The University Record, September 11, 2000

Prescription drug co-pays to increase, effective Jan. 1

Editor’s Note: In response to increasing prescription drug costs, the University is raising the co-pays for prescription drug benefits to $7 for generic drugs and $14 for brand-name drugs in most health plans, effective Jan. 1, 2001. This is the first of five articles from the Benefits Office to provide background on the reasons behind the co-pay increases and information to help faculty and staff make the most of their prescription drug benefits.

By Kate Kellogg
Human Resources/Affirmative Action

The University will increase prescription drug co-pay amounts for many of its employee health plans effective Jan. 1, 2001.

The current $5 co-pay for generic (non-brand-name) drugs will increase to $7, and the $10 co-pay for brand-name drugs will increase to $14. The increase applies to all HMOs, Point-of-Service plans and the Blue Cross Blue Shield (BCBS) Comprehensive Major Medical (CMM) plan. The change will not affect negotiated union benefits or the United of Omaha portion of the BCBS/United plan.

The escalating cost of prescription drugs—nationally as well as across University plans—is the reason for the increases. Year 2000 prescription drug costs for U-M employees are projected to total about $29 million, which is approximately 22 percent of the University’s total health care costs. In recent years, U-M’s prescription drug spending has increased annually by about the same rate as the nation’s, between 15 and 20 percent.

Some of the factors contributing to increased prescription drug expenditures will be discussed in later articles. Generally, they include increasingly aggressive diagnosis and prevention, availability of new drugs to treat previously untreatable conditions, pharmaceutical company marketing, and an aging population using more medication.

The Benefits Office projects the co-pay increases will save at least $1.7 million per year. That figure is based on annual prescription totals for all affected health plan members.

The University’s executive officers based the decision to increase co-pays on an extensive review of various cost-sharing options. The Benefits Office began the process by alerting the executive officers to the dramatic rise in prescription drug expenditures. The officers then asked the Benefits Office to provide data on drug costs and utilization throughout U-M health plans, and to develop models for co-pay increases.

The models included estimated savings under four proposed co-pay options, along with their advantages and disadvantages to the University and health plan members. The Benefits Office arrived at these proposals with the help of representatives from William Mercer Inc., a national consulting firm specializing in group health care benefits.

U-M health care vendors provided rates for the various co-pay models to show the impact each would have on the University’s health plan rates. The Benefits Office furnished the executive officers with this data and also shared information on each proposal with the Benefits Policy Advisory Committee. Made up of faculty and staff representatives from both academic and nonacademic units, that committee regularly offers input on benefits issues.

A random sample campus survey of faculty and staff perceptions and attitudes on prescription drugs was conducted in June 1999. The survey data supported a consistent preference of respondents to continue with flat co-payment cost-sharing for prescription drugs over co-insurance cost sharing.

The executive officers selected the $7/$14 co-pay option for offering the greatest savings to the University at the fairest cost to health plan participants. The Benefits Office estimated that this option will cost health plan members an average of $10 to $70 per year.

This model encourages generic drug use, is easy to understand and enables participants to know exactly how much they will pay out-of-pocket at pharmacies. The executive officers concluded that this model is the best fit for all faculty and staff groups within the institution.

A look at the University’s history of prescription drug coverage (see chart) shows moderate increases in cost sharing over the past decade.

A chart displaying the U-M prescription drug history is available from the benefits office at www.umich.edu/~benefits/new/0911002.htm.