Drug plans in a new light

Industry stakeholders share their expert advice on the sustainability of drug plans at a time when new drugs promise unprecedented health outcomes—at unprecedented prices

Drug plans have come to acquire a dual nature. On the one hand, and since health benefit plans first arrived on the scene, they are the most utilized, and likely the most-valued employee health benefit. They provide coverage for drug costs that are generally predictable. On the other hand, and much more recently, they provide invaluable peace of mind for a relatively small number of people whose struggles with disease have led to the need for unexpectedly high-cost specialty drugs, which may otherwise be unaffordable for them.

How plan sponsors and their benefits providers choose to respond to this dual role will determine the long-term sustainability of their drug plans, assert insurance carriers and benefits advisors who recently gathered for an expert panel discussion on the future of drug plans, hosted by Benefits Canada and sponsored by TELUS Health.

Give and take for sustainability

Panel participants state that the road to sustainability will likely be bumpy and require a process of give and take, where the employer’s philosophy concerning the role of health benefits, and drug plans especially, must be weighed against the capacity of the organization to tolerate risk. Striking the right balance between philosophy and risk lays the foundation for drug plan management in a new era of breakthrough pharmaceuticals.

That may sound like too much theory to put into practice, but the panel’s senior-level participants stress that practical steps are already at hand. They also emphasize that time is increasingly of the essence, due to growing pressures from both sides of the drug-plan equation.

“Since late 2015 or early 2016, we’ve been seeing inflationary growth from the 99% of claims that aren’t for specialty drugs,” says Martin Chung, assistant vice president of strategic health management at Equitable Life. “We are reaching that tipping point, where we recognize the merits of giving serious consideration to multiple approaches to drug plan management that focus on both the ‘99%’ and the ‘1%.’”

“The number of conversations we’re having around sustainability has skyrocketed compared to just a year ago,” agrees Alan Kyte, senior pharmacy consultant at Willis Towers Watson. “This is a good thing, because at this point there is still enough time—not much time, but enough—to step back and be strategic about where we want to take drug plans.”

Why corporate philosophy must lead

For decades, the use of drug plans as a tool for employment attraction and retention has worked reasonably well. Increasingly competitive markets mean that employee health benefit plans have become part of the table stakes for hiring and for building loyalty. A potential downside to their positioning as part of compensation, however, is the fostering of a sense of entitlement among employees, who then equate value with frequency of use, and at minimal personal cost.

The attraction-and-retention philosophy also pushes the promotion of health more to the background. Annual drug plan maximums can be an extreme illustration of that: plan sponsors would rather risk the elimination of coverage for plan members who are ill and face catastrophic drug costs than risk new or higher deductibles or co-pays for all employees.

“If the philosophy for drug plans was more about keeping people healthy and off disability, drug plans would be going in the opposite direction of plan caps,” says Barbara Martinez, practice leader, benefits solutions, at Great-West Life. “There would be an annual deductible or premiums that would amount to much more than any form of cost-sharing we’re seeing today. Employees would understand that a key reason the drug plan is there is to protect those who are faced with sudden, catastrophic costs, just like other forms of insurance.”

The arrival of high-cost specialty drugs has thrust the drug plan’s role as insurance to the forefront. This role not only puts considerable strain on current plan designs, but it also does not sit well with an entitlement mentality.

The members of the expert panel stress, however, that the two philosophies are not necessarily mutually exclusive. “The benefit plan is a mix of compensation and insurance. Perhaps we’ve been thinking too much about it as compensation. The goal is to find solutions that balance the two perspectives,” says Nathalie Laporte, vice president of product development, marketing and strategy, at Desjardins Insurance.

Having said that, they also warn it likely won’t be easy. “This will be a tough balance at first. There are good reasons why employers see the benefit plan as an opportunity to attract and retain talent, and employees’ sense of entitlement runs pretty deep. We need to layer in a conversation about insurance and sustainability. At this point for plan members, their focus when looking at their benefit plan is not on their employer’s need to manage costs and what role they can play in assisting with that to ensure sustainability,” observes Karen Voin, assistant vice president, group benefits and anti-fraud, at Canadian Life and Health Insurance Association (CLHIA).

Plan sponsors can begin to change perceptions by thinking more broadly. “We’re talking about philosophy in the limited context of benefit plans. Let’s open that up and consider the workplace culture,” suggests Lisa Callaghan, vice president of strategy, marketing and communications at Manulife. “Do employees feel any sense of accountability to the sustainability of the business? Do they feel like they contribute to its success, and if it’s struggling, do they feel they’re part of turning that around? When there is an overall culture of accountability, that influences how employees think about their benefit plan. They are aware of its impact on employer costs.”

Risk management will increasingly be brought to bear on drug plans. “At their core, benefit plans are a risk-management tool, for the employer and the individual,” says Brian Lindenberg, senior partner at Mercer. “We need to acknowledge that the risks we are bearing in drug plans today are dramatically different than when plans were designed 20 years ago. And risks will probably change dramatically again in the next five years. This will lead to different conversations about how to design plans. Better conversations.”

The conversation starts with determining an organization’s tolerance for risk across all benefits, not just drug plans. “We need to start by breaking down silos, by considering all the money that’s currently put into the drug plan, disability plans, wellness and so on,” says Laporte. “If more plan members get access to higher-cost specialty drugs, will that reduce disability claims?”