits

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While plans cover a certain percent of average medical spending . . .

Specialty drug users likely spend more than the

average

This can make selecting a plan more

complicated

BenefitsCosts

Out-of-pocketSpecialty drugs

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Specialty drug coverage design is part of a complex puzzle

Then co-payment

Deductible

Deduct-ible

Then nocharge

Deduc-tible

Thencoinsu-rance

Only copayor

coinsurance

Nodeductibl

e

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Plans can also combine a drug deductible with a medical deductible

Drugdeductible

Medicaldeductible

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Higher proportion of Gold and Platinum plans offer $0 drug deductible

Bronze Silver Gold Platinum0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

4.3%

28.7%

44.6%

78.2%

Metal Tier

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On average, more generous plans offer lower deductibles and out-of-pocket

maximums

Bronze Silver Gold Platinum$0

$1,000$2,000$3,000$4,000$5,000$6,000$7,000

Average Deductible

Drug-Only DeductibleIncluded in Medical

Metal Tier Bronze Silver Gold Platinum$0

$1,000$2,000$3,000$4,000$5,000$6,000$7,000

Average Out-of-Pocket Max-imum

Drug-Only OOP Max Included in Medical

Metal Tier

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Bronze Silver Gold Platinum0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%60.3%

49.5%44.3%

15.4%

Deductible, then CoinsuranceDeductible, then No ChargeCopayment OnlyCoinsurance Only

Plans offering more generous benefits less likely to charge deductible plus coinsurance for

specialty drugsPercentage of plans offeringthe cost sharing structure

Metal Tier

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While ACA established broad Marketplace plan requirements, states may set specialty drug

coverage requirementsSome states have enacted legislation limiting the cost sharing for specialty drugs, for example:

New York: cost sharing no greater than non-preferred brand tierDelaware: cost sharing no greater than $150 per month or $3500 per yearLegislation may be more common in states operating their own Marketplaces (for which we do not have data)

Some states trying to impose one of two types of requirements:• Limits on per-month cost sharing• Annual caps on spending (out-of-

pocket maximums)

Source: Brooker, 2013

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Some states have enacted legislation limiting the cost sharing for specialty drugs, for example:

New York: cost sharing no greater than non-preferred brand tierDelaware: cost sharing no greater than $150 per month or $3500 per yearLegislation may be more common in states operating their own Marketplaces (for which we do not have data)

ME

Maine: Specialty drug cost sharing no greater than $3500

per year

While ACA established broad Marketplace plan requirements, states may set specialty drug

coverage requirements

Source: Brooker, 2013

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Some states have enacted legislation limiting the cost sharing for specialty drugs, for example:

New York: cost sharing no greater than non-preferred brand tierDelaware: cost sharing no greater than $150 per month or $3500 per yearLegislation may be more common in states operating their own Marketplaces (for which we do not have data)

New York: Specialty drug cost sharing no greater than non-

preferred brand tier

While ACA established broad Marketplace plan requirements, states may set specialty drug

coverage requirements

Source: Brooker, 2013

NY

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Variation across states is more likely due to the way ACA is structured than to state-specific

characteristicsSome states have enacted legislation limiting the cost sharing for specialty drugs, for example:

New York: cost sharing no greater than non-preferred brand tierDelaware: cost sharing no greater than $150 per month or $3500 per yearLegislation may be more common in states operating their own Marketplaces (for which we do not have data)

Our analysis indicates that:• In 28 of 37 states, most common specialty drug

design is deductible, then coinsurance

• 5 of 37 states: only coinsurance (2) or copayments (3), no deductible

• Other states offer a mix of coverage types

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We found some variation in benefit design across states

Some states have enacted legislation limiting the cost sharing for specialty drugs, for example:

New York: cost sharing no greater than non-preferred brand tierDelaware: cost sharing no greater than $150 per month or $3500 per yearLegislation may be more common in states operating their own Marketplaces (for which we do not have data)

Average cost sharing varies for Silver tier plans:

• Deductible, then coinsurance: 10% to 50%

• Deductible, then copayments: $45 to $276

• Only coinsurance: 25% to 50%

• Only copayments: $75 to $300

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On average, more generous plans have lower OOP costs

Medicare OOP cost comparisons vary by drug

Medicare Bronze Silver Gold Platinum$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$0

90th percentile

10th percentile

Mean

Adalimumab (rheumatoid arthritis)

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On average, more generous plans have lower OOP costs

Medicare OOP cost comparisons vary by drug

Medicare Bronze Silver Gold Platinum$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$0

90th percentile

10th percentile

Mean

Interferon beta-1a (multiple sclerosis)

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Silver plan enrollees face variation in expected out-of-pocket costs both within and

across statesO

K FL TX MT

AL

MS

SD TN IL AR

NM LA UT

GA KS NJ

SC

OH PA DE

NH WI

IN OR

MO

AZ

ME

VA

AK

WV

NE

NC

WY

ND MI

IA NV

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000 $7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$0

90th percentile

10th percentile

Interferon beta-1a (multiple sclerosis)

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Silver plan enrollees face variation in expected out-of-pocket costs both within and

across statesO

K FL TX MT

AL

LA MS

WV

SD TN GA

NM SC

OH IL NJ

UT

DE

PA WI

MO IN NH

NV

AR

WY

OR KS MI

AZ

ME

NC

AK

VA

NE

ND IA

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$0

90th percentile

10th percentile

Mycophenolic acid (organ transplant)

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Policy lessons

• Limits on specialty drug cost sharing– To maintain coverage level, must trade off other benefits

• Benefit harmonization – Results in fewer plan parameters

– Can make it easier for consumers to shop and compare plans

• Require plan standardization– Easy comparisons across plans

– Drawbacks:

• Restricts ability to innovate

• May result in worse coverage for people with certain conditions

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Why we need to get this right

• Specialty drugs pose an increasing burden on payer budgets, possibly resulting in limited access

• Use of specialty tiers shifts costs to patients, raises concerns about:– Affordability of essential / high-value medicines

– Adverse selection

• Our research explores cost sharing effects on patients and payers

• More research needed to inform potential solutions, for example:– Effects of other payment mechanisms (value-based purchasing,

bundled payment)

– Impacts of biosimilars