Self-funded benefits plans have become a popular option among employers desiring to cut costs and design coverage provided to employees. As the cost of Rx spending has been increasing at a far greater rate than the basic medical trend, more employers are concerned about the significant expense of specialty drugs.
Hence, while self-funding has the potential to provide cost savings, employers must carefully consider aspects such as the contractual language of stop loss coverage, the potential for lasers and other coverage land mines, which all affect an employer’s financial liability. Now employers will be looking to medication advancements, such as biosimilar medications, as potential cost-savings outlets.
To review, in a self-funded prescription benefits arrangement, an employer assumes the responsibility associated with covering the costs of prescriptions for all employees after employee copays or co-insurance. For this reason, stop loss coverage is often purchased to shield against any excessive expense liabilities, which can occur with Tier 4 specialty medications. Some of these medications – for diseases such as cancer, rheumatoid arthritis, multiple sclerosis and liver disease – cost six figures or more per year. Stop loss coverage isn’t an impermeable shield, and certain exceptions could still leave an employer with a major expense.
One such exception to stop loss coverage is “lasers,” which identifies high-risk employees (e.g., those with diseases and illnesses that require expensive medications and create a higher deductible specific to those individual employees). Employers will accept a laser to keep stop loss coverage costs lower for the entire plan. However, these higher prescription costs are then placed back in the employer’s responsibility, which cannot be directly passed on to the high-risk employees.
Another factor to consider is the employer cash flow if prescription claims border a claim year. Depending on the terms of a claims contract, there could be a lag in submitting and paying claims near the end of a claim year, which increases an employer’s liability risk, especially if drugs cost $10,000 or more per month as with many biologic medications.
Biosimilar medications are providing benefits managers and consumers some hope of reduced costs in the near future. Biosimilars are drugs that are similar to but not exactly the same as their originator biologic medications. They are and have been the subject of a rigorous FDA approval process in recent years. Concerns about biosimilars include toxicity and overall efficacy, though they have been used in Europe for nearly a decade.
In the U.S., biosimilars have been released for Enbrel, Humira, Neupogen and Remicade. In the next 24 months, 156 more biosimilars are expected to be released and are estimated to provide cost savings of approximately 30 percent. Biosimilars used in combination with step therapy should provide additional opportunities for greater cost savings to plan sponsors. One might also assume stop loss premiums will decrease or not increase as much given a reduction in some medication costs.
It can be logically argued that costs are costs and insurers and reinsurers will price medications accordingly as more biosimilars are approved. As employers look ahead, it is important for HR and benefits professionals to review all contract language and reinsurance protection to hedge against surprise excessive costs. A thorough review of stop loss attachment points, contractual language and PBM arrangements can make all the difference in the risk an employer assumes in a self-funded plan.